Value Drives Prices for Spectrum, as for All Other Assets

Spectrum assets are fundamental for facilities-based mobile operators, perhaps only interesting for some fixed network operators. That perceived value drives prices buyers are willing to pay for spectrum licenses.

But some mobile operators in some markets apparently place a much-higher value on mid-band spectrum licenses than others.

The prices paid for the C-band spectrum have varied widely, according to the Global Mobile Suppliers Association. As with all purchases of any sort, perceived value directly affects prices buyers are willing to pay. 

“The amount operators are prepared to spend depends on the degree of competition, the amount of suitable spectrum they already hold, the length of license available, the extent of the coverage/performance requirements that are attached to the license and the economic value of (the amount of money spent by) each mobile end user in the country/territory concerned,” GSA says. 

source: GSA 

Of the 2021 auctions that GSA has data for, only the U.S. auction achieved a higher than recent average price. It would be a reasonable conclusion that, using the GSA criteria, U.S. mobile operators valued the C-band assets highly. 

The U.S. market remains competitive and the amount of mid-band assets for two of three major providers was exceedingly limited. Also, U.S. spectrum licenses are essentially perpetual. Unlike the situation in some other countries, mobile service providers do not have to bid again for their licenses, once awarded. 

So the ability to “pay once” creates more perceived value, compared to a “buy every X number of years” regime. 

The 2021 US auction of 3.7 GHz to 3.98 GHz spectrum delivered a record high price for C-band spectrum of $0.875/ MHz/Pop, significantly higher than the recent average price of $0.120 per MHz-Pop.

source: GSA 

But U.S. mobile operators also place higher value on millimeter wave spectrum, compared to most other countries. Perhaps that is because U.S. operators expect huge increases in end user demand that millimeter wave assets will address. 

Mobile operators are expected to run out of capacity in at least half of sites in many parts of the developed world within the next four to five years, as traffic density, particularly in dense urban areas, is expected to steadily increase, McKinsey has forecast. 

That is a safe prediction, demand for mobile data always has grown over time.

source: Ericsson  

In fact, the value of 5G is in large part driven by the value to mobile operators who can use it to increase capacity. Mobile data consumption is rising everywhere, meaning mobile operators must plan for extensive investment in capacity.

source: Ericsson 

“More” is the trend in every region. Within a half decade, by some estimates, demand will grow by three to four times current levels. In fact, one good argument for adopting a next generation mobile network about every decade is precisely that doing so helps mobile operators lower their “cost per bit” in an environment where it is very difficult to raise prices enough to cover much-higher usage. 

source: McKinsey

 A survey conducted by McKinsey a few years ago showed a disparity in operator attitudes, however. In most regions, return on investment was a big issue. North American mobile operators were significantly less concerned about ROI. 

source: McKinsey 

Perhaps the simple reason is that North American average revenue per account and per user is among the highest in the world. Simply, North American mobile operators can expect higher revenue per unit when they invest. 

source: S&P Global Market Intelligence

Danger to Profits, Operating Costs and Manual Processes Seem Top of Mind for Enterprise Execs: DX Concern is Really Not CX

Even allowing for a substantial measure of “this is what I am supposed to say,” enterprise executives rank the danger to profits and operating costs by 2023 as much more important issues than threats to customer experience, which is among the least likely to suffer from disruption in the near future. 

source: McKinsey 

What stands out in a recent McKinsey survey of 1140 senior enterprise managers is the concern that existing products and revenue models could be endangered and that new digital products must be created. 

source: McKinsey 

Even when some equate “digital transformation” with “customer experience,” that does not seem to be the way most enterprise profit center managers, C titles or directors seem to see matters. As always, the ability to generate profit at desired levels tops all other concerns, with operating costs also top of mind as that affects profits.

One Way a Return to the Office Might Decrease Team Spirit

A study of 9,000 U.S. workers by ADP Research Institute finds some unexpected--and many expected--employee attitudes about remote work. 

“Social connection, promotion opportunities and work-life boundaries are the most-cited benefits of on-site work,” according to employees. You might expect that. 

Perhaps unexpectedly, employees believe a return to the office will lessen--not increase--team spirit. Credit gossip, cliques and other forms of social behavior for this belief. 

