Streaming Does Save Many Viewers Money, Says Parks Associates

One of the arguments for video streaming services is that they potentially can save customers money. According to Parks Associates, typical “cord cutters” spend about $80 a month, as they buy four services, compared to linear video which might cost as much as $120 a month. 

And then there are some of us who buy three or four streaming services and still buy linear video. Why? Sports and news. I virtually never watch anything but those two types of content on linear. Eventually that will have to stop. It is hard to justify the value of the whole linear subscription for just those two functions. 

My “mission critical sports” can be viewed for free, over the air. And I only really watch one news channel. That’s pretty thin value. 

source: Parks Associates

Both Action and Inaction Can be "Big Blunders"

One often hears it said that “AT&T blundered badly” in buying DirecTV and Time Warner. Of course, one might also have said that AT&T bet poorly when it became the biggest cable TV operator in the U.S. market, or when it purchased NCR to enter the computing business. 

In almost the same breath, one hears that telcos are “not good at innovation.” That is arguably more correct. 

What such comments overlook is the mature revenue trend of the global communications industry and the toughness of increasing customer spend in the existing categories. 

It is all well and good to urge connectivity providers to “stick to their core business” instead of risking the distractions of new lines of business. But the numbers suggest that is a path to a “no growth” future for many suppliers. 

Though some product lines and regions still see revenue growth in the five percent range, there is flat revenue growth globally, and has been, for some time. Mobility and broadband have driven results over the last couple of decades. But what happens when those two markets saturate?

Some would note the important role the move into video entertainment has been, globally, for fixed network service providers. Yes, internet access and mobile service are the other big stories. But the move into entertainment services has become a hugely important part of the fixed network service provider revenue stream. 

source: Bureau of Labor Statistics 

So did AT&T blunder badly? The firm took on lots of debt, as telcos often do when expanding either geographically or to enter new lines of business. The linear subscription TV business did erode faster than expected. But those businesses generated more immediate free cash flow than AT&T could have generated by expanding its fiber to home footprint, for example. 

Even now, after the DirecTV and Warner Media properties have been spun off, AT&T continues to have a 70-percent stake in the profits and cash flows of both businesses. So AT&T has not actually “exited” those lines of business. 

On a broader level, the risk of entering new lines of business, at scale, will remain. The reason is simple: there are limits to how much any business or household is going to spend on connectivity services and products. 

In 2007, U.S. households spent about three percent of income on communications and information products and services, according to the Bureau of Labor Statistics. That includes devices, software and connectivity. A reasonable assumption is that communications accounts for 66 percent or so of that total, or perhaps two percent of information and communications spending by households.

That does not change much from year to year. U.S. household spending on all forms of communication, for example, is in the 1.5 percent to two percent range of total income. 

source: Visual Capitalist

 

In 2018, households in European Union countries generally spent more than did U.S. households on communications. Generally, spending per household was more than two percent. 

In 2020, U.S. households spent about half of one percent of income on internet access, and about one percent of income on other communications, according to the Federal Reserve Bank. 

Canadian households spent about three percent of income on communications services in 2019, according to the CRTC. 

source: EU

 

On most U.S. government surveys, communications and information spending is small enough that such expenditures always are found in the “other” category. 

The point is that to grow connectivity revenues, service providers must provide value that is beyond the present, if the share of household revenue devoted to communications is to grow. 

Some argue consumers might substitute communications for travel, for example. And though it might seem intuitive that household spending climbed in 2020 because of the pandemic, that might not be true. According to the Brookings Institution, household communications spending actually fell. 

source: Brookings 

That noted, there is some evidence that household communications spending in the Organization for Economic Cooperation and Development countries rose between 1995 and 2005, according to the International Telecommunications Union. 

Basically, to entice consumers to spend more on communications, they will have to increase value enough that consumers will reduce spending in other areas to increase communications spending. That could come from travel, entertainment or recreation categories, for example.

