Southeast Asia Mobile Operator Consolidation Trend Might Happen Elsewhere As Well

Southeast Asia has been a region some believe will inevitably see telco consolidation, especially among mobile service providers. Indonesia, Malaysia and Thailand provide examples. 

But consolidation is a global trend. Where there now are 810 telecom service providers, there will be 105 by 2025, says Bell Labs. That represents a consolidation of about 87 percent in seven or eight years.

For its part, analysts at Capgemini call for an era of “massive consolidation” on a “spectacular” level.

 

There are many reasons for consolidation. Mobile and fixed services are inherently capital intensive, and there is evidence that capital intensity is increasing. To the extent there are scale advantages, consolidation improves scale, and therefore offers hope of lower costs. 

In substantial part, those changes are driven by different charging models. The voice business, which once drove industry revenues, was based on a charging system built on usage: “the more you use the more you pay.”That is helpful in the sense that when demand grows, so does revenue.  

The new business model built on data usage is different. There still is a usage component to the charging system. Customers can purchase usage rights that vary by quantity. But two other trends also matter: “unlimited usage for a fixed price” and “much-lower unit prices.” 

The former severs the link between usage and revenue while the latter means higher usage does not produce comparable incremental revenue. One can see this in the fact that average prices paid for internet access service have remained stable--or fallen--even as usage has doubled every two years. 

As this graph illustrates, mobile data supply has grown by an order of magnitude about every four to 10 years since 1985. 

source: Science Direct 

Customer data demand arguably has grown faster than that rate of spectrum increase. That networks have not saturated is because mobile operators have other tools to increase capacity, beyond adding new spectrum. They can use smaller cells, different radio technologies, better coding and modulation. 

source: Lynk 

Still, the business issue is that it is hard to increase revenue as fast as network supply has to be boosted. To make the business case work, the cost per bit has to keep dropping. That is partly a technology platform issue and partly a capital investment and operating cost issue. 

One reasons consolidation will continue to make sense is that it can help mobile operators reduce capex and opex, while boosting spectrum assets. 

As Important as Edge Computing, IoT and Security Are, ARPU Increases and Account Growth Will Drive Service Provider Business Revenue

Most “new source of revenue” growth opportunities available to fixed and mobile service providers are incrementally important. Very few are expected to produce huge amounts of revenue in the near term.

On the other hand, most of the revenue volume will come from tweaks to the existing revenue model (consumer phone service). Perhaps surprisingly, 5G fixed wireless could be one of the biggest near-term contributors to new service revenue. 

Deloitte Global predicts that the number of FWA connections will grow from about 60 million in 2020 to roughly 88 million in 2022, with 5G FWA representing almost seven percent of the total. Most of the installed base consists of 4G connections and it will take some time for 5G to overtake 4G. 

By 2026 there could be 160 million FWA accounts in service. At an average monthly cost of $20, that generates perhaps $38.4 billion in service revenue. At $40 per month, FWA generates perhaps $76.8 billion in service revenue. 

The total fixed network broadband installed base is expected to be about 1.75 billion accounts in 2027. So FWA will represent about nine percent of total fixed network broadband accounts. 

source: Ericsson 

Compare that with projected revenues from other more-touted services such as internet of things, edge computing and security. Those three services will in 2024 amount to about 12.6 percent of total business service revenue of $400 billion globally. 

So security services, IoT and edge computing combined will amount to about $50 billion in annual revenues by 2024. If cumulative growth rate for those services is 17.9 percent, then 2026 revenue might be about $70 billion globally. 

source: IN Forum 

If global telecom service revenue is about $1.6 trillion in 2025, and consumer revenues are about 65 percent of total service provider revenues, then business revenues could hit $560 billion in about 2025 or 2026. 

If you assume consumer services in 2025 or so will be about 60 percent of total revenues, then business revenues could be as high as $640 million. 

How much of that could come from new sources such as edge computing, security and IoT is the issue. If those new sources are 12.6 percent of total business revenues, then existing business services will represent 87 percent of total revenue, or anywhere from $330 billion up to $556 billion.

In other words, improving revenue from existing services still drives most of the possible business revenue improvement. 

It is possible that fixed wireless access is a bigger business than edge computing, security and IoT in 2026. At the low end of the FWA estimates, fixed wireless might still be bigger than any of the other new services individually. 

