Tech Bubble "Burst?"

With "significant" to "massive" layoffs happening at venture-funded and to some extent now at profit-making technology firms, one is reminded we saw something similar happen back in 2001 and 2008, all times of economic distress and tech bubbles.  

But layoffs are only a manifestation of a trend; a sign or symbol, not the underlying reality. Then, as now, apparently, the problem is a shutoff of the funding valve. For more-established firms, the problem is a significant increase in borrowing costs. 

Where we had been in a regime of effectively zero interest rates, we now are entering a period where borrowing has real costs. That tends to increase business risk for growing firms that cannot self finance. 

So some think we are seeing another tech deflation event, a bubble-bursting destruction of value in the technology segments of industry. 

 

source: Qontigo 

In the run up to 2001, the start-up I worked at could literally not find people to hire, as has been the case recently in 2021 and earlier in 2022. That reversed in the dot com meltdown after early 2021. It appears something similar is happening in 2022. 

Though it is not clear whether we are headed for something like the wipeout of firms in the dot com bust, some think it is possible. The difference now is that many firms yet to hit cash flow breakeven or actual profits have business models that work. Back in 2001 some firms had not yet discovered a viable business model. 

That is much less an issue in 2022. Also, firms seem to be reacting faster than they did in 2001 to a change in business dynamics. 

Still, a period of some technology firm consolidation appears to be coming, bigger than the normal consolidation that happens for fast-growing segments of the industry.

If Broadband is a "Necessity," What Does That Mean?

Some make the argument that broadband is a necessity and therefore should be a “right.” It never is clear precisely what proponents of that view mean. Is electricity or clean water a right? How about natural gas, roads, airports, food or shelter? 

One guesses that proponents of those positions probably mean that the good in question should be universally available. There is not much room for argument there. 

But we probably disagree about how to get universal availability or universal access, especially  how to pay for it. Government subsidies are the most-common means for getting to universal availability, and arguably the most-common way governments subsidize consumption of products deemed necessary. 

   or that home broadband prices are too high. 

 

source: move.org 

Most governments seem to have policies in place to subsidize consumption of necessary products by lower-income residents. That is not to say the most-effective way to subsidize consumption is to make products available “at no cost.” In the U.S. market, for example, low-income customers can buy internet access at discounted prices. 

But “free” often leads to market distortions and harms production and supply of the product so subsidized. “Tragedy of the Commons”  is the way economists describe the problem posed by “zero price” products. 

Two key problems are created by zero price products: overconsumption and disincentives to increase production. The whole point of price mechanisms is to match demand and supply. So non-zero subsidized prices arguably work better than “zero cost” approaches. 

Oddly enough, some hyperscale app providers have tried to provide some level of basic and free mobile internet access to low-income residents and have been prevented from doing so, on the grounds of “network neutrality” in a direct sense or industrial policy and antitrust issues in an indirect sense. 

Such non-governmental approaches arguably have merit, and perhaps should not have been made illegal by government action, any more than any other ad-supported application or service a private firm can create.

How Big a Revenue Opportunity is Network Slicing?

Will 5G core network network slicing create a big new revenue opportunity for mobile operators? ABI Research forecasts predict $34 billion in slicing revenue by 2028. 

Research and Markets 

Existing virtual and other private networks generated something on the order of $38 billion in 2021, according to analysts at Research and Markets. But most of that revenue was earned by appliance and software  suppliers, just as most Wi-Fi revenue is similarly earned by device and software suppliers, not “service” suppliers.  

That is true fo the software-defined wide area network market, for example.  

Some managed services are provided by service providers of one sort or another, to be sure, of which MPLS is arguably the most-important carrier-provided service, followed by SD-WAN. 

It also is fair to say that network slicing could wind up largely displacing other quality-assured networking alternatives, such as MPLS, for example. In that case the issue is the net change in revenue, not so much the gross revenue network slicing generates. 

The point is that it is unclear how much net revenue network slicing might generate for mobile operators. To the extent that revenue is shifted from one supplier to another, or one industry segment to another, there could be important net gains. 

Still, at least so far, network slicing promises incremental revenue that is helpful, but unlikely to change the macro revenue picture all that much.

U.S. Cable Operator Domination of Home Broadband Market Finally Cracks

Until recently, major U.S. telcos have had to balance new fiber-to-home infrastructure with other business model demands. And so long as they stuck mostly to copper access infrastructure, they also ceded the home broadband market to cable operators.

That finally seems to be changing.

As Frontier Communications continues to replace copper access with optical fiber, its revenue is shifting away from copper-based products. Since 2020, customer take rates have grown slightly from 41 percent to 42 percent of homes passed by the FTTH network.

Which means--should that take rate continue--that revenue growth is correlated with the number of FTTH home passings Frontier is able to create.

source: Frontier Communications 

Telco executives often say that FTTH is a better network than hybrid fiber coax. Customers do not always agree. 

Initial uptake might be in the 20-percent range, if Frontier’s experience matches that of other telco FTTH providers, scaling over time to about 40 percent. That still means cable operators have most of the rest of the market, on the order of 60 percent. 

Few observers think telcos will do better than 50-percent market share. Eventually, if required, cable operators will respond with their own FTTH networks.

How "Temporary" is Fixed Wireless?

Rather suddenly, cable operators have found themselves facing new home broadband competition from Verizon and T-Mobile. In the second quarter of 2022, T-Mobile and Verizon collectively added 816,000 new fixed wireless home broadband customers, while Charter and Comcast collectively lost around 21,000 accounts. 

That might not seem like such a big deal, but for the past two decades, cable operators have gotten almost all the net new account additions while incumbent telcos have lost share. 

The issue for some is whether fixed wireless is a temporary or permanent solution. Long term, capacity is going to be an issue. That is why industry observers always argue that fiber to the premises is the long-term solution. 

