Gigabit Services are Right on Schedule According to Edholm's Law and Nielsen's Law

U.S. home broadband customers buying gigabit tiers of service grew 35 percent year over year in the third quarter of 2022, according to Openvault. At the moment, more than 15 percent of U.S. home broadband accounts use gigabit connections. 

Also, more than half of home broadband accounts buy service in the 200 Mbps to 400 Mbps range. That group grew 100 percent year over year. 

A little more than a year ago about half of households were buying service in the 100 Mbps to 200 Mbps range, showing that Nielsen’s Law and Edholm’s Law of bandwidth supply continue to operate. 

source: Openvault 

Edholm’s Law states that internet access bandwidth at the top end increases at about the same rate as Moore’s Law suggests computing power will increase. Nielsen's Law essentially is the same as Edholm’s Law, predicting an increase in the headline speed of about 50 percent per year. 

Nielsen's Law, like Edholm’s Law, suggests a headline speed of 10 Gbps will be commercially available by about 2025, so the commercial offering of 2-Gbps and 5-Gbps is right on the path to 10 Gbps. 

source: NCTA  

Headline speeds in the 100-Gbps range should be commercial sometime around 2030. 

How fast will the headline speed be in most countries by 2050? Terabits per second is the logical conclusion. Though the average or typical consumer does not buy the “fastest possible” tier of service, the steady growth of headline tier speed since the time of dial-up access is quite linear. 

Gigabit tier subscribers hit an inflection point last year. The rule of thumb is that any successful and widely-bought consumer technology enters its mass adoption phase when about 10 percent of homes are users. For U.S. gigabit adoption, that happened in 2021. 

Some might attribute the Covid pandemic and work from home as driving the change, but adoption rates would have taken off in 2021 in any case, as predicted by the 10-percent-of-homes adoption theory. 

It also is easy to predict that 2 Gbps to 4 Gbps is the next evolution, as speeds at the top end continue to increase by 50 percent a year. Ny 2025 we should start seeing the first 10-Gbps services deployed at scale.

What Business are You In?

From time to time, "telcos" and "access providers" (ISPs, cable companies, satellite firms and system integrators) essentially ask themselves "what business are we in?" and "what business should we be in?" In nearly all cases, those questions are answered in a way that suggests the solution is "we need to be in X, in addition to our present business." X can be marketing, advertising, internet of things, private networks, edge computing, content ownership, content retailing or some enterprise vertical.

In the past, telcos have tried to be in computing hardware and software, app stores, data centers or consumer hardware. Success has been mixed at best. In the internet era, when all access service providers have adopted internet platforms as their next-generation network, almost all efforts to find X will require moving into some different part of the internet ecosystem.

But startups often face tougher issues. Telcos at least know who their customers are, where they are located, why they buy, what the minimum viable product is, where price points must be set, competitor strengths and weaknesses, how distribution channels work at scale, and so forth.

New industries or product categories sometimes are hard to pinpoint, when defining contestants in a “market.” Kyte, for example, says it is in the “on-demand vehicle rental business.” But its business model includes having a Kyte driver deliver the vehicle to the renter’s location. So Kyte might be competing with Uber, Lyft or other ride hailing apps to an extent. 

In a larger sense, as ride hailing competes with use of taxis and public transportation and car ownership, Kyte might be viewed within a larger transportation market. 

Such market definitions remain even for contestants in more-established markets. Is Amazon a contestant in cloud computing? Yes. Is it also a contestant in online retailing or retailing in general? Yes. Is it a competitor in video and audio streaming? Also yes. Is it a retailer of consumer electronics devices? Yes, again. 

Defining a market matters for startups. It matters for market researchers, who must decide who the participants are in a market before quantifying their market shares. It matters for business leaders who must benchmark against their key competitors and craft growth strategies to match.  

A firm must define its market to understand where to compete, who its cusotmers are and who are the key trading partners. Defining markets also helps firms focus on what their customers value.

Perhaps the classic example is railroad operators. “The railroads  did not stop growing because the need for passenger and freight transportation declined,” noted marketing professor 

Theodore Levitt. “The railroads are in trouble today not because that need was filled by others (cars, trucks, airplanes, and even telephones) but because it was not filled by the railroads themselves.”

