When All Home Platforms are the Same, Marketing and Operating Prowess Still Will Matter

Virtually all observers believe hybrid fiber coax eventually will be replaced by fiber to the home. The issue always is the time frame for the transition. What is not so clear is the eventual impact on cable operator market share. Some forecasts might reflect use of HFC platforms rather than internet access (home broadband) market shares, as cable operators gradually move to FTTH themselves. 

source: Point Topic 

Assuming cable operators remain astute operators, a case can be made that even after the shift to FTTH platforms, they should still be able to maintain leading shares in the home broadband markets, much as one now sees in mobility markets globally. Platforms are the same. What matters are operating and marketing prowess. 

source: Point Topic

How "Reliable" or "Available" is the Internet? Nobody Can Really Know

End user experience of the internet is virtually impossible to quantify in terms of total availability. In other words, it is objectively impossible to measure. And, no matter what the objective estimates might be, they are conditioned by subjective issues. 

For example, even if we can estimate that the total availability of all internet apps is collectively 90 percent, meaning something, somewhere,  is not available about 10 percent of the time, no user is actually trying to use all those potential apps. 

Outages that happen do not matter for users not using any particular app, data center, internet service provider or backbone network. Furthermore, nobody is actively interacting with internet apps 24 hours a day, seven days a week.

So outages that happen when one is not interacting with an app effectively “do not matter” for that user. 

We long have known that anything related to the internet is not as “reliable” (service availability) as the old public switched telephone network. The telephone network uptime standard was 99.999 percent availability, representing annual downtime of about five minutes.

source: AWS 

Availability for consumer internet apps and services tends to be far lower, in large part because the entire end-to-end transmission chain is not under any single entity’s control. Consider recent availability data for U.K. internet service providers. In all cases, availability was in the range of 97 percent to 90 percent.  

source: Uswitch 

But that was only for the local access link. Those availability figures do not take into account any other sources of availability loss: far end access; app availability; device availability; local power availability or any other platform availability. Since there is no “chain of custody,” it is virtually impossible to estimate average availability for any particular configuration of hardware, software and platforms at any single location or for any single device. 

It is safe to say that 99.999 percent availability for consumer internet “anything,” end to end, is impossible. 

It probably goes without saying that the Internet is a complex system, with lots of servers, transmission paths, networks, devices and software all working together to create a complete value chain.

And since the availability of any complex system is the combined performance of all cumulative potential element failures, it should not come as a surprise that a complete end-to-end user experience is not “five nines.”

Consider a 24×7 e-commerce site with lots of single points of failure. Note that no single part of the whole delivery chain has availability of  more than 99.99 percent, and some portions have availability as low as 85 percent.

In principle, availability could be quite low, without redundancy built in. 

The expected availability of the site would be 85%*90%*99.9%*98%*85%*99%*99.99%*95%, or  59.87 percent. Redundancy is the way performance typically is enhanced at a data center or on a transmission network, to avoid such a state. 

Component	Availability
Web	85%
Application	90%
Database	99.9%
DNS	98%
Firewall	85%
Switch	99%
Data Center	99.99%
ISP	95%

source: IP Carrier 

In practice, cloud data centers have made great strides where it comes to availability, so that dire situation virtually never happens. The other issue is that “user experienced” availability is better than actual end-to-end availability since users are not actually connected and engaged with internet experiences and apps all day, every day. 

Outages can occur with any user-experienced downtime if any particular user is not actually interacting with the internet at the moments when the outages occur. Even if end-to-end experience is at the 90-percent level, implying outages about 10 percent of the time, it does not affect a user if those outages occur when a person is sleeping or otherwise logged off.

WAN Services Now as Little as 3% of Telco Revenues?

Most global telco revenue is earned providing mobile services. Contributions by local fixed network services are lower. Perhaps lowest of all are wide area connectivity services. If total service provider revenue is about $1.6 trillion, mobility represents perhaps 57 percent of the total.  

source: IDC. 