The point is that we tend to overlook the new revenue impact of FWA, focusing on the more-touted areas of security, IoT or edge computing. But FWA is possibly going  to be a bigger revenue contributor. 

While fixed wireless will grow about 19 percent per year to 2026,  5G FWA connections will grow at an annual cumulative growth rate of nearly 88 percent, over the same period, Deloitte Global says. 

source: Deloitte Global 

source: IN Forum 

source: IN Forum 

source: IN Forum 

source: IN Forum

Technology Never Happens in a Vacuum

It builds on earlier innovations and requires people to make it happen.

Monopoly, Duopoly, Oligopoly: Can Competition Happen Under All Scenarios?

Most communications regulators believe duopolies are injurious to competition, innovation and investment. And yet the degree to which that is true is a bit unclear. 

Uganda has a mobile duopoly and yet subscriptions keep climbing. In the fixed networks market, while some would argue that the cable operator-telco duopoly is not competitive, others would point to declining prices, heavy investments in bandwidth supply and available speeds as evidence that competition is producing results. 

In the telco world, faster home broadband is nearly synonymous with fiber to the home upgrades. In the U.S. and many other markets, the issue is available bandwidth, not physical media. 

More than 80 percent of U.S. homes can buy gigabit per second internet access if they choose, from the local cable operator. And though U.S. telcos are stepping up their optical fiber access investments, fewer homes are reached by FTTH. 

Still, according to the Federal Communications Commission, 88 percent of U.S. homes can buy internet access at gigabit speeds. The NCTA says home broadband speeds have increased 1880 percent over the last decade alone.  

source: NCTA 

It is possible to debate whether infrastructure or retail competition produces better outcomes, especially since, in many markets, only retail competition (using wholesale access from one facilities supplier) is feasible. 

Some claim U.S. home broadband prices are too high, the typical argument being that U.S. a la carte prices (the retail tariff for internet access, not purchased in a bundle) are higher than prices in other countries.  

Adjusting for currency and living cost differentials, however, broadband access prices globally are remarkably uniform. 

The 2019 average price of a broadband internet access connection--globally--was $72..92, down $0.12 from 2017 levels, according to comparison site Cable. Other comparisons say the average global price for a fixed connection is $67 a month. 

Looking at internet access prices using the purchasing power parity  method, developed nation prices are around $35 to $40 a month. In absolute terms, developed nation prices are less than $30 a month. 

According to a new analysis by NetCredit, which shows U.S. consumers spending about 0.16 percent of income on internet access, “making it the most affordable broadband in North America,” says NetCredit.  

In Europe, a majority of consumers pay less than one percent of their average wages to get broadband access, NetCredit says. In Singapore, Hong Kong, New Zealand and Japan,  10 Mbps service costs between 0.15 percent and 0.28 percent of income. 

The point is that home broadband prices fall everywhere, over time.

source: Strategy Analytics 

Looking at 95 countries globally with internet access speeds of at least 60 Mbps, U.S. prices were $62.74 a month, with the highest price being $100.42 in the United Arab Emirates and the lowest price being $4.88 in the Ukraine. 

According to comparethemarket.com, the United States is not the most affordable of 50 countries analyzed. On the other hand, the United States ranks fifth among 50 for downstream speeds. 

The point is that duopoly, oligopoly or even monopoly can produce retail competition. There is room to argue about how much competition, investment or innovation is possible. But connectivity no longer is a “natural monopoly” in terms of retail competition. 

There is a stronger argument for infrastructure monopoly in many markets. And duopoly might be the only realistic outcome in some mobile markets, even if most regulators believe three is the minimum number of mobile firms necessary to promote robust competition. 

Is U.S. Home Broadband on Cusp of Major Change, or Not?

The U.S. home broadband market has been dominated by cable operators for two decades. Depending on the source, cable operators have held close to 70 percent of the installed base of accounts and have had up to 100 percent of net new additions (market share) in many years. 

Many believe that now will change, though there is disagreement about how much change is possible. 

U.S. telco fiber-to-the-home (FTTH) lines will pass 82 million American households by 2027, nearly double the 44 million households passed today, Cowen predicts. 

Led by AT&T, the four biggest telcos (AT&T, Verizon, Frontier and Lumen) will account for the lion's share of those deployments, together passing more than 71 million homes with fiber.

source: S&P Global Market Intelligence

U.S. cable operators will pass another five million homes with fiber lines over the next six years as well, largely deployed by Altice USA. Cable operators have deployed five million FTTH lines already, says Cowen. 