Next HFC Upgrade Will be Driven by Business Assumptions

Cable operators and mobile operators share one business commonality: capacity improvements hinge on the availability of spectrum and the degree of frequency reuse (smaller cells or serving area sizes). 

Both mobile and cable operators can effectively boost capacity by using different modulation techniques as well. But cable operators face a bigger problem, architecturally. “At some point” in the future a shift to fiber to home designs seems inevitable. 

But there are many ways to upgrade the hybrid fiber coax network before then, with varying degrees of capital investment and complexity, as well as capacity improvements. So each upgrade path embeds assumptions about what the market will require in terms of both upstream and downstream capacity , and for how long. 

DOCSIS 4.0 is going to force decisions about which path to take to support symmetrical multi-gigabit-per-second speeds of as much as 10Gbps downstream and up to 6 Gbps upstream.

source: Comscope 

Hybrid fiber coax networks still use frequency division, separating upstream and downstream traffic by frequency. So when a cable operator contemplates adopting mid-split or high-split designs, there are implications for active and passive network elements, especially for the more-radical high-split design. 

At this point, executives also will ask themselves whether, if radical changes are required, whether it would not be better to simply switch to fiber-to-home. 

source: Broadband Library 

Our notions of mid-split and high-split frequency plans have shifted a bit over the years, as total bandwidth has grown beyond 450 MHz up to 1.2 GHz. A designation of “mid-split”  made more sense in an era where total bandwidth was capped at about 450 MHz or 550 MHz. In those days, 108 MHz to 116 MHz of return bandwidth was perhaps 42 percent of the usable bandwidth. 

Hence the “mid-split” designation. 

Likewise for high-split designations, where as much as 186 MHz was designated for the return path, the return bandwidth represented as much as 67 percent of usable bandwidth on a 450-MHz coaxial cable system. 

source: Broadband Library  

Definitions remain, though with some new standardization of return bandwidths. “Mid-split” now features 85 MHz of return bandwidth, while “high-split” offers 204 MHz of upstream bandwidth. 

source: Broadband Library  

“Ultra-high-split” designs also are being investigated, where the upstream spectrum’s upper frequency limit can be 300 MHz, 396 MHz, 492 MHz, or 684 MHz, says Ron Hranac, consulting engineer. 

What remains true is that the ability to wring more performance out of hybrid fiber coax plant has proven more robust than many expected a decade ago. 

Also being considered are full duplex designs that swap time division for frequency division multiplexing. 

source: CableLabs  

Each technology upgrade path has business implications, especially the cost to upgrade HFC in some way without shifting to FTTH. The other assumption is the competitive environment and how long each alternative upgrade can support the expected business model.

Telcos Now Hope "Metaverse" can be a Platform

What are the odds connectivity providers can create sophisticated 3D gaming platforms including virtual and augmented reality features that provide immersive experiences? 

Now called a metaverse, such platforms provide a shared virtual 3D world, or worlds, that are interactive, immersive, and collaborative, says Nvidia. Others might note that such a potential platform also includes e-commerce and social media features. 

What are the odds that the same technology also can be the foundation for hologram-based and three-dimensional digital twin experiences for communications or learning?

Telcos want to find out. 

SK Telecom has launched “ifland”, a new metaverse platform.  SKT’s ifland is a communication-focused platform that supports audio communication and file sharing (pdf and mp4) with up to 130 participants. 

China Mobile and Verizon also have initiatives in the metaverse area. 

DoubleMe’s Holoverse, a proof of concept project, is supported by Telefónica, Deutsche Telekom, TIM, and MobiledgeX.

As with any effort to create a “platform,” success will happen not only because the technology works, but because many business partners find the platform useful. 

source: Bloomberg

As always, there are issues about which participants in which parts of the ecosystem end up driving most of the value. Will such telco or mobile metaverse platforms become commercial successes? 

Or will others, such as  Epic Games and other gaming content suppliers, emerge as the driving forces? It is possible Nvidia or other chip suppliers emerge as leaders, though less likely perhaps than Facebook and other hyperscale app giants emerging as the eventual platform winners. 