In other words, they saw themselves as in the “railroad” business, not the “transportation” business.

Expect 70% Failure Rates for Metaverse, Web3, AI, VR Efforts in Early Days

It long has been conventional wisdom that up to 70 percent of innovation efforts and major information technology projects fail in significant ways, either failing to produce predicted gains, or producing a very-small level of results. If we assume applied artificial intelligence, virtual reality, metaverse, web3 or internet of things are “major IT projects,” we likewise should assume initial failure rates as high as 70 percent.

That does not mean ultimate success will fail to happen, only that failure rates, early on, will be quite high. As a corollary, we should continue to expect high rates of failure for companies and projects, early on. Venture capitalists will not be surprised, as they expect such high rates of failure when investing in startups. 

But all of us need to remember that failure rates for innovation generally and major IT efforts specifically will have high failure rates of up to 70 percent. So steel yourself for bad news as major innovations are attempted in areas ranging from metaverse and web3 to cryptocurrency to AR, VR or even less “risky” efforts such as internet of things, network slicing, private networks or edge computing. 

Gartner estimated in 2018 that through 2022, 85 percent of AI projects would deliver erroneous outcomes due to bias in data, algorithms or the teams responsible for managing them.

That is analogous to arguing that most AI projects will fail in some part. Seven out of 10 companies surveyed in one study report minimal or no impact from AI so far. The caveat is that many such big IT projects can take as much as a decade to produce quantifiable results. 

Investing in more information technology has often and consistently failed to boost productivity, or appear to have done so only after about a decade of tracking.  Some would argue the gains are there; just hard to measure, but the point is that progress often is hard to discern. 

Still, the productivity paradox seems to exist. Before investment in IT became widespread, the expected return on investment in terms of productivity was three percent to four percent, in line with what was seen in mechanization and automation of the farm and factory sectors.

When IT was applied over two decades from 1970 to 1990, the normal return on investment was only one percent.

This productivity paradox is not new. Even when investment does eventually seem to produce improvements, if often takes a while to produce those results. So perhaps even AI project near-term failure might be seen as a success a decade or more later. 

Sometimes measurable change takes longer. Information technology investments did not measurably help improve white collar job productivity for decades, for example. In fact, it can be argued that researchers have failed to measure any improvement in productivity. So some might argue nearly all the investment has been wasted.

Most might simply agree  there is a lag between the massive introduction of new information technology and measurable productivity results.

Most of us likely assume quality broadband “must” boost productivity. Except when it does not. The consensus view on broadband access for business is that it leads to higher productivity. 

But a study by Ireland’s Economic and Social Research Institute finds “small positive associations between broadband and firms’ productivity levels, none of these effects are statistically significant.”

Among the 90 percent of companies that have made some investment in AI, fewer than 40 percent report business gains from AI in the past three years, for example.

Dramatic Rethinking of Where FTTH Makes Sense Earns Mercury Broadband PE Investment

Mercury Broadband, an internet service provider serving rural customers near Topeka, Ks., has gotten an investment of up to $230 million from private equity  investment firm Northleaf Capital Partners.

The investment is part of a larger trend of private equity firms investing in digital infrastructure assets. The latest wrinkle is an increase in investment in rural ISPs able to leverage new government funding in rural areas where the bigger ISPs are unlikely to want to compete. 

Mercury Broadband is among firms that have secured Rural Digital Opportunity Fund (RDOF) grants by the Federal Communications Commission to bring fiber optic broadband to underserved communities, especially in rural areas. 

The construction is expected to add more than 12,000 plant miles and pass tens of thousands of locations. 

As a rule, the availability of RDOF grants lowers the fiber access plant capital investment hurdle by 30 percent or so. That, among other things, has dramatically reshaped thinking about when FTTH deployments make financial sense. 

The economics of connectivity provider fiber to the home  have always been daunting, but they are, in some ways, more daunting in 2022 than they were a decade ago. The biggest new hurdle is that expected revenue per account metrics have been cut in half or two thirds. That would be daunting for any supplier in any industry. 