As you might expect, in-the-offce work leads to more  organic communication. Some 77 percent of on-site workers say they engage in spontaneous conversations with their teammates during the work week. Only 60 percent of remote workers say that happens. 

On-site workers report a shorter workday--on average, one hour less--than remote workers. Those working remotely are more likely to say they have longer days post-Covid (39 percent) compared to on-site workers (21 percent). 

Fully 57 percent of employee think that their managers prefer on-site employees over remote workers. And 50 percent of managers themselves say that they actually do prefer on-site employees when making decisions on hiring and promotions. 

source: World Economic Forum 

Nearly half of employees say that “productive” (44 percent) and “undistracted” (48 percent) are more likely to be traits describing on-site workers and not remote workers. 

About 33 percent of those surveyed believe it makes no difference to productivity or distraction whether someone is remote or on site. 

Remote workers are more likely to say that communication with their manager (or with direct reports if they are a manager) has deteriorated (26 percent). In contrast, just 14 percent of on-site workers whose boss also works on-site say communication has decreased.

What Changes for Enterprise Spending After Covid?

As someone who believed Covid would end sooner than it has, and would not have as much long-lasting impact on enterprise work practices, there is some new evidence suggestive of long-term changes. The issue is that the changes pull in different directions. 

To be sure, as the pandemic is not yet “over,” it might not be possible to assess the magnitude of potential shifts for some time. Still, there is some evidence that external collaboration impact might be the opposite of internal collaboration impact. 

Also, face-to-face meetings might be more important for some roles--such as sales--than for customer support, training and marketing. Meeting clients is seen as the top reason to resume travel, according to a Deloitte survey, while internal meetings and training are more likely to stay online.

U.S. spending on business travel is expected to only reach 25 percent to 35 percent of 2019 levels by the fourth quarter of 2021, and 65 percent to 80 percent a year later, according to a Deloitte survey of 150 travel managers.

To the extent that more remote work is going to be a permanent change, it is worth noting that collaboration and productivity trends might not be as rosy as many self-reports suggest. 

A study by researchers of Microsoft employees shows firm-wide remote work caused the collaboration network of workers to become more static and siloed, with fewer bridges between disparate parts. Furthermore, there was a decrease in synchronous communication and an increase in asynchronous communication.

Company-wide remote work caused business groups within Microsoft to become less interconnected, the researchers say. 

Remote work also reduced informal collaboration. Furthermore, the shift to firm-wide remote work caused employees to spend a greater share of their collaboration time with their stronger ties, which are better suited to information transfer, and a smaller share of their time with weak ties, which are more likely to provide access to new information, the study suggests. 

The researchers  suggest that hybrid and mixed-mode work arrangements may not work as firms expect. 

To be sure, long-term effects might not be the same as the short-term effects. the period of time over which we measured the causal effects of remote work are quite short (three months), and it is possible that the long-term effects of firm-wide remote work are different. 

For example, at the beginning of the pandemic, workers were able to leverage existing network connections, many of which were built in person. This may not be possible if firm-wide remote work were implemented long-term.

In other words, social capital decays over time. 

The point is that we might see several trends that run counter to each other, with new “distributed and remote” work modes producing less face-to-face interaction, while sales activities might need to be reinstated for sales operations. 

On the other hand, many enterprises also will find less need for face-to-face support for some internal operations and some customer-facing tasks. 

On a broader level, we might look at an analogy to changes wrought by widespread use of the internet and mobility.  Every content business you can think of was changed, first by the internet and then by mobility. 

To the extent that the internet reduced information gaps or friction, demand for trade shows, magazines and newspapers actually fell. Much the same has happened with mobile-based communication and media. Newspaper revenues fell while online revenue grew. 

Home video shifted to online. Linear subscriptions shifted to internet-based subscriptions. Music likewise shifted from physical media to internet delivery.

In the business world, software distribution also shifted from physical media to online fulfillment; products to services. With quality broadband nearly ubiquitous, computing shifted from local to remote, as well.   

To the extent that trade shows, trade journals and specialized business publications were needed to reduce information friction, there simply was less need once the internet made information more transparent and easy to get. 

