Faster Broadband is Inevitable, How We Get it is Another Matter

Definitions always matter, and especially so when considering eligibility for government funds to support whatever business a firm happens to operate. Lots of people disagree that the U.S. federal government definition of “broadband” should remain at 25 Mbps/3 Mbps. And, over time, the definition will be changed. The only question is when, and to what minimum level. 

So some advocate a minimum broadband  definition of 100 Mbps/100 Mbps. Support for that definition includes some in the U.S. Senate. As always, there are trade offs and business implications. 

Capital investment requirements; efficient use of scarce capital; user behavior; willingness to pay; current and anticipated usage profiles all are important. Cable networks have an advantage in basically having upgraded virtually all U.S. plant to gigabit speeds downstream. Upstream improvements are much more difficult, costly and time-consuming.

How the upgrades can happen within the feasible limits of today’s business models, for all would-be suppliers, is key. Government subsidies are important at the margin, but most of the upgrade activity has to be undertaken by private suppliers.

And that means there must be a clear understanding of how the upgrades fit the business models. In that respect, the upstream definition will be more challenging than the downstream definition. 

Up to this point, the key element in the broadband definition has been downstream speed, as that remains arguably the most-important single numerical indicator of “quality.” But all observers agree that upstream speeds now are more important. And that is the rub. 

Telcos and independent internet service providers can rip out copper and replace it with optical fiber access at a faster pace, to be sure. But the business model is challenging. Were it not so, they’d already have done so. 

5G, fixed wireless and satellite networks also would be challenged to supply 100 Mbps upstream, though there is a path to incremental downstream upgrades that do not break the business model. 

For the majority of U.S. households and locations served by cable TV networks, the 100/100 standard would be troublesome only in the upstream direction, but still would require reworking of most of the physical plant. 

For telcos the challenge would be far greater, requiring a replacement of copper access facilities. For every fixed network operator save Verizon, the 100/100 definition would require ripping out and replacing a majority of physical plant.

Rural areas of low housing density would be especially troublesome. 

Though cable operators might have a more-graceful upgrade path, telcos generally must rip out the existing legacy network and replace it with entirely-new infrastructure to meet the 100 Mbps minimum upstream standard. 

Estimates vary, but a huge telco capital investment would be required to meet a 100/100 minimum. Customer demand is an issue, but less an issue over time, as most consumers now buy faster services than they used to, and often pay more money than they used to, for broadband service. 

The 100 Mbps downstream goal is more realistic. About 49 percent of U.S. residents buy fixed network service operating between 100 Mbps and 200 Mbps. 

Nearly 32 percent buy services running faster than 200 Mbps. 

But a significant percentage choose to buy services operating at lower speeds. Some 20 percent of all customers purchase services running no faster than 75 Mbps, according to Openvault data.  

We can argue that 80 percent of the market already buys service at speeds as high, or higher than, the proposed 100 Mbps minimum definition. But 20 percent of the market does not do so, possibly because they cannot buy anything else, but many also might choose not to buy service at 100 Mbps. 

source: Openvault

Setting a higher minimum definition will happen. But it matters what the definition entails. Virtually no platforms could meet the 100 Mbps upstream definition quickly. FTTH networks could do so, but only at a cost that stresses the current business model. 

And that matters. If 54 million U.S. homes are served by fiber to premises networks, and there are about 138 million total U.S. homes, then fully 61 percent of telco passings would have to be replaced to meet the 100/100 standard. 

One might argue that fixed wireless, 5G or some other network could meet the 100 Mbps downstream speed. But none of the other networks are engineered to support 100 Mbps in the upstream path. 

More than anything else, it is the impossibility of practical mass market networks hitting the 100 Mbps upstream speed that is the key problem. 

B2B Sales Have Changed, More to Come?

According to Elmar Rode, Oracle Global Industry Solution Lead, up to 60 percent of Oracle leads come before the involvement of any sales personnel. In other words, potential customers are doing their research online, before contacting potential suppliers. 

According to Marc Halbfinger, CEO of PCCW Global, the firm gained 800 accounts within the last year completely without the involvement of any sales personnel at all. 

All that suggests something fundamental has happened in business-to-business sales operations. At the very least, we will see more automation, more use of artificial intelligence, more remote interactions. 

But what else will change?

