Rural Broadband Quality is an Issue, if Not the Issue Policymakers Often Suggest

A survey conducted by the U.K.-based National Innovation Centre for Rural Enterprise (NICRE) differences confirms what virtually everyone would acknowledge: rural broadband networks are perceived to be worse than urban networks in terms of speed, for example. The NICRE also argues that inferior broadband also reduces rural firm resilience. 

source: NICRE 

The obvious solution to this problem is to improve the quality of rural broadband. That should be done, of course. But the claimed upside from such improvements is hard to quantify. 

The problem is that rural areas virtually always have more of some attributes and less of other attributes that correlate with economic growth. 

Rural areas have fewer businesses, fewer jobs, lower wages and longer transport distances to urban areas. That lower density of activity is directly reflected in opportunities to foster economic growth.

source: Internatiional Labor Organization 

Rural areas also tend to have lower average household incomes, lower educational attainment and  older average age profiles. All of those attributes are correlated with lower use of technology in general. 

The point is that rural area broadband quality does tend to be lower than what is found in urban areas. But so are most other measures of economic activity. Even if rural broadband were, in every respect, identical to what is found in urban areas, those other correlations would continue to exist. 

Even if quality broadband were to eliminate virtual good distance issues, broadband would not eliminate the distance issue as it pertains to all physical goods. And that would still shape rural area ability to improve economic growth. 

Nobody would likely argue that quality broadband makes rural life worse. Policymakers always argue quality broadband makes economic growth or rural life better. But it remains plausible that even quality broadband will do little to boost economic growth in rural areas.

The reason is that the drivers of rural underdevelopment are not created or significantly hindered by broadband quality. Low population density, logistical distance, educational attainment gaps and lower household wealth and the movement of young people to cities all combine to limit growth opportunities. 

Better broadband is not going to change that much, if at all.

Pareto Theorem Suggests Where and Why Millimeter Wave Spectrum Will be Useful

Pareto distributions--often colloquially referred to as the “80/20 rule.--are common in business, technology and nature.

Most of us are familiar with the 80/20 rule, which suggests that roughly 80 percent of value or outcomes are generated by about 20 percent of actions. Formally, it is the Pareto theorem. 

Virtually nobody would be surprised if told that the highest data demand in the U.K. mobile services market comes from areas such as London, Manchester or Glasgow, which are major population centers. 

What might be more surprising is that cell site data demand is about as disparate as the population data would suggest. According to Ofcom, the U.K. communications regulatory body, the largest 20 cities, containing 32 percent of the total U.K. population, cover about 2.4 percent of the surface area. 

source: Ofcom 

In fact, cell locations and data usage tend to show a Pareto distribution. Pareto would suggest that about 80 percent of mobile data usage is generated by 20 percent of the locations. 

source: Medium 

Pareto applies to most aspects of the connectivity, data center or computing businesses. It even applies to revenue generated by mobile cell sites. Half of mobile revenue is driven from traffic on about 10 percent of sites. Fully 80 percent of revenue is driven by activity on just 30 percent of cell sites. 

source: Ericsson 

Pareto also applies to mobile operator and telco revenue, profits, accounts and cost.  

source: Telco Strategies

That is clear in the distribution of customer accounts, ranked by revenue potential.

source: B2B International

source: Ofcom 

That Pareto distribution of data usage also shows where and why millimeter wave spectrum will prove useful. The skewing of data demand in a relatively small number of dense, urban areas suggests millimeter wave’s capacity advantages will prove most valuable there, as Verizon has argued. 

source: Verizon 

Much Web 3.0 is Simply the Natural Evolution of Web 2.0

What do observers believe “decentralization” actually means when talking about Web 3.0? What is sought is an internet not dominated by a handful of large app providers. But many--perhaps most--features said to be characteristic of Web 3.0 arguably are not foundational changes. 

Some might say Web 1.0 was “read only,” whereas Web 2.0 was “read-write.” In that sense, Web 3.0 is “more write,” albeit with a significant chance that reach or influence might not change all that much. Think of the notion of “everyone may speak” and how that is different from “who has something to say?”

In other words, unlimited ability to post does not mean unlimited ability to “get attention.” Large platforms tend to make a difference in that regard. So the issue is whether the “creating an audience” function can be supplied in decentralized fashion or not, without the mediation of a platform. 

