Never Discount Human Creativity

Every once in a while, you see the internet and the apps its supports used creatively by people in ways that show its power and value. Consider the way people are donating directly to Ukrainians by booking Airbnb stays in Ukraine, with no intention of visiting. 

source: Must Share News 

Airbnb, for its part, is not charging either guest and host fees for bookings in the country, forgoing any profits on such bookings. 

Airbnb also is offering 100,000 no charge short-term stays for Ukrainians fleeing the Russian invasion. 

The other innovation is the way Ukrainian organizations are accepting crowdfunded crypto currency donations. 

I am sure there will be substantial activity on crowdfunding sites, which is an  example of internet apps providing value in ways we expected. The problem many have is that there is no way to verify that donations are used in the way specified. 

There are lots of organizations now providing ways to make humanitarian donations to the people of Ukraine. Some are verified by Charity Navigator.  My personal channel is Catholic Relief Services, in part because it operates globally; manages to deliver 93 percent of donated funds directly to the people it is supposed to be helping and because I trust them to move quickly and efficiently whenever there is an emergency somewhere. 

For sheer creativity, though, booking Ukraine Airbnb stays as a way to send money directly to Ukrainians is notable. 

Think of Edge Computing as Enterprise IT: Revenues Will Follow

According to Vertiv, connectivity providers might ultimately gain about 11.5 percent of edge computing revenues. Many believe connectivity providers might gain about 10 percent or so of internet of things revenues as well. 

source: Vertiv

As often is the case, system integrators and information technology suppliers will have major roles, garnering perhaps half of all edge computing revenues, as is the pattern for most information technology revenues generally. 

If you think about edge computing broadly--as a solutions-driven form of enterprise IT--that market share pattern would not come as a surprise. Enterprise IT solutions must integrate devices, applications, business processes, operating systems, platforms and industry requirements. 

Edge computing infrastructure will not act as a substitute for cloud, says Vertiv, while noting that  the  number of edge sites will grow by 226 percent  from 2019 to 2025. 

The most developed edge computing deployments will support cloud gaming, video analytics  and stock trading, says Vertiv. Use cases such as autonomous cars are still mainly at an exploration or proof of concept stage.

source: Vertiv 

source: Vertiv

The United States is leading the way with edge initiatives and is estimated to be the largest market for edge computing, Vertiv says. 

source: Vertiv 

As you might expect, regional edge facilities will most often function as content repositories. “On the device” edge will be key for augmented reality, virtual reality, industrial sensing and connected health use cases. 

source: Vertiv 

“On the premises” edge and “close to the premises” edge will have the most value for language processing, real-time inventory and traffic management use cases, Vertiv believes. 

source: Vertiv  

Edge computing, as cloud computing before it, will integrate key business processes and software platforms with computing infrastructure and communications. And those are tasks historically well suited to system integration and IT solution providers.

Nokia Touts Edge Slicing

Nokia now is touting what it calls edge slicing, which builds on 5G core network network slicing, but allows enterprises to keep some critical traffic local while running the virtual networks as well, using the public network to support both types of services.

source: Nokia 

Nokia’s 5G Edge Slicing solution keeps some enterprise local data traffic separate from other virtual private network traffic. 

The solution is scalable and allows the same virtualized network infrastructure to be used by several customers in the same area, for example in a business campus containing multiple companies, Nokia says. 

source: Nokia 

A 5G virtual private network can be deployed in an area with a 4G/5G base station or in a campus, city, or regional area. 

The solution allows access providers to support both on-premise 5G private networks or 5G VPNs. 

U.S. FTTH Payback Models are Changing

The U.S. fiber to home payback model is changing, with construction costs seemingly falling, subsidy mechanisms increasing, equity value growing, strategic value climbing and investor interest at high levels.

It is an unexpected outcome for a traditionally-challenged investment thesis. Some believe Apollo Global Management, which purchased assets at about five times to six times cash flow (EBITDA) could--after the FTTH upgrades--own assets valued at 10 times cash flow.

By some estimates, fiber to home construction still costs about $1200 per location. But U.S. service providers including Lumen Technologies say the cost is $1000 or so per passing, though current builds cost less than that.

Others estimate costs of about $600 per passing, with an additional $725 to connect and activate service at a consumer location. The key point is that FTTH costs have fallen significantly over the last two decades.

Others say the cost is closer to $800 per passing. So payback models are highly dependent on the characteristics of each specific deployment, including housing density and propensity to buy.

Take rates will matter, as take rates of 30 percent are not likely to produce a satisfactory return, Lumen has said, expecting take rates more on the order of 40 percent, which telcos traditionally have been able to get after a few years of marketing.

Importantly, service providers now are looking at multiple revenue streams which can be generated--or supported-- from an FTTH deployment. The same FTTH network supports small cell deployments, for example. In essence, part of the value of FTTH then flows from the mobile services revenue stream and payback models for mobile services infrastructure.

Edge computing, enterprise and smaller business data connections, internet of things support and private networks for business also are envisioned as revenue streams enabled by FTTH.
Lumen’s ability to invest is an issue for many observers, though, who believe Lumen might have to choose between retaining its dividend and investing aggressively in FTTH. In any event, the payback models will be complex.

It will not be 40 percent take rates for consumer households passed by the new networks. It also will be the role played by the optical access networks in supporting edge computing and enterprise use cases, including dedicated internet access, private networks and backhaul for mobile cell towers.

Working that into payback models will be complex.

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.