By 2027, telcos will get adoption by about 43 percent of homes passed by the FTTH networks, Cowen predicts. The issue is the percentage of those new FTTH lines that are market share neutral upgrades by existing telco digital subscriber line customers, and what percentage will come from market share taken from other providers. 

Cowen believes relatively small amounts of market share will actually be taken from cable operators. Cable operator market share is expected to decline from 61 percent today to 58 percent in 2027.

Telco share, meanwhile, will climb from 25 percent to 27 percent in 2027. The magnitude of the shift is where there is disagreement. - 

Some might call the Cowen share forecasts too conservative. Moffettnathanson, for example, believes a 50-50 split of the installed base between telcos and cable operators is possible. 

Telco executives, for example, believe they will do better than Cowen suggests. Frontier, for example, expects to reach about 45 percent of the installed base when it completes its FTTH upgrades.

Some telco executives also believe  fixed wireless will play a role in their share gains. Altogether, observers predict some shift of installed base and market share as telcos go up tempo on FTTH upgrades and 5G fixed wireless gets marketed. How much change could happen is the issue.

Before Metaverse There was Second Life

Before the metaverse there was Second Life. It has been a decade and a half since Second Life was heralded as the next big thing: virtual worlds. Second Life still is around, but did not really become the next big thing. In fact, significant new technologies often take decades to become commercially relevant or ubiquitous.

  

Advanced technology often does not get adopted as rapidly as the hype would have you believe. In fact, most useful advanced technologies tend not to go mainstream until adoption reaches about 10 percent. That is where the inflection point tends to occur. That essentially represents adoption by innovators and early adopters.

source: LikeFolio

Consider mobile phone use, among the most-ubiquitous products used globally. On a global basis, it took more than 20 years for usage to reach close to 10 percent of people. The point is that even a truly useful or transformative new product or technology can take a decade or more to reach the early adopter stage, which is when 10 percent of people or households use an innovation. 

source: Quora

That is why Sigmoid curves are the rule for product or technology diffusion. The S curve has proven to be among the most-significant analytical concepts I have encountered over the years. 

It describes product life cycles, suggests how business strategy changes depending on where on any single S curve a product happens to be, and has implications for innovation and start-up strategy as well. 

source: Semantic Scholar 

Some say S curves explain overall market development, customer adoption, product usage by individual customers, sales productivity, developer productivity and sometimes investor interest. It often is used to describe adoption rates of new services and technologies, including the notion of non-linear change rates and inflection points in the adoption of consumer products and technologies.

In mathematics, the S curve is a sigmoid function. It is the basis for the Gompertz function which can be used to predict new technology adoption and is related to the Bass Model.

 I’ve seen Gompertz used to describe the adoption of internet access, fiber to the home or mobile phone usage. It is often used in economic modeling and management consulting as well.

The next big thing will have first been talked about roughly 30 years ago, says technologist Greg Satell. IBM coined the term machine learning in 1959, for example.

The S curve describes the way new technologies are adopted. It is related to the product life cycle. Many times, reaping the full benefits of a major new technology can take 20 to 30 years. Alexander Fleming discovered penicillin in 1928, it didn’t arrive on the market until 1945, nearly 20 years later.

Electricity did not have a measurable impact on the economy until the early 1920s, 40 years after Edison’s plant, it can be argued.

It wasn’t until the late 1990’s, or about 30 years after 1968, that computers had a measurable effect on the US economy, many would note.

source: Wikipedia

The point is that the next big thing will turn out to be an idea first broached decades ago, even if it has not been possible to commercialize that idea. 

Metaverse seems to follow the pattern.

6G Poses Challenges for Fixed Networks

Since most observers expect 6G to feature access speeds at least 10 times greater than 5G, that implies top speeds in the range of 100 Gbps, with a lower range in the 10 Gbps region. 

 

source: Navixky

In fact, some believe top speeds could reach a terabit per second. 

 

source: Navixky

All that has to be a driver of thinking about upgrades of cabled internet access networks. If, within the next decade, mobile networks can reasonably deliver gigabit to 10 Gbps speeds, that makes them substitutes for the fixed network. And if, in a decade, 10 Gbps to terabit-per-second speeds are feasible, then cabled networks might in some cases be the second-fastest networks available to consumers. 

All of that could have big implications for internet service provider market share. The issue in some markets will not be “cable or telco” but rather “mobile versus fixed.”