In Honor of Freedom Fighters Everywhere

Did Not See This Coming

This I did not see coming.  AT&T will spin off AT&T’s interest in WarnerMedia  to AT&T shareholders. I had assumed AT&T would retain its 71 percent interest in WarnerMedia. 

In doing so, AT&T will shrink--in terms of equity value--to the fourth-biggest connectivity firm, behind Verizon, Comcast and T-Mobile. 

I was wrong about AT&T’s “exit” from content. The characterization of AT&T’s merging of WarnerMedia assets with Discovery has been called a strategy shift that gets AT&T out of the content business. I had been characterizing it as AT&T monetizing part of the asset, since it still owned 71 percent. 

But by spinning out the interest in a tax-free transaction--along with the shifting of DirecTV to a private equity joint venture--AT&T really is getting out of the content business. 

Should AT&T also decide to spin out its interest in DirecTV, it will shrink even further, in terms of equity value. 

It is at least the second big strategic shift we have seen AT&T make over the past three decades. Each time, there was a retreat, but arguably because the debt load associated with the strategic moves was burdensome. 

Consider AT&T’s big move into cable TV in the mid-1990s, a time when the long distance provider was seeking a way to reenter the local access business with its own facilities. The thinking at that time was that a largely one-way cable TV plant could be upgraded to become full communications facilities, supporting home broadband and voice. 

Given that development by virtually all cable TV companies in North America and Europe, the thinking was sound. 

AT&T also made its first investment in  DirecTV in 1996, owned and spun off Liberty Media. 

Beside TCI, at that point the largest U.S. cable company, AT&T also bought  Teleport Communications Group, a $500-million-a-year local business phone company, for $13.3 billion; MetroNet, a Canadian phone system, for $7 billion; and the IBM Global Network, which carries data traffic, for $5 billion. He also signed a joint venture with Time Warner ( to carry phone calls over the entertainment conglomerate's cable TV systems, and with British Telecom to serve multinationals overseas. 

But the debt burden was too high and AT&T reversed course in 2004 and sold most of those assets. AT&T Broadband (the former TCI and US West Broadband assets) were sold to Comcast, making that firm the biggest U.S. cable TV company. 

By 2005 AT&T itself was acquired by SBC Communications, which promptly rebranded itself AT&T. 

AT&T's move into content with the full acquisition of DirecTV and Time Warner content assets was the second big diversification move AT&T has attempted since the mid-1990s. 

AT&T spent about $170 billion since 2015, including taking on new debt, to transform itself into a media conglomerate. 

By spinning out WarnerMedia, AT&T will shrink in equity value to about $130 billion. That is shocking in some ways. Verizon is valued at about  $232 billion, Comcast at $262 billion and T-Mobile at $175 billion.

Beyond all that, one wonders what big tier-one carriers are going to do to keep revenue growing, given the pressures on their core businesses, and especially if they decide to retrench on their core businesses. 

Growth rates are low and average revenue per user or account is flat to dropping. 

source: Statista 

Especially important is mobile data ARPU, as mobility drives global revenues, while mobile internet access drives revenue growth. 

source: Strategy Analytics

The declining ARPU poses revenue growth constraints in any market where subscriber penetration is close to saturation (every customer who wants to have a mobile account already has one). 

 

source: Telefonica 

And falling ARPU is a trend in both mobile and fixed network domains, though some hope the declines in mobile ARPU can be arrested. 

source: Researchgate 

Still, some think it is possible that revenue in the mobile industry could have peaked in 2021. That might be unduly pessimistic. Still, many expect flattish global revenue, going forward. 

source: Statista

The strategy implications of another AT&T retreat from diversification are basically the fundamental problems the industry has been dealing with for some time. Where can growth be found, especially if one assumes service providers will largely stick to connectivity services?

Perhaps the better way to characterize the issue is to ask “where can growth be found within the connectivity realm at a level high enough to stay ahead of inflation?” Perhaps we ought to simply acknowledge that the public communications business remains a slow-growth industry that is challenged by disruptors of many sorts. 