To be sure, these telcos will be hailed as major innovators if they succeed, criticized as once again wasting effort in areas where they have no natural advantages, if they fail. 

If the pattern with edge computing holds, success will come when telcos partner with platform suppliers, accepting some incremental role but without trying to create their own brands. Already there are too many other logical suppliers in the value chain staking a claim to becoming the platform of choice. 

You might liken the metaverse to an even more immersive experience than telepresence, itself defined as the experience of “being there.” It is a work in progress. 

"Will 5G Boost ARPU?" is the Wrong Question

Asking whether mobile operators can earn more from 5G than 4G, though a logical question, turns out to be the wrong question. The question logically gets asked for a few reasons, but still misses the point. 

The real question is whether mobile operators can grow revenues faster than they have been in recent years, raise the perceived value of their services, sell at higher profit margins, while investing in new service capabilities with capital investment no higher than it has been, on average, with lower unit costs and operating costs overall. 

5G, by itself, does not have to be the sole driver--and probably cannot be--for those desired business goals. 

The global evidence so far is a bit mixed. Some service providers do not charge a price premium for 5G, over 4G, as such. Any revenue differences would come from subscriber volume, higher usage overall or other details of service plans. Others may try to do so.

But history suggests the period of premium pricing will last only in the early days of 5G availability.

Still, Verizon in the U.S. market does seem to see revenue lift in recent days, though not directly because of 5G. Instead, Verizon is driving revenue growth by switching customers from lower-priced metered usage plans to higher-priced unlimited usage plans. 

“We are monetizing the move to unlimited” usage plans, said Ronan Dunne, Verizon Wireless president. There are several angles here. First, the unlimited plan, which offers 5G access as a feature, costs more than the metered plans. 

By the end of the second quarter of 2021, about 69 percent of Verizon’s mobile account base was on unlimited plans, according to Matt Ellis, Verizon CFO. Nearly 27 percent of the account base bought premium unlimited plans, Ellis noted. 

Also, some 60 percent of new accounts sign up for the unlimited usage plan, according to reports.  

But there are other ways to enhance yields. The unlimited plans provide incentives for accounts to add additional devices.  “In an unlimited world, what we see is the propensity of people to add an additional connection, whether that be a smart device, whether that be a tablet is significantly higher,” says Dunne. 

In other words, unlimited plans drive device connection growth. 

The point is that 5G--in and of itself--does not necessarily have to drive higher average revenue per user. In Verizon’s case, the revenue gains come from shifting customers to higher-priced unlimited usage plans. In T-Mobile’s case the revenue gains come from adding new accounts and taking market share, not from any 5G price premium. 

The point is that 5G era mobile revenue, profit margins or revenue growth might well be higher, for a variety of other reasons than the cost of 5G access. 

Parenthetically, we might note that core pricing strategies change over time in the connectivity industry.  

One of the key differences between mobile and fixed segment pricing practices is that the former is based on usage (consumption of network resources) while the latter has been differentiated on speed of the connection, aside from any flat-rate charges for “access” (the right to use) to the network. 

In other words, mobile users are charged more for using more data; fixed network users are charged differently based on the top potential speed of their internet connections. 

In the past, when the only network was fixed, and the only service was voice, charges were based on usage or distance or both. “Long distance calls” were rated based on how far the calls had to be transported, a concept that has no meaning in the internet era. 

These days, connections in the core network are priced based on bandwidth of the connection, not distance. 

In retail markets, a variety of other values can contribute to end user price: bundling of content; volume purchasing; multi-user plans; equipment fees and regulatory fees and taxes. 

The point is that average revenue per account might grow in the 5G era for any number of reasons not directly related to better 5G speed or latency performance. Verizon’s strategy shows one example of that.

Digitalization in the U.K.