But long term is not an immediate solution for many. Verizon has no financial ability to overbuild fiber to home facilities to the 80 percent or so U.S. homes it does not already pass. Neither does T-Mobile have the financial ability to overbuild 100 percent of U.S. homes it does not already pass. 

Fot both Verizon and T-Mobile, the present consumer home broadband market does represent an immediate chance to take market share from cable operators using their 5G nationwide networks. 

The issue for both those firms is not “fixed wireless versus FTTH” but rather “fixed wireless versus doing nothing.” And the simple fact is that, for some time, 5G fixed wireless will provide enough capacity, at a reasonable price, to be attractive to a segment of the market, allowing Verizon and T-Mobile to add accounts, revenue and profit when building “out of region” FTTH simply is not an option. 

In that sense, fixed wireless is best viewed as an immediate driver of market share gains in home broadband where neither Verizon nor T-Mobile have the ability to compete using FTTH facilities they own or might build. 

The long term solution is not yet clear. Advancing technology might allow both firms to keep upgrading fixed wireless to continue to serve a segment of the market. 

Long term, both firms face a problem in the fixed networks space, as capital to overbuild 80 percent to 100 percent of the U.S. home market is not likely to become available. 

Perhaps the fixed network equivalent of mobile virtual network operators will eventually emerge at scale, allowing T-Mobile and Verizon to partner in some way with other entities to create or use FTTH facilities. 

That is a “tomorrow” issue. The immediate issue is whether fixed wireless can shift a few points of home broadband market share. 

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

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	12,140	24,158
Revenue $ M @ 16% growth rate	1.16	451	898	1787	3556	7077	14,082
source: IP Carrier estimate

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.

		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 by 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. 

That is a serious incremental share gain for the likes of T-Mobile and Verizon, even if it leaves the long-term strategy undeveloped. To be sure, 6G will come, and will increase capacity at least 10 times over 5G. Using other tools, it might still be possible to boost fixed wireless capacity further, or to create mechanisms for offloading much mobile traffic to the fixed networks. *-/9+88/7

Comcast and Charter continue to claim that fixed wireless is not damaging its home broadband business, and that might well be partly correct. For any internet service provider, a customer move is an opportunity to gain or add an account, so lower rates of dwelling change should logically reduce the chances of adding new accounts. 

But that is akin to retailers blaming “the weather” when they have a revenue miss. Weather does play a role, but most often is not the only driver of results. 

In the second quarter of 2022, Comcast reported a net loss of customer relationships and “flat” home broadband accounts. 

Fixed wireless might not be a “long term” solution for every customer. But it might remain an option for a significant percentage of customers, especially if the long-term solution for T-Mobile and Verizon is yet to be created.

Enterprise Data Communications Relies More Often on Internet Access than Carrier Ethernet or SD-WAN

All enterprise connectivity choices separate the “network access and transport” function from the applications that use data communications. That is true for every legacy protocol and network as well the latest networks. 

But dedicated internet access is the most-commonly-used platform. “Wireless broadband” probably refers mostly to use of Wi-Fi and mobile phone internet access. Carrier ethernet and SD-WAN are the next most-used platforms. 

source: Information Week, Network Computing

How Long for Internet to Achive Ubiquitous 1,000-Fold Computational Increase?

Some believe the next-generation internet could require a three-order-of-magnitude (1,000 times) increase in computing power, to support lots of artificial intelligence, 3D rendering, metaverse and distributed applications. 

What that will entail depends on how fast the new infrastructure has to be built. If we are able to upgrade infrastructure roughly on the past timetable, we would expect to see a 1,000-fold improvement in computation support perhaps every couple of decades. 

That assumes we have pulled a number of levers beyond expected advances in processor power, processor architectures and declines in cost per unit of cycle. Network architectures and appliances also have to change. Quite often, so do applications and end user demand. 

The mobile business, for example, has taken about three decades to achieve 1,000 times change in data speeds, for example. We can assume raw compute changes faster, but even then, based strictly on Moore’s Law rates of improvement in computing power alone, it might still require two decades to achieve a 1,000 times change. 

source: Springer 

And that all assumes underlying demand driving the pace of innovation. 

For digital infrastructure, a 1,000-fold increase in supplied computing capability might well require any number of changes. Chip density probably has to change in different ways. More use of application-specific processors seems likely. 

A revamping of cloud computing architecture towards the edge, to minimize latency, is almost certainly required. 

Rack density likely must change as well, as it is hard to envision a 1,000-fold increase in rack real estate over the next couple of decades. Nor does it seem likely that cooling and power requirements can simply scale linearly by 1,000 times. 

Persistent 3D virtual worlds would seem to be the driver for such demand.  

Low-latency apps such as persistent environments also should increase pressure to prioritize traffic, move computing closer to the actual end user location and possibly lead to new forms of content handling and computation to support such content. 

Compared to today, where content delivery networks operate to reduce latency, content computation networks would also be necessary to do all the local and fast processing to support immersive 3D experiences that also are persistent. 

How we supply enough fast compute to handle rendering, for example, could be a combination fo device and edge computing architecture. 

Among the other issues are whether chip capabilities can scale fast enough to support such levels of compute intensity. 

So long as we have enough levers to pull, a 1,000-fold increase in computing availability within two or three decades is possible. Moore's Law suggests it is possible, assuming we can keep up the rate of change in a variety of ways, even if, at the physical level, Moore’s Law ceases to operate.  

But that also means fully-immersive internet experiences, used by everybody, all the time, also would be accompanied by business models to match. 

So in practical terms, perhaps some users and supported experiences will use 1,000 times more computational support. But it is unlikely that the full internet will have evolved to do so.