Perhaps “growth” needs to be framed in a modest way: enough revenue growth to replace lost revenues from declining product segments while staying ahead of inflation.

Virgin O2 Reportedly Seeking Co-Investment for FTTH Push

In yet one more sign of changing fixed network infrastructure costs, Virgin O2 is reportedly in talks with infrastructure funds to create a facilities-based U.K. alternative to Openreach.  The goal is to create new fiber-to-home coverage of seven million homes. 

Virgin O2 already has said it would upgrade all current 15.5 million gigabit connections to FTTH by 2028. 

Though the big story is the creation of a nationwide facilities alternative to Openreach. The new network would have Virgin O2 as an anchor tenant, but the network would also offer wholesale access to third parties. 

To be sure, since the U.K. market essentially has had two tier-one firms competing in the fixed access market--cable TV and telco--the shift is not new in principle, but new in coverage and ubiquity. 

The proposed additional upgrades of the full network, plus addition of seven million new locations, would create a second nationwide FTTH provider with wholesale access. 

Secondarily, the move ends the historic cable reliance on hybrid fiber coax--in the United Kingdom--forever. 

Also, the financing and business model for FTTH also changes. Where cable companies historically have financed all of their own access network, the new move creates a new entity to own the access infrastructure.

Setting up the new entity changes the payback model for FTTH deployment, even as it shares the revenue and profit upside with new investors. 

But infrastructure has taken on greater importance in private equity and institutional investor portfolios in recent years. So the desire by Virgin O2 to invest is matched with matching desire by investors to fund and own such infrastructure. 

All of our decades-long assumptions about FTTH payback models are thereby upended. In principle, co-investment is one solution for revenue assumptions that have drifted downwards from perhaps $130 a month to $170 per month in revenue to a more-dependable $50 per month to $70 per month revenue per household. 

Revised payback models therefore must be revised accordingly.

Blockchain Value in the Connectivity Business Could Center on Further Disintermediation

Blockchain is believed by many to have application in the connectivity business, such as creating mechanisms to verify buyer identities, seller assets and liquify the process of settlements, perhaps especially across national borders. 

Some believe blockchain can ease the chores of number portability as well, since verifying identities is made easier. Others believe blockchain can reduce fraud and waste, for such reasons. Blockchain is viewed as a way to prevent vaccine fraud, for example, another similar use case in the health industry. 

Verifying actual performance might be quite valuable for eliminating or limiting disputes over service level agreement performance. “One version of the truth” should reduce instances of uncertainty about actual performance. 

Blockchain could help reduce phone theft, by making stolen devices unusable because the lawful ownership history is clear. 

Possible uses of blockchain in other industries might eventually suggest additional connectivity business uses. 

Blockchain now is seen by some as a way to disrupt and decentralize movie financing, for example. 

And while blockchain might not have much incremental value for tier-one connectivity providers, who have means to acquire capital, blockchain could well be important for smaller, upstart providers as a means of raising capital. 

Strategically, blockchain also is seen as a new form of disintermediation beyond the use of internet mechanisms to displace distributors. 

If you think back, the creation of huge e-marketplaces displaced distributors of all sorts in virtually all value chains. Blockchain could take that process a step further. 

Think of a potential global ability to buy and sell assets--connectivity (access or transport), compute cycles, interconnection, application use, storage or radio use--by means of an online portal that is  blockchain-enabled. 

That would be a sort of ultimate fulfillment of the 50-year drive for on-demand provisioning that the connectivity industry has sought.

Why Fixed Wireless Will be a Bigger Use Case for 6G

Even if support for ever-faster mobile internet is the objective of each mobile next-generation network--including 5G and succeeding platforms--there is reason to believe that fixed wireless might be a growing use case. 

The reason has to do with radio frequency signal propagation in the millimeter regions that will become necessary. 

“Wireless channels in this frequency range experience large propagation and reflection loss, sporadic availability of line-of-sight links due to blockage, and molecular absorption,” notes MediaTek. “These phenomena result in a link performance with shorter range and an intermittent on/off behavior.”

Millimeter wave radio signals will use beamforming to overcome signal loss. But that also means near line-of-sight performance. 