“Digitalization” and “digital transformation” are terms often used interchangeably, which complicates our understanding of what “digital transformation” can mean--and does mean--for any particular industry or firm. For many, the terms “digitization,” “digitalization” and digital transformation” are interchangeable concepts. 

For some, DX is mostly about customer experience. For others it is about process transformation, new products, new revenue models or sales and marketing channels and practices. 

And different industries might have different priorities. Deloitte says a recent survey of Thai firms finds financial firms most interests in changing customer experience. Media, technology or telecom firms are more interested in new product development, while health-related firms are most interested in better business processes. 

source: Deloitte

For the U.K. Department for Business, Energy and Industrial Strategy, a digitalized energy system is primarily about collecting, protecting and understanding data, not a change of products sold, customers served or revenue models.

To be sure, DX can be a way of affecting and changing every business process. But some might argue “digitizing” is different from “digitalizing” which is, in turn, different from DX. 

Deloitte sees DX as different from “mere” use of additional technology. “Digitization” is the use of digital tools in place of analog. That might be seen as the substitution of digital technology for existing analog tools, but without a change of “what” gets done. 

 “Digitalization” is the change in any working process made possible by technology, and ideally allows reshaping processes to produce different outcomes. 

DX is the use of technology to change business strategy, which might include selling to new customers, with new products, in new ways. 

source: Deloitte

“By the mid-2020s, the strategy aims to have “established standards and regulatory frameworks in place that ensure best practice is met for energy data collection, accessibility, privacy and security.”

Ideally, there will be “significantly stepped-up visibility of assets across the system and new digital services such that stakeholders can understand what data exists and how they can gain access to it.” 

The process also hopefully will identify the next steps for digitalizing the energy system in the areas of data governance, market frameworks, data privacy and cyber security, while increasing market access and services.”

Note that all those goals are related primarily to the management of data and customer access to data. Less clear is whether--and how--different services might be provided. 

Beyond 2020, the goal is “system operators will have visibility of all energy assets enabling more accurate, efficient and cheaper planning, forecasting and management of assets, the department says. 

By then, it is hoped that new business models and entrants participating in the energy sector will emerge. It also is hoped the digital energy system will be a platform. 

So digital transformation actually comes last, after “digitalization” has allowed reshaping of business processes and capabilities. That is probably about right.

Digital Transformation in Thailand: Heavy on Sales/Marketing

Digital transformation in Thailand is taking a number of paths, a survey of 77 Thai organizations by Deloitte finds. On a more-physical layer, executives at these firms point to greater use of  web technology, mobile applications and cloud computing as examples of DX. 

Use of data analytics, robotics, internet of things, artificial intelligence, blockchain and augmented reality or virtual reality are other capabilities cited as included in their DX efforts. 

source: Deloitte

When asked, it appears most organizations intend--or hope--their efforts lead to outcomes including end user experience changes; business process changes; better use of data and accelerating new product development. 

Deloitte found that different industries had distinct priorities. Financial services firms were most interested in improving customer experience, while technology, media and telecom firms were most interested in product development. 

Life sciences and health care organizations were most interested in bolstering business processes, seen as “saving lives,” for example. 

source: Deloitte

Still, as you might have expected, sales and marketing was the top area for DX projects, followed by production functions. 

 source: Deloitte

It is worth noting that the concrete emphasis often is “digital” technology application rather than business process transformation. That is not too surprising, as DX in most cases is the new term people use to describe their investments in information technology. 

Perhaps significantly, DX barriers have more to do with human factors than mastery of technology, as generally is true with any IT change effort. Perceived talent or expertise gaps, company culture and other organizational issues are ranked as bigger problems than technology as such.

 source: Deloitte

All of which have almost nothing to do with technology but revolve around recruiting people with the right skills to get the job done. 

To be sure, Deloitte itself sees DX as different from “mere” use of additional technology. “Digitization” is the use of digital tools in place of analog. “Digitalization” is the change in working process made possible by technology. 

DX is the use of technology to change business strategy. 

source: Deloitte