We Might Already be Wrong about New 5G Revenue Sources

Fixed wireless is projected to provide nearly a third (32 percent) of global gross domestic product value generated by mid-band 5G spectrum; providing value, greater than internet of things or ultra-reliable connectivity use cases, according to a new report by the GSMA, and trailing only “higher bandwidth” in impact. 

If that proves true--or if fixed wireless creates that much revenue for mobile operators, it would be an early example of unforeseen and important new use cases for a next-generation network. That almost always happens with mobile next-generation platforms. 

source: GSMA

“Fixed wireless” does not generally get mentioned when the benefits of 5G are discussed. The traditional triad of enhanced mobile broadband, massive IoT and low latency use cases does not include fixed wireless. 

source: ITU 

So 5G fixed wireless--if it emerges as expected--will be a very-important early-stage 5G revenue enhancer. In fact, fixed wireless could well generate more near term revenue than does edge computing, internet of things or private networks. 

“For the period 2020 to 2030, almost 75 percent of the benefits of mid-band 5G will come from enhanced mobile broadband and fixed wireless access use cases and related applications,” a new report by GSMA argues.

That would be a big deal.

Edge Computing Growth Led by Data Centers to 2025

Edge computing  products, services and solutions will grow to reach US$17.8 billion in 2025, up from an estimated US$8 billion in 2019, at a compound annual growth (CAGR) rate of 15.6 percent, according to GlobalData. 

source: Global Data 

International Data Corporation estimates are higher. IDC projects enterprise and service provider spending on edge computing will reach $40 billion in 2022 in Europe alone. 

Worldwide spending on edge computing is expected to be $176 billion in 2022, an increase of 14.8 percent over 2021, according to IDC. The two edge use cases that will see the largest investments in 2022 – content delivery networks and virtual network functions – are both foundational to service providers' edge services offerings. Combined, these two use cases will generate nearly $26 billion in spending in 2022.

Across enterprise end user industries, discrete and process manufacturing combined will invest $33.6 billion in edge solutions this year. Retail and professional services will also see spending of more than $10 billion on edge computing in 2022, says IDC. 

source: IDC 

From a geographic perspective, the United States will be the largest investor in edge solutions with spending forecast to reach $76.5 billion in 2022. Western Europe and China will be the next largest regions with spending totals of $30.6 and $20.8 billion, respectively. 

China will see the fastest spending growth over the five-year forecast with a CAGR of 19.7 percent, followed by Latin America at 19.4 percent.

By 2025, edge computing in Europe alone will reach $64 billion, IDC forecasts,  with a five-year compound annual growth rate (CAGR) of 16.4 percent.

In North America, sales of edge computing products, services and solutions will amount to US$6.85 billion by 2025, which is equivalent to 38 percent of the total global market. 

Sales in Asia Pacific and Western Europe will amount to US$4.65 billion and US$3.39 billion, respectively, equivalent to 26.4 percent and 19.3 percent of the total global market.

Frontier Communications Adds 2-Gbps Service Across Full Fiber Footprint

Frontier Communications says it is the”  first and only major ISP to deliver network-wide 2 Gig internet service” across its entire fiber footprint. The caveat is that this does not mean every customer can buy the service, only that some customers in all markets can do so.

source: Frontier

That is notable, if incomplerte, and a sign that Nielsen’s Law still holds. Nielsen’s Law predicts that the fastest broadband speeds will grow at 50 percent per year. That does not mean the “typical” customer buys service at those top-end rates, but does correlate with faster speeds all along the buying curve, including the mid-tier and lowest-tier services. 

source: Cablelabs 

The Symmetrical 2 Gig fiber speeds cost $149.99 per month and also come with free next-generation  total home Wi-Fi (Wi-Fi 6e) and free Amazon Fire TV; a free webcam; a free voice line;  free activation; free premium tech support and free multi-device security.

Note the bundling of a voice line as a feature of the internet access service. 

source: S&P Global Market Intelligence 

The Frontier Fiber 2 Gig offer also features:

• 2.5 times lower latency than cable modem service

• Up to 50 times faster upload speed than cable

• Real-time viewing for 1Tb photo library

• 99.99 percent  network reliability

Is Conventional Wisdom Wrong About Revenue Growth?

