Will Private Equity Move into Connectivity Also Lead to Adjacency Moves?

Brightspeed, the new connectivity provider formed by assets purchased from Lumen, is setting up its headquarters in Charlotte, N.C. Basically representing the assets comprising the old CenturyLink, Brightspeed serves mostly rural areas across the U.S. Southeast, Midwest and South Central regions. 

source: Brightspeed 

The business plan to be executed by new owner Apollo Global Management focuses squarely on an upgrade of the largely-copper physical plant to fiber-to-home for internet access. 

Brightspeed plans to build an XGS-PON network operating initially at 1 Gbps. But one new objective is ensuring that the Wi-Fi experience inside the home better matches the bandwidth of the access pipe. 

What consumers experience as the “speed” of the access network these days is measured by the performance of the Wi-Fi in-home network. Brightspeed is expected to incorporate more measures to enhance the Wi-Fi coverage and speed indoors as an essential part of its “upgrade internet speeds” push. 

The strategy rests on some short-term and some long-term value drivers for the new owners. Near term, Brightspeed believes its cost of FTTH infrastructure will be subsidized by new subsidies for building broadband plant.

That changes the investment calculation and helps improve the payback from new investment. 

Low borrowing costs also are a reason for the push. 

The longer-term goals are different, representing a belief that the fiber access assets will provide an alternative asset to stocks, bonds and other “turnaround” assets in the Apollo portfolio. The hope is that Brightspeed will provide predictable cash flow from a business with competitive moats.

That is similar to the thesis for owning airports, toll roads, seaports or other forms of infrastructure that have been investment targets by private equity and institutional investors. 

In 2020, investment in telecom infrastructure represented as much as 35 percent of private equity deal value in the United States, according to Preqin. 

There are other shifts as well. The financial return from ownership of traditional infrastructure assets is not as high as the returns from operating such businesses. In many cases, the return “as a data center operator,” for example, can be as much as double the return from “simple connectivity” business models. 

The perceived upside now comes from additional expected opportunities in edge computing, private networks, internet of things and digital infrastructure in general. The argument is that many cloud or edge computing ventures are  more valuable when combined with connectivity.  

In addition, scale should increase potential returns, which is one reason for additional investments. 

Also, a significant presence in the connectivity value chain increases the ability to participate in adjacencies, such as::

• Data centers, including colocation services

• Structured cabling 

• Distributed antenna systems (DAS)

• Electrical, aerial and underground fiber deployment 

• Civil construction 

• Small cell or micro cell installations 

• Indoor DAS and outdoor DAS integration

What is not clear so far is whether “wholesale access” will be a significant part of the Brightspeed business model or not, as is the case for some other FTTH business plans preferred by private equity investors.

As Did Entertainment Video, Metaverse Will Shape Access Networks

Assuming the metaverse becomes the "next big thing," it will have ramifications for many parts of the internet ecosystem beyond the application providers. Devices, semicondutor and chip, edge computing and cloud computing as well as access networks will be shaped by application requirements.

As always, the concern connectivity providers can expect to have to supply more bandwidth, upstream and downstream, with better latency performance, with only slight increases in access revenue from consumer customers.

So the logical question will be whether those investments produce incremental revenue, and if so, how?

Hyperscale app providers always have different perceptions about access networks than do connectivity service providers, for obvious reasons. For hyperscalers, quality internet access is a requirement for their businesses. For connectivity providers, access is the business. 

So hyperscalers want access to be abundant and cheap. Connectivity providers want widespread access--but not so much “universal access at any price.”

Hyperscalers benefit from widespread quality internet access with unlimited usage. Access providers want reasonable retail prices and quality levels that match what consumers are willing to pay. 

At a high level, the business issue for access providers is demand that grows up to 50 percent per year, but consumer willingness to pay that changes less than one percent a year. 

source: GSMA 

As the rise of internet-delivered video entertainment content and advertising has reshaped  global bandwidth demand, so might the metaverse, at scale, reshape demand even further, as it requires support for low latency application and network performance; lots of computing support and diverse content inputs. 

source: NCTA  

Of course, lots of infrastructure will have to change, including ever-improving graphics processing units (GPUs), photorealistic 3D engines, faster content generation through volumetric video and artificial intelligence, edge computing, access networks and blockchain infrastructure.

It remains to be seen how important edge computing is, relative to xG mobile network, Wi-Fi and fixed network performance; devices or other parts of the supporting infrastructure.