The corollary is whether an effective platform can exist without ownership. There is a difference between “using a mechanism” and “owning a mechanism.” Many argue Web 3.0 alters “ownership rights and mechanisms.” at scale. 

source: Lizard Global 

If one analogy is content creation, then Web 3.0 promises a way for content creators to monetize in a more-direct way. But popular content never has surfaced and propagated without the use of platforms that curate content. Whether that changes because of distributed security and payment mechanisms is not so clear. 

The issue is whether decentralized curation can scale. 

That might not wind up being the case. Even when individuals have more control or ownership over their data, value might be created by platforms that allow the “most valuable” data to propagate. And that is precisely what Web 3.0 proponents seem to oppose: the creation of large intermediaries and platforms. 

As envisioned, Web 3.0 would operate more like a peer-to-peer network, with computing resources scattered widely and without gatekeepers.

To be sure, some foundational “distributed” features are seen” blockchain; crypto currency assets and public key security. Some also see the ability to develop apps without much--if any--coding knowledge. 

Some applications could--or should--include banking, presumably the ability to conduct transactions more directly, without “middlemen” such as financial institutions. That would be a classic example of “disintermediation,” by definition the removal of distributors from value chains. 

source: WallStreetMojo 

Other applications do not seem intrinsically related to Web 3.0 “decentralization,” though. Use of augmented reality sometimes is said to be an attribute of Web 3.0, but that is likely to happen in any case. 

Some might argue that the use of “digital twins” is a Web 3.0 development, but others would argue that will happen anyhow, and is not intrinsically produced only by Web 3.0. 

The same might be said of artificial intelligence, cloud or edge computing and big data. Sometimes cited as examples of Web 3.0 experience. Obviously, the countervailing notion is that those developments already are coming, but not necessarily requiring a new internet architecture. 

The use of peer-to-peer transactions, which blockchain will help facilitate, seems among the few concrete examples of how Web 3.0 would operate, in terms of value exchanges. 

The point is that we cannot yet say how different any Web 3.0 might be. Experientially, the low-bandwidth, character-based internet offered a vastly different experience than the image, video and sound-based Web, able to support robust e-commerce features. 

As the Web evolves to incorporate artificial intelligence, virtual and augmented reality, it is possible, though not inevitable, that platforms could be substantially eliminated, at least for some operations, such as payments. 

Still, it seems a bigger stretch to argue that large and dominant platforms will be eliminated by distributed transactions, for example. The value of marketplaces (platforms) is precisely the richness and density of potential buyers and sellers. Whether the relatively frictionless experience provided by a large marketplace can be replicated in some decentralized way is the issue. 

Easier to predict is the growth of “trust” mechanisms that will protect buyers and sellers from fraud, as that is a primary attribute of blockchain mechanisms. 

source: Fabric Ventures 

How Much Can Metaverse Change?

Many argue that the key difference between today’s internet and tomorrow’s metaverse is the architecture. Many argue that the metaverse will be “open,” compared to today’s “cl;osed” internet. 

Others might argue that the difference is metaverse “decentralization” compared to today’s “centralization.” 

source: a16z 

That seems a hope that will not, in the end, actually be realized as its proponents intend. To the extent that the metaverse creates property rights--and nobody denies that property rights will be created--is there historical precedent for such rights to be held in mostly-decentralized fashion?

In other words, will there not be rights holders with more volume than most others? In other words, in any mature market, do leaders not emerge? Will users and customers not gravitate to those products deemed “best?” 

If the goal is to prevent the emergence of gatekeepers, is that realistic? Are we not confusing “degree of centralization” with “degree of power” or “degree of influence” or “share of market?”

To use an analogy, it is one thing to propose creation of a “classless society.” It is quite something else to actually create it. In fact, both decentralization (people have formal rights) and centralization (some have more power and wealth than others) tend to coexist. 

Formally “open” systems can result in “unequal” outcomes. Users might have choices, but platforms can still exist. Both direct and mediated interactions can operate at the same time. 

Of course, there is another historical precedent. Revolutions happen. But classless societies do not result. One set of rulers is exchanged for another. The identities of the “ruling class” will change; but society does not become classless. 

So even if metaverses do not eliminate gatekeepers and platforms, there is a reasonable chance they will create new gatekeepers and platforms.

Why is EU Looking at App Provider Payments to Telcos?

Though the outcome remains unclear, European Commission policy makers will be looking at new regulations requiring a handful of big application providers to pay telcos for internet access investments, the stated rationale being that a few app providers represent 56 percent of capacity demand. 