The conventional wisdom is that enterprise services, underpinned by internet of things use cases, offer the biggest new revenue sources for service providers, but that remains to be seen. 

Ericsson data suggests internet access--across mobile and fixed domains--could well supply the greatest revenue lift, and most of that will come from consumer segments of the market. 

Consumer services including mobile, fixed voice, broadband, TV and video services accounted for an average of 56 percent of revenues for service providers globally in 2019, according to Ericsson. 

In the mobile market, the consumer business generated 79 percent of overall mobile broadband revenues for service providers and this is expected to increase to 81 percent by 2024, Ericsson also predicts. 

On the other hand, business customer revenues represented up to 44 percent of total revenues. The issue is the extent to which business or consumer markets will add the most incremental revenue upside in the 5G and coming eras, says Grandview Research.

The point is that consumer services might yet prove to be the driver of industry revenue growth over the next decade, despite the growing importance of new use cases including internet of things, edge computing and private networks that are primarily viewed as enterprise or business sources. 

Much will hinge on how fast some legacy sources including mobile voice, fixed voice and linear entertainment subscription revenues fall. 

Net change then is dictated by how fast new sources can grow, as well as how fast average revenue per account can grow in the key internet access area.

Aside from total market growth, some firms will see key revenue drivers shift as a result of market share gains or losses.

Fixed wireless might be key for some contestants while mobile market share shifts will drive growth for some contestants. The consumer market is likely to dominate results in those cases.

Beginnings of a Shift Towards Shared Infrastructure in Connectivity Business?

In computing, one way of characterizing the rise of cloud computing is to note that cloud computing represents a shift towards shared infrastructure rather than dedicated infrastructure. 

Shared infrastructure has not generally seen as big a shift in the connectivity business, with the exception of subsea optical fiber networks, which often these days are funded by consortia.

Mobile operators might lease space on cell towers rather than owning those towers, but the radios themselves are not shared. Each mobile operator’s radio infrastructure remains private and dedicated. 

There are some instances of national wholesale networks for fixed network access, and some new efforts to create similar models for 5G, as in Malaysia.

Mobile virtual network operators provide an example of shared infrastructure in a more limited sense. 

And while there also is more institutional investor and private equity investment in access networks and data centers globally, few of those investments entail converting to a shared infrastructure model. 

But there are some signs of change. Virgin Media O2 is looking at creating a joint venture to fund a fiber to home expansion to seven million U.K. homes, in something of a historic shift. Rarely--if ever--have cable TV companies actually entertained such a move. 

To be sure, there would still be a participation in “owner’s economics.” But the plan would lessen the amount of ownership of the core facilities. Also, while cable operators have never been proponents of wholesale operations, VMO2 contemplates providing wholesale access as a core feature of the payback model for the joint venture.  

In part, the change grows from both supply and demand changes: more demand for investment in infrastructure assets globally, and greater stresses in the payback model for privately-owned access facilities. 

“If you’re an infrastructure fund that’s run out of airports and toll roads to buy, you like the profile and upside (of data centers),” said Chris Moon,  ING managing director.

“Dry Powder” for Infrastructure Investment Globally

source: bfinance 

The shift towards shared infrastructure will be propelled in part by institutional investor payback strategies.  

“More often than not, we’ll be extracting assets from integrated operators,” say Morgan Stanley Infrastructure Partners’ Yacine Saidji and John Watson. “Prior to the transaction, those assets will have had only one client. Part of our value creation will be making that asset available to whoever wants to use it.”

Similar trends are likely to arise in the mobile infrastructure area, especially for support of indoor access requiring small cells. 

One way or the other, demand and supply pressures are going to increase interest in shared infrastructure in the connectivity, data center and small cell and indoor mobile access areas.

Can You Enjoy Metaverse Without Edge Computing?

Edge computing is certain to play a bigger role in our computing fabric as augmented reality, virtual reality and future Metaverse environments become possible. “Even at ultra-low latency, it makes little sense to stream (versus locally process) AR data given the speed at which a camera moves and new input data is received (i.e. literally the speed of light and from only a few feet away),” says Matthew Ball, EpyllionCo managing partner.