There may be parallels with the ways business information and commerce changes after Covid. Demand for some activities will decline while others replace them. Business travel, trade shows and collaboration itself might be altered on a permanent basis.

Cincinnati Bell Goes Private

Cincinnati Bell is among the latest to go private, as the firm has been acquired by Macquarie Infrastructure Partners. Iliad in France wants to do so and Altice Europe did so earlier in 2021.

Among the key drivers for those privatizations is the perception by asset owners that public markets will not positively reward the firms, in terms of equity valuations, commensurate with their revenues, cash flow or potential growth prospects.

Another key driver is private equity firms with lots of private capital to invest, and assets that offer long-term and predictable cash flows.

 

That, in turn, is matched by desire to invest by pension funds and other entities with long time horizons that view infrastructure assets as equivalents to other long-duration fixed-income assets such as bonds.

 

Also, asset diversification is another motivation for investors.

  

There is a good reason why any number of public telecom firms have been taken private, and why others are considering similar moves: high debt, low growth and poor operational performance. And connectivity providers are not the only type of firms facing investment issues.  

That is a fairly-common prescription for any public company to be taken out of the public markets by private equity, and many public telco assets  fit the bill. 

source: Focus Finance

One defining characteristic of infrastructure assets is their monopolistic position. We tend to forget that for most of the history of the industrialized world, much of the funding for large scale public infrastructure such as roads, canals and railroads has come from private sources of capital. And that includes telecommunications in the United States. 

source: Maria Sward 

The function of private equity also has included the rehabilitation of firms that are not performing financially. Private equity buys a public asset, restructures and then sells the asset, often within about a five-year period. 

source: Bain

Agility Prepares Organzations for 3 of 4 Types of Business Risk

All knowledge can be categorized in four boxes, since the time of the Greek philosophers, many argue. The same process is used by some analysts of risk and implicitly guides everyday business behavior. 

Whether something is known or unknown makes a difference for risk mitigation or management, and also provides a key rationale for developing greater organizational agility. But that requires work and commitment, as a rational executive is going to focus most of his or her time on dealing with “known known” types of risk. 

The cost-benefit of preparing for other types of risk is so low that most will spend relatively little time on them, with the possible exception of “known unknowns,” where research might plausibly convert an unknown to a known. 

A known known can be statistically modeled and behavior based on statistical odds of occurrence. 

Processes we understand we know can be statistically modeled. We can make assumptions about likelihood. We can set insurance rates, for example, or devise plans to take market share from a specific competitor. 

When there are processes we know about, but cannot predict, we conduct research to try and eliminate the uncertainty.

“Unknown knowns” involve processes we know exist, but do not deem relevant to us. There is little or no perceived risk, so organizations do not plan for or worry about such matters, as the risk is deemed so rare. 

“Unknown unknowns” are quite dangerous, as nobody recognizes there is any danger. When “one does not know what one does not know,” any rational search for answers will be thwarted.  

source: Veritas 

 

A known unknown cannot be accurately modeled, so an organization has to aim for agility, the ability to shift and change if and when the magnitude of an event is large. 

It is impossible to plan, in practical terms,  for an unknown unknown. These are the sorts of catastrophic changes which can imperil an organization’s existence. 

Unknown knowns pose risk because an organization might be aware of the risk, but deem it so unlikely that nothing is done to prepare for such events. 

The point is that organizational agility is a major capability for dealing with three of the four categories of risks: known unknowns; unknown knowns or unknown unknowns. 

source: UX Collective 

“Known knowns” are things we know that we know and understand. Presumably, risk is low as we understand something. 

“Known unknowns” are things we realize that we don’t know or understand. Or perhaps a better way of describing this category is that there are matters we know, but are unclear about potential risks. 

In either case--known knowns or known unknowns--people have some semblance of certainty as there are boundaries around risk.  

The other two categories involve higher levels of risk, as uncertainty is greater. 

“Unknown unknowns” arguably pose the greatest risk, as the existence of the risk factors is not understood, not seen, not believed to be risk factors. Perhaps the Covid-19 pandemic is an example of that. 