For that reason, sub-THz spectrum will be suited for fixed backhaul or nomadic devices communicating with a hub or as part of a network mesh, says MediaTek. The mesh capability is important as mobile users might move often among radio sites, requiring ability to shift between different radio sites on a dynamic basis. 

In principle, this mesh approach means a mobile user might be serially (or simultaneously) connecting to different mostly line-of-sight radios. Though the physical paths might be fixed, the mobile user will take advantage of any number of fixed paths to sustain a mobile connection to the “capacity” millimeter wave spectrum, while defaulting to coverage spectrum when necessary. 

Faster speeds are coming. The issue is how the radio access network is re-architected to take advantage of frequencies that largely are line of sight. 

MediaTek believes 6G will bring speeds 10 times to 100 times faster than 5G. That is not an unusual prediction. Indeed, every mobile digital generation has increased bandwidth by 10 times to 100 times, and reduced latency about 10 times, each generation.

source: MediaTek

Devices might also have the ability to sidelink, much as current devices can use Bluetooth for short-range device-to-device communications. 

 source: MediaTek

Other changes are possible. “A distributed MIMO deployment, where Tx-Rx signal pairs are not just bound to one node/site but distributed across multiple sites and nodes, has the ability to improve spectral efficiency and user experience across an area,” MediaTek says. That would not eliminate the use of transmitting “cells,” as the architecture is described as “cell free,” but rather mean user devices could communicate with more than one radio site at a time. 

There would still be transmission cells, but user devices would be free to connect with any adjacent cells and not be restricted to a single tower or radio. The practical advantage for end users is that the edges of a cell would no longer be a transmission quality issue. 

With a traditional one-cell connection design, lower signal strength at cell extremities has always meant reduced signal quality. In the cell-free design, signal quality close to the radio would be the same as quality at the edge of any single  radio’s coverage. That includes the degree of packet loss. 

The ability to incorporate non-terrestrial (satellite) connections with mobile connections also is envisioned. Artificial intelligence should be a native capability. 

In the spectrum area, frequencies in the 7 GHz to 24 GHz bands will probably be parts of the 6G standard, as will spectrum sharing, MediaTek says.

What is Included in "Digital Infrastructure?"

What is included in the more-popular term “digital infrastructure” (infra) these days. Equinix, which most of us would say is in the data center business, says it is in the “digital infrastructure” business. But note: Simplicable says DX includes:

• Cloud computing

• Platforms

• Systems

• Applications

• APIs and integration

• User devices

• Internet of Things

The point to note is that although some think of infra as limited to connectivity networks, practitioners refer to the ecosystem of applications, devices, platforms, hardware and software, computing, networks and systems that support digital work and life. 

Brookings in a study also includes open source as infra. IDC emphasizes cloud services

“for enhancing customer experiences…and…business operations.” Note the explicit link between infra and customer experience and business operations. 

According to Base22, digital infrastructure includes:

• Internet backbone, broadband

• Mobile telecom and digital communication suites, including apps

• Data centers and networks

• Enterprise portals, platforms, systems, and software

• Cloud services and software

• Operational security, user identity and data encryption

• APIs and integrations

The Ford Foundation says “digital infrastructure is the code, policies and standards powering the technology that permeates every aspect of life,” Ford does not mean “code” in a software sense, but in technology values such as equity.

Likewise, the Harvard Business School Digital Initiative looks at infra through a social impact lens as well. 

HCL says “digital Infrastructure is defined by a focus on enabling business agility and powering user experiences that drive customer engagement and loyalty.” 

The World Economic Forum, sees infra through the lens of digital economy, notes that include communications service providers, or CSPs (fixed line and wireless telecommunications companies, cable companies, and bandwidth providers), digital service and content providers (content, media and IT service companies), and hardware and software manufacturers (infrastructure equipment, device, software and component manufacturers) are all parts of the digital infrastructure. 

source: World Economic Forum

The point is that digital infrastructure includes much more than data centers and communication networks. Infra includes  chips, devices, end user software, cloud computing, data centers and connectivity networks, platforms and applications. 