That is just as true in the consumer segment, which itself represents perhaps 60 percent of total service revenues for a typical service provider. In the United States, for example, fixed network communication services might represent only about 20 percent of total consumer segment revenues. As much as 20 percent of total revenue might be generated by video entertainment subscriptions. 

source: Mobile Experts

Wide area network services sold to businesses are a small revenue contributor, overall. In 2020, for example, wide area network services might have represented $46 billion in service revenue, or possibly three percent of total service provider revenue.  

source: Telegeography 

Total enterprise connectivity revenues might have been in the $70 billion range in 2018, with roughly 30 percent coming in the form of local access.  

The point is that wide area network services--for consumers or businesses--is a small part of total telecom service provider revenues, in the three-percent range in most cases.

Content Businesses Remain Important for Some Connectivity Providers

“Average” is always potentially misleading when discussing any trend related to the internet. To a lesser extent, perhaps, “average” also can be misleading in the connectivity or data center businesses. Everyone can see that traditional linear subscription television is in decline, while streaming services are growing.

But there are big differences in rates of change and direction of change in different markets. The slide is biggest in the U.S. market, but other markets are growing. 

source: Omdia

Also, asset ownership matters. Though most streaming services are owned by third parties, connectivity providers might own those assets in some cases. That makes possible significant revenue growth for connectivity providers who also are asset owners. 

source: Omdia 

But high rates of content investment and pressure on average revenue per account present many of the same financial challenges as faced by connectivity service providers investing in their core businesses: high capital investment and slow growth with often declining ARPU. 

Content no longer seems to be a silver bullet for revenue growth, as once might have been believed three decades ago. And content profit margins have often not matched those of legacy connectivity services, either. Though some content services offered by connectivity providers once had profit margins as high as 40 percent, margins have since dipped towards 10 percent for many, though perhaps remaining as high as 20 percent for the providers with the most scale.

IoT, Private Networks, Edge Computing Will Get the Headlines, Fixed Wireless Will Generate the Cash

It is conceivable that mobile operators globally will make more money providing home broadband using fixed wireless than they will earn from the flashier, trendy new revenue sources such as private networks, edge computing and internet of things. And that might be true even if those other new revenue sources represent vastly more connections, sites or contracts.

source: Ericsson 

Wells Fargo telecom and media analysts Eric Luebchow and Steven Cahall predict fixed wireless access will grow from 7.1 million total subscribers at the end of 2021 to 17.6 million in 2027, growth that largely will come at the expense of cable operators. 

source: Polaris Market Research 

If 5G fixed wireless accounts and revenue grow as fast as some envision, $14 billion to $24 billion in fixed wireless home broadband revenue would be created in 2025. 

5G Fixed Wireless Forecast
	2019	2020	2021	2022	2023	2024	2025
Revenue $ M @99% growth rate	389	774	1540	3066	6100	12140	24158
Revenue $ M @ 16% growth rate	1.16	451	898	1787	3556	7077	14082
source: IP Carrier estimate

Consider the U.S. market. By some estimates, U.S. home broadband generates $60 billion to more than $130 billion in annual revenues.

If the market is valued at $60 billion in 2021 and grows at four percent annually, then home broadband revenue could reach $73 billion by 2026. $24 billion would represent about 33 percent of total home broadband revenues. 

		2022	2023	2024	2025	2026
Home Broadband Revenue $B	60	62	65	67	70	73
Growth Rate 4%
Higher Revenue $B	110	114	119	124	129	134
source: IP Carrier estimate

If we use the higher revenue base and the lower growth rate, then 5G fixed wireless might represent about 10 percent of the installed base, which will seem more reasonable to many observers. 

Assuming $50 per month in revenue, with no price increases at all to 2026, 5G fixed wireless still would amount to about $10.6 billion in annual revenue by 2026 or so. That would have 5G fixed wireless representing about 14 percent of home broadband revenue, assuming a total 2026 market of $73 billion.