Some Day, Mobile World Congress Will Not be Needed

Supercomm once was the big “U.S. telecom event. The Cable Show once was the big “U.S. cable TV event” and CTIA once was the big “U.S. mobile industry” event.

They do not exist anymore. Some might argue that GSMA’s Mobile World Congress has taken the place of the CTIA event, if smaller in scale. But Supercomm and the Cable Show are simply gone.

source: New Perspective 

We might here note the aphorism that nearly all trade shows eventually go away, as the underlying industry dynamics change. 

These days we might also point to the existence of the internet as contributing to faster obsolescence, as “information” value no longer requires the holding of such events. Trade shows retain their value as venues for sales teams: it is an economical way to “travel once, meet many.”

But the “sharing information” role is largely displaced, as market participants can create their own events and share information in lots of other ways. 

It also is fair to note that mature industries tend to develop smaller numbers of potential customers than younger, developing industries. That makes it easier for sales teams to directly target their potential customers. 

So though it might seem “impossible,” we might already be seeing the beginnings of the “end” of Mobile World Congress. It won’t happen overnight. But as the ranks of mobile operators begin to shrink through consolidation, there will be greater opportunities to target potential customers directly. 

And as growth mechanisms shift elsewhere in the ecosystem, we are likely to see the rise of new events emphasizing those areas of growth, which typically will require lots of spadework to find channel partners, customers and solution enablers. 

MWC already has ceased to be the key venue for phones and new phone launches. It already has shifted to “enterprise” apps and solutions to a large degree. More changes likely will be coming as revenue growth shifts toward ecosystems geared to the internet of things, enabled by artificial intelligence, using blockchain and cloud computing. 

We do not yet know when the change will happen, or what else will emerge to take its place, but MWC will not be exempt from evolution. We have seen the story before: connectivity industry “must attend” industry events eventually lose their value as the industry matures. 

Such events will retain their highest value for sales teams. Value will evaporate fastest in the event roles as information sharing platforms. And ecosystem participants will start to find new venues organized around relative niches in the business, simply because the efficiency of such meetings will be higher. 

At some point, though, the “need” for mega-events will pass. The fixed network telecom industry and cable TV industry still exist, without the need for mega-events. The mobile industry will still exist, even if MWC no longer is necessary. 

CES might be the exception to the rule, in large part because the “consumer technology” business remains so fluid and so distributed. Those are the ideal drivers for a recurring event. 

An Ominous Forecast for Service Provider Revenue Globally

There is something ominous in a new forecast of telecommunications industry revenue up to 2030, published by Transparency Market Research. Note that half of the 2030 revenue is earned by infrastructure providers, software and platforms. About half--or about $1.3 trillion--is earned by “service” providers.

source: Transparency Market Research 

What is ominous is that suggests zero growth--or decline--in service provider revenue between now and 2030. By some estimates, current service provider revenue is $1.5 trillion annually.  

Will EC Digital Rights End Some Aspects of Network Neutrality?

The European Union declaration on digital rights deals, as you would expect, with social policies. But every proposed or enacted social policy has corresponding private interests. Perhaps oddly, the new principles--if established as rules--might overturn some key elements of network neutrality principles, which have widely prohibited anything but "best effort" consumer internet access.

In other words, application providers cannot be charged money for expedited performance over access networks. Some will point to the widespread use of such mechanisms in the core network, where perhaps 71 percent of all internet traffic uses a content delivery network.

The EU initiative calls for a framework where "all market players benefiting from the digital transformation…make a fair and proportionate contribution to the costs of public goods, services and infrastructures".

In other words, big app providers who impose most of the traffic demand on access networks should help pay for the access infrastructure.

It is not surprising that infrastructure cost burden sharing is sought by internet access providers, who argue they must invest based on demand created by third parties. Says Orange, “the investment burden must be shared in a more proportionate way.”

“Today, video streaming, gaming and social media originated by a few digital content platforms accounts for over 70 percent of all traffic running over the networks,” Orange argues. “ Digital platforms are profiting from hyper scaling business models at little cost while network operators shoulder the required investments in connectivity.”

It is not a new argument. Infrastructure cost sharing has been talked about since at least 2006.  

The document also calls for “developing adequate frameworks so that all market actors benefiting from the digital transformation assume their social responsibilities and make a fair and proportionate contribution to the costs of public goods, services and infrastructures, for the benefit of all Europeans” 

In other words, the argument is that access providers need some form of revenue sharing with the app providers using the networks. 