The conventional wisdom today is that multi-player games, to say nothing of more-immersive applications, do not work when total latency is greater than 150 milliseconds and user experience is impaired when latency is as low as 50 milliseconds, says Ball. 

source: Matthew Ball 

Will the Metaverse require 1,000 times more computing power? Intel thinks so. And that implies we might be decades away from a ubiquitous and widely-accepted Metaverse that people actually use routinely. 

“Consider what is required to put two individuals in a social setting in an entirely virtual environment: convincing and detailed avatars with realistic clothing, hair and skin tones; all rendered in real time and based on sensor data capturing real world 3D objects, gestures, audio and much more; data transfer at super high bandwidths and extremely low latencies; and a persistent model of the environment, which may contain both real and simulated elements,” says Raja Koduri, Intel SVP and GM of Intel’s Accelerated Computing Systems and Graphics Group. “Now, imagine solving this problem at scale--for hundreds of millions of users simultaneously--and you will quickly realize that our computing, storage and networking infrastructure today is simply not enough to enable this vision.”

“We need several orders of magnitude more powerful computing capability, accessible at much lower latencies across a multitude of device form factors,” says Koduri. 

“Truly persistent and immersive computing, at scale and accessible by billions of humans in real time, will require even more: a 1,000-times increase in computational efficiency from today’s state of the art,” he notes. 

Whales Really Do Matter, for Firms of Any Size

Whales matter, in business, and for just about every business. Look at expected profit contributions across a firm’s customer base. The first 20 percent of customers will supply the most cumulative profit. The tail of the last 80 percent of customers might contribute almost nothing in that regard. 

source: Baker Tilly 

How can a software startup better estimate where its revenue might come from? Nnamdi Iregbulem, Partner at Lightspeed Venture Partners, actually has thought quite a lot about that subject. Basically, it appears the Pareto Principle holds for software startups, across the full range of firm sizes. 

“I think people talk about concentration as if there are a couple of companies that have revenue concentration issues, and then the rest are fine,” says Iregbulem. “ It just turned out that literally every company has pretty high customer concentration, not in the sense that there was one customer that was 10 percent of revenue, but in the sense that there was a subset of customers that were a pretty meaningful share, something like 20 percent being 70 percent of revenue.”

source: Nnamdi Regbulem 

In other words, in every industry segment, it is not just “whales” who see Pareto distributions, but firms of every size in every segment. The implications are clear enough: even a smaller firm targeting a smallish niche is going to have its own “whales” (a few customers than anchor total revenues). The same goes for profits. 

source: Baker Tilly 

“It’s a very common mistake I find among investors where they'll meet a company, the company will have X number of customers and the standard ACV (average contract value) will be fairly small because most of their users are either free users or in some kind of lowest-tier version of the product,” says Iregbulem. “But they do have a couple of meaningful customers that are spending real revenue or paying the highest tier of a product or what have you.”

It is not unusual for as much as 60 percent of customers to provide no more than “breakeven” performance, in terms of profitability. 

source: Baker Tilly 

In other words, software monetization is a power law. A power law distribution is a curve that looks like this: most of the results are generated by a small fraction of instances, products or customers. “Rather than the exception, high concentration is the norm in certain verticals (for example cloud infrastructure) or pricing models (consumption/pay-as-you-go) where a "customer" can be as small as tens of dollars per month,” he notes. 

source: Reaction Wheel 

In the data center and connectivity businesses, that rule tends to hold as well. A handful of customers anchor demand for global bandwidth and data center capacity. The rule also seems for  devices connected to Wi-Fi. 

“Combined, the above insights form a mathematical justification for "land and expand"-style go-to-market strategies,” he adds. “Here, land and expand is effectively an indexing strategy: land at as many organizations with as little investment as possible.”

“Every once in a while you'll land a Google, a Facebook, or an Amazon (both figuratively and literally) which will drive a disproportionate share of revenue,” he says.”Even if those customers start off small, any given customer could potentially become quite large.”

Whales matter, in business, for revenues and profits.