At least in part, the proposed rules are intended to address lagging broadband capacity and the buildout of 5G. Why the access business appears relatively unprofitable is the issue. 

The answers include both the shift from monopoly to competition and the advent of the internet, both of which have arguably damaged telco revenue models. 

The global shift to competition as the framework for telecom services has had a dramatic effect on business models, severely challenging supplier profit margins and  cutting the share of market any competent supplier can expect. 

At the same time, the internet has led to a gradual diminishing of the “applications” role and its replacement by a “dumb pipe internet access” role that offers far-less opportunity for adding value and sustaining profit margins. Few--if any--popular apps now are created and owned by telcos or other competing connectivity providers. 

In other words, telcos once exclusively created and sold “voice services” and had a legal monopoly on the creation of any other services sold to customers. 

A smallish data transport business existed, and it produced high profits. But key to the business model was the sale of an application. Customers were not charged for use of the network, in a direct sense. 

Compare that to today’s model, where the revenue model is driven in precisely the opposite way: customers are charged for use of the network in a direct sense (internet access) but not for specific applications, which are supplied by third parties. 

Likewise, prices once were charged based on distance and volume: higher prices were charged for connections further away, and as well as by minutes connected. 

These days, distance does not matter. And “volume” is less directly related to pricing. Often, virtually unlimited usage is allowed in exchange for payment of a flat fee. 

All of that contributes to the business model stress connectivity providers now experience. 

source: ETNO 

Consider the impact of competition on potential market share. In the monopoly era a telco could theoretically capture nearly 100 percent of potential demand. All that changes with lawful competition. In mobile markets, three or four contestants are common. That reduces the potential market share of even a share leader to perhaps 33 to 40 percent. 

Much the same happens in fixed markets, where facilities-based competition or mandatory wholesale is the regime. The market share held by the leader will be a fraction  of what was possible in the monopoly era. 

All of that suggests that, in some markets, the number of competitors will decrease; wholesale mechanisms will become more important or perhaps even a return to monopoly in some form will be necessary.

Who Should Pay for Internet Access? EU Changes its Thinking

In a move that completely reverses the key notion of network neutrality--that all bits be treated the same on access networks, the EU is considering whether some big app providers should be making payments to connectivity service providers to support infrastructure investment. 

A study sponsored by the European Telecommunications Network Operators association claims that a few big app providers represent about 56 percent of the usage of EU access networks, so ETNO wants them to pay as much as that percentage of access infrastructure costs. 

source: ETNO 

ETNO estimates internet service providers in the EU spend about $28 billion on capacity that directly supports the operations of a few big app providers, according to the report published by the European Telecommunications Network Operators association. 

source: ETNO

The issue for ISPs is that revenue no longer is tied in some direct fashion to use of network resources. In the voice era, usage was basically related to revenue” use more, pay more. 

In the internet era, customer data consumption is not directly related to revenue. Customers generally pay for buckets of usage on mobile networks and by speed tiers on fixed networks. 

But mobile ISPs sometimes offer “unlimited usage” as well. A  flat fee for unlimited usage completely breaks the relationship between usage and revenue. 

On fixed networks the pricing is variable based on speed, with some overall usage limitations. 

According to ETNO figures, the mobile networks are where the biggest disparity lies. 

Traditionally, customers pay for usage of network capacity. ETNO proposes, and the EU is considering, altering that business model by adding third party users to the financial support picture.

Where traditionally “customers” paid for access, ETNO and the EU now also want third party users to contribute. In other words, a few big users would be required to subsidize the access networks. The irony is that this flips network neutrality on its head. 

All bits would not be treated equally. Payments would have to be made by some app providers but not all. The “threat” of such unequal treatment, which net neutrality laws were intended to address, now would be embraced by policymakers. 

Where financial payments for use of the access network were outlawed for consumer access, in order to “protect” freedom, now regulators propose precisely a remedy that authorizes unequal treatment of bits, albeit in the guise of infrastructure support. 

There are other ironies. The “threat” to internet freedom was said to be the ISPs who could act as “gatekeepers.” Recent evidence has shown that the actual gatekeepers of content expression and freedom are the major app providers. 

Though in principle none of the network neutrality or proposed network unequal treatment rules directly address freedom of expression directly, they do so indirectly, by creating unequal costs to reach consumer end users. 