Rode and Halbfinger are among the subject matter experts who will speak about such issues on a PTC webinar July 21, 2021, at 14:00 HST. The series is restricted to PTC members on that date, but the event will be viewable by everyone about 30 days after initial screening. You can view episodes here. 

Sales professionals will still be needed. But it is possible--indeed likely--they will need new skills, and adopt new roles. The panelists will discuss what they believe is coming. 

Why Network Slicing is Key for Enterprise 5G

In principle, and a new survey suggests in fact, network slicing that offers guaranteed quality of service, through the core network, in the access network and on the premises that enterprises desire as a platform for digital transformation.

Fully 75 percent of industrial executives polled by Capgemini  believe that 5G is going to be a key enabler for their digital transformation efforts in the next five years. In fact, 5G is ranked higher than artificial intelligence or advanced data analytics as a driver of digital transformation, behind only cloud computing. 

source: Capgemini 

On the other hand, the specific features enterprise users and customers might want might not be available for a few years. Network slicing is a feature in that category, as it promises guaranteed quality of service, to the device level. 

Multi-access edge computing is the other obvious capability, which would allow local processing that matches the ultra-low latency of the core and access networks. 

About 66 percent of respondents want to implement 5G within two years, but it might take three years for 5G suppliers to have all the network features in place. 

Also, perhaps 33 percent of respondents would consider private 5G networks of their own, and up to half of the largest enterprises, Capgemini notes. 

source: Capgemini 

Cloud Services Spending up in 1Q 2021 55% in China; 29% in U.S.

Cloud services spending keeps growing, as you would expect. But Microsoft’s installed base is inflated, when compared to other suppliers. 

China spending on cloud services grew 55 percent in the first quarter of 2021, says Canalys, increasing spending 2.1 billion (€1.77 billion) over first quarter of 2020 levels and up $200 million (€168.13 million) sequentially.

source: Canalys 

U.S. cloud services spending grew 29 percent in the first quarter 2021 to $18.6 billion, up $621 million sequentially. 

source: Canalys 

In the fourth quarter of 2020,  global cloud services spending grew $10 billion. 

source: Canalys 

Amazon Web Services holds the installed base lead, and likely is understated, compared to Microsoft Azure, which includes operating system and productivity suite plus server sales in the “cloud” category. Many would  not consider that “cloud computing as a service.”

Azure revenue includes sales of the Windows operating system, productivity suites, Xbox, Surface and advertising. Also, keep in  mind that Azure cloud computing also includes server sales, not just “cloud computing as a service” revenues. 

 

source: Canalys  

The “intelligent cloud” segment of Azure represents only about 35 percent of total Azure revenue. Another third of Azure revenue comes from productivity suite revenues. Also, 32 percent of Azure revenue comes from operating systems, productivity suites, Xbox, Surface and advertising. 

I personally do not consider those revenue sources a “like to like” comparison with AWS cloud computing as a service revenues. Actual Azure cloud computing revenue. might be as low as $4 billion a quarter. The point is that any analysis of cloud computing market share based on Azure revenue is incorrect. 

Azure cloud computing might be only a bit larger than Google Cloud, which generated about $3.4 billion quarterly revenues recently. 

Fixed Wireless Will be a Big Deal for Some Firms

Small amounts of market share can be a big deal for certain connectivity providers. Satellite providers globally tend to hold less than one percent market share of home broadband connections, for example. But that is 100 percent of their consumer access business, a growth driver and generated perhaps $4 billion in revenue in 2020. 

In other words, satellite broadband might be a niche, but a useful niche and the foundation for many company business plans. Fixed wireless has to be seen in that light as well, though it will likely emerge as a more-important platform in some markets. 

For a company such as T-Mobile, operating in the U.S. market, a gain of just two percent share of the existing U.S. home broadband market represents revenue upside of about $4 billion. To put matters another way, T-Mobile in the United States could use fixed wireless to grow a new line of business as big as the global satellite broadband industry. 

Fixed wireless is a subject that has importance “at the margin” for service providers. The service is provided by perhaps 70 percent of connectivity service providers, according to Ericsson, yet does not generate huge account numbers globally. 

The highest growth during2021 has been in regions with the lowest fixed broadband penetration: Middle East and Africa, Central and Eastern Europe, Asia-Pacific and Central and Latin America, says Ericsson.

source: Ericsson 

Those regions grew between four and 13 percentage points. Central and Eastern Europe had growth of almost 25 percentage points since the start of the pandemic in February 2020.