If enacted, such proposals would be the diametrical opposite of some strong forms of network neutrality rules, which have prohibited such forms of revenue sharing. 

source: World Wide Web Foundation

To be sure, the battles over network neutrality have been framed, in part, on ensuring fairness. Part of the argument is that internet access providers should never be allowed to charge fees to big customers for providing quality of service mechanisms.

Oddly enough, most application providers do precisely that. In 2017, for example, a majority of internet  traffic used a content delivery network, which is precisely a paid prioritization method. In 2021, it was estimated that paid prioritization using CDNs would support 71 percent of all internet traffic. 

source: Cisco, Quartz 

In other words, paid prioritization is commonplace in the internet ecosystem. What net neutrality rules prevented was any application of the same principle to retail access. 

The EC “digital rights” principles might well end up overturning network neutrality in that sense.

Private 5G and Edge Computing are Sometimes Virtually Synonymous

AT&T Private 5G Edge--now under development--allows enterprises to more easily set up internet of things edge computing networks based on Microsoft Azure multi-access edge computing. In such cases, private 5G is functionaly indistinguishable from MEC.

“A feature we are working on for AT&T Private 5G Edge is the ability to roam off these private networks but still stay connected via AT&T’s U.S. public mobile network,” AT&T says. 

For example, a hospital might use its private network to precisely track ventilators, wheelchairs, and other critical items in its building. But if a ventilator gets loaned to another hospital, that feature ensures the “roaming” machine always remains accounted for even outside the private network, AT&T suggests. 

source: Microsoft 

AT&T also runs its 5G core using Azure, so in a sense, AT&T Private 5G Edge will be running on an AT&T 5G core network that uses Azure cloud computing infrastructure. 

The new offering is designed to help enterprises deploy private wireless networks rapidly across radio spectrums, including Citizens Broadband Radio Service spectrum, licensed or unlicensed, and uses the public network to support a private 5G deployment.

The new offer from AT&T and Microsoft creates private 5G networks using public network resources. Logically, the network is private. Physically, the private network is built using public network resources. 

ABI Research believes “5G network” capital investment, by about 2036, could rival mobile operator capex on the “public” network. Keep in mind that forecast includes what enterprises spend on infrastructure to create their own private 5G networks as well as what mobile operators spend on public 5G. 

That spending includes support of private and enterprise networks “on the premises” and “indoors” instead of being spent on the outdoors infrastructure. What is not yet clear is how much of that investment will create private 5G networks using public network resources, and how much is invested building private 5G networks on a “do it yourself” basis. 

source: ABI Research, Enterprise IoT Insights 

It is one more example of how virtualized public networks create new opportunities for use cases and applications. 

 source: Janakiram & Associates, Forbes. 

Our terminology and thinking evolves as edge computing evolves and we might, in some cases, be overthinking the concept. 

Not all edge computing requires use of the public networks. “Micro edge” computing does all the computation directly on a device microprocessor. “Mini edge” computing also runs autonomously from the public network, but at the device level. 

“Medium edge” uses a cluster of edge machines, while “heavy edge” runs gear in a data center rack. In addition to MEC, which supplies computing someplace outside the enterprise premises, but within a regional location, some refer to “cloud edge,” which is the running of distributed functions at a remote location beyond the metro region.

Access Platforms for IoT are Not "One Size Fits All"

No single access network technology is “best” for every application or use case, and that remains true for internet of things connectivity as well. 

Some use cases only require short-range or  local connectivity; others require wide area support. Some use cases require small amounts of bandwidth, with infrequent updating; others require video bandwidth and almost-continual updating. 

source: Ericsson 

Some applications will have key latency performance requirements; others will not. Power consumption often will be a key constraint, but not always. Device cost must be quite low in some cases, less a concern in other instances. 

For such reasons, mobile platforms are not “best” for every business case. Specialized networks, sometimes using unlicensed spectrum, will be sufficient in many instances. Local connectivity will do for as much as 80 percent of use cases. 

Though mobile service provider interest in internet of things connections is driven in substantial part by the sheer number of projected devices to be supported, incremental connections might not be as large an opportunity as some hope. 

IoT Analytics expects the global number of connected IoT devices to grow nine percent,  to 12.3 billion active endpoints. By 2025, there will likely be more than 27 billion IoT connections, the firm estimates. 

source: IoT Analytics

But there are lots of nuances. Perhaps 22 million of the projected 2025 connections of 27 billion will use some short-range technology, not the mobile or other specialized networks, or fixed networks. 

source: IoT Analytics

In other words, up to 80 percent of IoT connections will use local or personal area networks, not the mobile--or some other network--for access. So new revenue will be an issue, even as huge forecasts are easy to find.