In the end, as EU policymakers now have been on both sides of the issue, it is clear that winners and losers within the internet value chain, and the costs of doing business for participants in different segments of the business, is the real issue. 

Earlier net neutrality rules were supposed to prevent ISPs as “gatekeepers” from distorting freedom and access. Now the EU considers policies that see a few big app providers as the true gatekeepers, and hence propose the reverse set of measures to prevent distortion. 

The other issue is that trade policy and perceived support for domestic industries also is involved. European policymakers long have noted that internet innovation happens in China and the United States, not Europe. 

The latest set of rules would have the effect of placing hurdles on U.S. firms that could indirectly aid EU domestic app and content providers as well as domestic telcos. 

It always is true that for every valid public policy purpose, there are corresponding interests. It is never more obvious than in considerations of how access infrastructure is supported. 

"Techco" Dream is Mostly That: a Dream

Even before the internet era, telcos and connectivity providers have been torn between “being who they are” and “becoming something else.” Some with long memories may recall efforts to diversify into computing (before edge, before cloud, in fact, before client-server) or systems integration or information technology consulting. 

In the internet era, many more will recall efforts to create leading app stores, become cloud computing or data center leaders. Though controversial, efforts to become content owners have been more successful. 

Now many connectivity providers explore private networks, internet of things or edge computing as new fields to lead. The phrase techco is the latest version of connectivity provider efforts to become something other than what they are. 

In some iterations, a “techco” is a connectivity provider that curates other digital services to add value and drive higher revenue. In a word, telcos need to become platforms. That is much harder than it often appears. In fact, few companies in any industry actually are able to become platforms, which earn their revenues in a specific way.

A platform earns its money by enabling transactions. It is a marketplace that matches supply with demand; products and services with the organizations that wish to buy such products. 

source: Simon Torrence 

 

It is a compelling vision, since it promises the flow of money and revenue from lots of different places to the telco. 

The problem is that other participants in the value chain either do not see the value or positively reject such arrangements. Who “needs” the telco business relationship when the “layers” architecture allows app providers to reach their users and customers directly, without any such business relationships?

source: STL Partners 

It is far harder than it sounds. Not everyone agrees that even successful curation or bundling of features means a connectivity provider has become a platform. A true platform implies that the actual revenue model for a firm is functioning as a marketplace where other buyers and sellers conduct transactions. 

Adding features, content or value does not, by definition, mean a firm is a “platform.” It just means the supplier provides different and expanded value. 

The Connectivity-Plus model might bundle cloud, edge and IoT providers’ services. 

The Innovation Platform model most closely approaches a “true” platform model as it has the connectivity provider exposing its services using application program interfaces. 

The End-to-end Solution model has connectivity providers assembling end-to-end solutions for business-to-customer products that might have complex value chains. 

The Adjacent Acquisitions model has connectivity providers acquiring specialist companies such as IoT or security firms, and operating them as independent or partnered efforts.

Perhaps most seasoned observers would expect most connectivity providers to try either the “Connectivity-Plus” or “expose our services using API” approaches, as neither of these forces firms to radically change their business models.

Those approaches also limit execution risk. 

Though most such efforts will focus on business customers and use cases, the fundamental approach has been tried often in the consumer space. The irony is that such efforts--whatever the outcomes--eventually are criticized as a distraction from “doing what you do best.” 

And what telcos “do best” is provide connectivity. 

source: Kearney

It is hard to argue with the vision of a connectivity provider network that is self-configuring, self-healing, and self-optimizing, enabling zero-touch operations and zero-wait for new services, as TMForum says is among the goals of applied artificial intelligence in the network. 

Likewise, it makes sense to many to explore more-complicated business models that add features and services “beyond connectivity.” 

But bundling new value does not change a telco into a techco. Using AI, creating a more-open network and automating are good things, to be sure. They help a telco run its business more efficiently, with less friction. 

But none of that--exposing APIs, automating, using AI, open interfaces and processes, enabling zero-touch provisioning--makes a telco a techco. They make a telco a better telco.

In principle, a true telco operating as a platform would not “sell connectivity.” It would be a marketplace that allows others to buy and sell connectivity. 

Few--if any--legacy telcos will ever become true platforms. To do so, they would have to become Amazon or eBay--marketplaces and exchanges--making their money from transactions. Such a “telco” would not own the actual networks and services that are bought and sold. It would simply make the transactions possible. 

Few even entertain the notion, let alone are actively moving to realize such ambitions.