Some would even include social or business impact. A few might include user digital literacy. The point is, it might be better to think of digital infrastructure as part of an ecosystem that overlaps with economic and social goals. 

How Much Can 5G Device Demand Decouple from Network Access?

One curious context for 5G introduction in at least some markets is that it has occurred in the context of unprecedented conditions created by the Covid-19 pandemic. A mobile network billed as providing “much faster speeds and bandwidth” is introduced precisely at a point when workers were forced to work from home and students forced to learn at home, are not as mobile as they once were, and so arguably derive less benefit from 5G speed advantages. 

That has implications for network connectivity demand, as people at home--workers or students--will routinely connect to Wi-Fi rather than using the mobile network. 

In other words, just as we are introducing a “much faster mobile network,” people have less need to be out and about where mobile phones provide their greatest value. 

What remains to be seen is what happens when the pandemic has ended. Many observers expect permanent changes in workforce deployment, with employees spending much more time working remotely, even when some amount of in-the-office work occurs. 

Others now speculate that fewer days of work per week also could happen, with possible four-day workweeks becoming more common. 

All of those trends could reduce demand for mobile connectivity overall and reduce it at some locations such as urban cores and commuting routes. Conversely, more mobile network demand could happen in suburban locations as workers spend more time closer to home.

And, of course, some amount of former mobile traffic will shift to the fixed network (using Wi-Fi). 

Less mission-critical mobility might have other repercussions. If mobiles do not have to be used as often “out and about,” perhaps a “faster network,” while providing advantages, does not supply as much value as if users were out and about--away from home--more often. 

The one exception might obviously be business travel, when the faster speeds are likely to be more important. But business travel remains at depressed levels, for most of us. And even after the pandemic, many question whether former levels will be matched soon. Some believe there will be a permanent downward shift in business travel. 

One bit of anecdotal evidence is my own behavior working from home (which, in fact, I have done for the better part of 30 years). Most of my mobile device connectivity now is on Wi-Fi. 

So relatively rarely do I move about outside the home, and infrequently enough, that I often leave my mobile radios turned off, knowing that I can survive a few minutes of driving with no connection before Wi-Fi kicks in at the location I am going to. 

Once 5G really does offer speeds up to 10 times faster than 4G, and when I am on business travel, 5G will supply lots of value. 

Day to day, working locally, the value will be low, as I have Wi-Fi fast enough to handle my untethered device use cases, or use a direct Ethernet connection for the PC. 

With the caveat that the online poll was not intended to be representative of all users, a survey by GSMArena suggests a certain amount of decoupling of demand for devices and networks, where 5G phones are used only on 4G networks, which is sort of the same point: devices are, to some extent, more decoupled from mobile network support than they used to be. 

Some 34 percent of respondents who use 5G phones say they do not use 5G because it is not yet available. And, with the caveat that behavior is likely to change once 5G is widely available, the poll still shows that demand for phones--and phone features--is to some extent possibly disconnected from the attributes of the network the device will use. 

Some popular consumer devices are designed to be used  independently from any mobile network, using Wi-Fi or Ethernet for connectivity, others are designed to use both 4G and 5G, with a default to 4G when 5G is not available. 

source: GSMArena 

But smartphones are only partly utilitarian devices. They also are fashion. Image and personas. So some 5G phone users have purchased 5G devices even in advance of 5G networks being available, which is a new behavior enabled by handset suppliers emphasizing device features other than 5G. 

The larger question is whether substantial percentages of 5G device owners continue to behave this way--owning 5G devices that do not connect to a 5G network--over the longer term. 

The same question might be asked for customers who do not yet think they “need 5G” or do not buy because it “costs more.” Over time, those objections should cease to be relevant. 

Still, the perceived value of 5G and faster speeds could shift if remote work becomes a permanent fixture and more people are able to rely on Wi-Fi for connectivity much of the time. 

Phone features and fashion demands will still exist, though, so some buyers might find they have appetite for 5G-capable devices even when they are not so convinced they need 5G services as much as they might once have thought they did. 

Value and price packages might eventually evolve to reflect that decoupling.