Service provider adoption of fixed wireless  offerings has increased by 12 percentage points in the first half of 2021 and more than doubled since the first measurements in December 2018.

source: Ericsson 

Still, total accounts in service are not so high by global standards. There were perhaps 1.7 billion fixed network broadband accounts in service in 2020. Only about 60 million to 65 million of those connections were supplied using fixed wireless, by Ericsson reckoning. 

So fixed wireless accounted for less than four percent of total fixed network broadband accounts. Ericsson does expect fixed wireless share of fixed network connections to reach about 10 percent by 2026. 

Still, that is a relatively small portion of total connections. The real importance might well come in some highly-competitive, large and saturated markets where home broadband is nearly a zero-sum game. In such markets, one supplier’s gain is balanced by another supplier’s loss. 

And in such markets, a small shift of market share represents significant incremental revenue. In the U.S. market, market share shifts as small as two percent represent $4 billion in annual revenue. 

New lines of business worth $1 billion annually are a reasonable test of feasibility for many larger tier-one service providers. Any new proposed line of business generating less than $1 billion in annual revenue is too small to bother with. So fixed wireless easily passes the test of value. 

“At the margin” is where fixed wireless will be hugely important. That will often be the case in large, saturated markets where shifting just a few points of market share represents significant revenue upside.

New NTIA Broadband Gap Map Available

The new broadband map produced by the U.S. Department of Commerce’s National Telecommunications and Information Administration (NTIA) released a new publicly available digital map that is intended to show areas where the minimum 25 Mbps downstream service defined as “broadband” is not available. 

The mashup uses five different data sources, including data from both public and private sources. It contains data aggregated at the county, census tract, and census block level from the U.S. Census Bureau, the Federal Communications Commission (FCC), M-Lab, Ookla and Microsoft. 

As always, assumptions matter. Microsoft, for example, once claimed about half of U.S. residents--163 million people--cannot get 25 Mbps service. In 2020, says Microsoft, 120 million cannot use the internet at 25 Mbps, or about 37 percent of all U.S. internet users . That is hard to believe. 

source: Microsoft 

The Microsoft data contrasts radically with Openvault data suggesting that, in the first quarter of 2021, less than 10 percent of U.S. internet users were accessing the internet at speeds less than 25 Mbps. 

Microsoft says its methodology uses “anonymized data that we collect as part of our ongoing work to improve the performance and security of our software and services,”

source: Openvault 

I do not know the details of Microsoft’s methodology, but a reasonable person could think of lots of reasons why a particular application does not appear to operate at access connection speeds. Use of Wi-Fi provides a good example. But there are contention issues within some homes; use of mobile connections; device issues and in-building interference issues that might explain the vast difference between Microsoft’s claims and Openvault’s data.

How Much Does "Typical" U.S. Home Broadband Actually Cost?

One subtlety when assessing the state of U.S. broadband access is evaluating the real prices people actually pay, compared to posted retail prices. In the U.S. market, for example, perhaps 60  percent of fixed network customers buy internet access as part of a bundle.

That, in turn, means it is not possible to know precisely how much the broadband component costs, as two or more services are offered for a single monthly price.

It might be easier to track actual prices for internet access if more customers buy stand-alone internet access. In the first quarter of 2021, the percentage of U.S. broadband households with stand-alone broadband service increased to 41 percent.

These consumers pay $64 per month on average for stand-alone broadband service, up from $39 per broadband household in 2011, a 64 percent growth rate over a decade. In part, that is because customers are buying service operating at faster rates. 

In the fourth quarter of 2011, the average U.S. fixed network speed was less than 5 Mbps, as hard as that might be to believe. 

source: Statista 

About 9.6 percent of U.S. home broadband accounts now buy service at 1 Gbps, says Openvault. That is important because, historically, successful consumer products hit an adoption inflection point at about 10 percent adoption rates. In the colloquial, what happens is that “you buy because your neighbor has it.”

source: Openvault 

More significantly, about half of customers buy service operating at rates from 100 Mbps to 200 Mbps. Roughly a third of U.S. home broadband accounts offer speeds above 200 Mbps. We can safely predict that average speeds will continue to increase. Since average speed increased by two orders of magnitude from 2011 to 2021, we can assume roughly the same increase by 2031.

That suggests the typical home broadband service will operate somewhere between 1 Gbps and 10 Gbps in a decade.