If the home broadband market were $134 billion in 2026, then 5G fixed wireless would represent about eight percent of home broadband revenue. 

Do you believe U.S. mobile operators will make more than $14 billion to $24 billion in revenues from edge computing, IoT or private networks?

In fact, do you believe 5G mobility services will drive much revenue increase? The issue is opaque. U.S. mobile operators increasingly are taking the marketing tack of moving customers to higher-priced accounts featuring unlimited usage and then enabling 5G access as a feature of that upgrade.

So is it 5G driving the increase in revenue per account, or is it the upselling of service plans? Some of us would argue it is the latter, not the former. 

The GSMA has argued that fixed wireless would be a key driver of 5G value. 

By way of comparison, low average revenue per device might well mean that even high numbers of sensor connections do not drive especially notable connection revenues for mobile operators. 

Nor might private networks or edge computing revenues be especially important as components of total revenue. It is almost certain that global service provider revenues from multi-access edge computing, for example, will be in the single-digit billions ($ billion) range over the next few years. 

The same is true of forecasts of service provider internet of things revenue. The service provider 4G or 5G private networks revenue stream is likely to be small as well. 

All that implies that 5G fixed wireless might be the most-material--and largest--source of new service revenues for mobile operators. 

Home Broadband Strategy is Heavily Dictated by the Business Model

AT&T is targeting about 30 million homes for new fiber-to-premises availability. Verizon is emphasizing fixed wireless. As always, strategy is based on firm strengths and weaknesses. AT&T has the largest footprint of homes; Verizon’s fixed network possibly reaches 20 percent of U.S. homes. 

Of a total of 140 million homes, AT&T’s landline network passes 62 million. Comcast has (can actually sell service to) about 57 million homes passed.

The Charter Communications network passes about 50 million homes, the number of potential customer locations it can sell to.

Verizon homes passed might number 27 million. Lumen Technologies never reports its homes passed figures, but likely has 20-million or so consumer locations. 

AT&T has more fixed network share to protect, compared to Verizon, while Verizon has bigger upside in taking home broadband share outside its footprint.

The same holds for T-Mobile, which historically had zero percent share of home broadband. 

“If all I had was a wireless network, if I did not have a scaled physical infrastructure fiber thriving and growing network, I might have no other choice than to leverage my wireless spectrum portfolio to go grow my business,” said Jeff McElfresh, AT&T COO.

The point is that business strategy around home broadband platforms is not based strictly on what is "best" long term. Strategy also must be based on how fast competitive home broadband access can be enabled; at what cost and how fast.

Cable operators have differing opinions about whether to upgrade directly to FTTH now, or conduct at least one major hybrid fiber coax upgrade before doing so. Sheer technology performance is but one consideration. The payback model is more important.

In U.S., Home Broadband Competition is Increasing Fast

Here’s one way of looking at the impact of 5G fixed wireless platforms. In study looking at fixed network competition in the U.S. market, the ACA points out that the percentage of markets in which three internet service providers all operate is growing. 

The numerical test ACA uses is “three providers offering service at a minimum of 100 Mbps downstream and 20 Mbps upstream. So consider 5G. 

source: ACA

Looking only at mid-band spectrum--and ignoring areas where millimeter wave spectrum is available and activated, mobile services by AT&T, Verizon and T-Mobile would be added to the list of markets with at least three competitors. If we assume that AT&T or Verizon already are on the list of fixed network competitors, but only one operates in any area,  then at least two new competitors get added to the ACA list. 

In many areas, three new competitors get added, as neither AT&T nor Verizon are already in the market as fixed line providers. That is a huge change, and will happen faster than new fixed-network competitors enter the market. 

source: Opensignal 

Looked at that way, we would expect the percentage of markets with three to six competitors to shoot sharply upwards by December 2021. That ACA data might not reflect this, as ACA only tracks fixed network competitors. 

But functional levels of competition, using the ACA criteria, will skyrocket. We can thank mid-band mobile spectrum for that change.