“Unknown unknowns” are future outcomes, events, circumstances, or consequences that we cannot predict. We also cannot plan for them. We don’t even know when and where to search for them.

source: Market Business News 

“Unknown knowns” are things that exist, influence lives and our approach to reality, but are not perceived to do so. Or we do not see their significance or we refuse to acknowledge dangers. 

The issue is where to categorize a black swan event. A  black swan is an extremely rare event with severe consequences. It cannot be predicted beforehand. Some might say a black swan is an unknown known. We know they happen, but we cannot predict them. 

That categorization is based on the assumption that we know black swans happen, so we understand that much. But we still cannot predict when one will happen, or where. 

Alistair Croll and Benjamin Yoskovitz used the Knowns and Unknowns framework in their book Lean Analytics to describe different ways of looking at data:

• Known Knowns (facts): you use analytics data to check those facts against them.

• Known Unknowns (hypotheses): can be confirmed or rejected with measurements.

• Unknown Knowns (our intuitions and prejudices): can be put aside if we trust the data instead.

• Unknown Unknowns (it can be anything!): are often left behind, but can be the source of great insight. By exploring the data in an open-minded way, we can recognise patterns and hidden behaviour that might point to opportunities.

source: Marvel 

This framework also is used by the Johari Window. 

Not "In the Top 10?" No Matter

It has been commonplace for decades to hear it said that the United States is not in the top 10 globally for internet access speed or some other metric. Over the last few decades, it has been argued that the United States similarly was not “in the top 10 globally” for use of text messaging or mobile phones, for example. 

Most recently, it had been argued that the U.S. was falling behind in 5G.  

It has been argued that the United States was behind, or falling behind, for use of smartphones, broadband coverage, fiber to home, broadband speed or broadband price, for example. Likewise, some argued that U.S. customers were “behind” Japan or South Korea on some metrics related to use of digital apps. 

And U.S. average mobile speeds were slow, historically, compared to other developed nations. 

So the “U.S. is behind” storyline is quite familiar. Of course, we might note that the same thing was said about U.S. fixed network telephone service. The U.S. installed base metrics rarely exceeded 12th to 15th globally. 

Some even have argued the United States was falling behind in spectrum auctions. That clearly also has proven wrong. What such observations often miss is a highly dynamic environment, where apparently lagging U.S. metrics quickly are closed.

To be sure, adoption rates have sometimes lagged other regions, early on. But there is a pattern here: early slowness is overcome; performance metrics eventually climb; availability, price and performance gaps are closed over time. 

The early storylines often are correct, as far as they go. That U.S. internet access is slow and expensive, or that internet service providers have not managed to make gigabit speeds available on a widespread basis, can be correct for a time. Those storylines rarely--if ever--hold up long term. U.S. gigabit coverage now is about 80 percent, for example. 

Other statements, such as the claim that U.S. internet access prices or mobile prices are high, are not made in context, or qualified and adjusted for currency, local prices and incomes or other relevant inputs, including the comparison methodology itself. 

Both U.S. fixed network internet prices and U.S. mobile costs have dropped since 2000, for example. 

What observers always forget is the huge amount of the U.S. land surface that is highly rural or unsettled. About 94 percent is unsettled or lightly populated, including mountains, rangeland, cropland and forests. 

In fact, most people live on just six percent of the U.S. land surface, according to the USDA. Also, the United States, like Canada, Australia, Russia and China, are continent-sized areas. Building networks takes longer when larger areas must be covered. 

All that has direct implications for the cost and speed of building networks. Dense urban networks cost the least, on a per-location basis, while rural networks cost the most. Also, incentives to build and operate networks are strongest on six percent of the land surface, and challenging on as much as 94 percent of the land surface. 

The point is that the United States rarely--if ever--ranks in the top 10 on any indicia of communications performance. In fact, it is more realistic to argue that U.S. will rank 19th to 20th on almost any measure of teledensity or communications supply. 

A corollary is that rankings do not matter. Nobody would allege that a “not in the top 10” ranking has any apparently negative impact on productivity, innovation or economic growth.  The claimed U.S. applications usage gap has not mattered for U.S. based application firms. 

There is always “some other place” where customers and users do more with a particular application or use case. It never seems to matter, ultimately. Teledensity and other measures of connectivity supply are inputs. What matters is output, the ability to create value from the use of such assets.