These days, the expected revenue contribution from a home broadband account hovers around $50 per month to $70 per month. Some providers might add linear video, voice or text messaging components to a lesser degree. 

But that is a huge change from revenue expectations in the 1990 to 2015 period, when $150 per customer was the possible revenue target.  

You might well question the payback model for new fiber-to-home networks which assume recurring revenue between $50 and $70 per account, per month, with little voice revenue and close to zero video revenue; take rates in the 40-percent range; and network capital investment between $800 and $1000 per passing and connection costs of perhaps $300 per customer. 

But that is the growing reality. Among the reasons: higher government subsidies; indirect revenue contributions and a different investor base. 

All that has shifted fiber-to-home business models in ways that might once have been thought impossible. 

In the face of difficult average revenue per account metrics, co-investment and ancillary revenue contributions have become key. Additional subsidies for home broadband also will reduce FTTH deployment costs. All that matters as revenue expectations are far different from assumptions of two decades ago. 

“Our fiber ARPU was $61.65, up 5.3 percent year over year, with gross addition intake ARPU in the $65 to $70 range,” said John Stankey, AT&T CEO, of second quarter 2022 results. “We expect overall fiber ARPU to continue to improve as more customers roll off promotional pricing and on to simplified pricing constructs.”

Lumen reports its fiber-to-home average revenue per user at about $58 per month. For those of you who have followed fiber-to-home payback models for any length of time, and especially for those of you who have followed FTTH for many decades, that level of ARPU might come as a shock. 

Though some honest--and typically off the record--evaluations by some telco executives 25 years ago would have described the FTTH business model as “you get to keep your business” rather than “we boost revenue.” Few financial analysts would have been impressed with that argument. 

But revenue expectations were quite different back then. The thinking was that per-home revenue could range as high as $130 to $200 per month. 

Contrast that with today’s view, which is that monthly review per account is closer to $60 a month. And yet investors believe that provides a reasonable business case, in the right markets, with subsidies and a chance to create competitive moats.

Remote Workers Like It, C Suite Tends to Have Doubts

The general end of remote work at Twitter will be controversial in some quarters, for reasons related to differences of role between the C suite generally and employees generally. By now, mostly everyone who is an “employee” knows why they prefer remote work. Anecdotal evidence suggests that many workers can get “their work” done in far less time than seemingly was required in the past, allowing them more free time for “non-work” activities.

As welcome as “work-life balance” is for employees, C suite executives instinctively question the productivity implications. Leaving aside “control freak bosses who do not trust their employees,” there still is a growing body of evidence suggesting that, in fact, happier at-home workers are not “more productive.” They are just happier. 

Though is is counterintuitive, “happy workers” are not always “more productive.” Unhappy workers can be more productive; happy workers can be less productive or both can be equally productive. The nature of the work often dictates outcomes, not perceived happiness. 

Looking only at engineering output, for example, some studies suggest remote workers are less productive than similar workers “in the office.” 

“A study conducted in 2012 shows those office workers who were assigned boring tasks performed better and faster in the regular office setting. Home-life distractions are more likely to prevent productive work when you don’t enjoy the work,” notes Apollo Technical. 

On the other hand, the same study also found the reverse. More-creative work often were completed faster than “in the office.” 

But what many workers do with the extra time is the issue. Some will argue that if workers complete the minimum-required quantitative outputs, there is no harm. The same amount of work gets done and employees can simply use the extra time as they choose. 

But the same “group norms” hold for remote workers as for workers “in the office.” In other words (those of you who have worked union jobs know this well), there are disincentives for workers to outperform others, as it “makes the others look bad” and also tends to raise output expectations for the entire class of workers.

In other words, expected output levels will rise generally if enough workers in the class start producing at higher levels. That sort of behavior will be peer group discouraged. That will happen in both in office and remote settings. 

Another more recent study states that the more hours an individual works from home, the less productive they become, for the perhaps-obvious reasons that there are more distractions at home: pets, children, housework, household chores and entertainment options.

“Those who worked full time (eight  hours per day) at home are 70 percent less productive than those who don’t work from home,” says Apollo Technical. 

Leaving aside other issues, including the ability to structure self-supervised work effort, productivity, in principle, for some jobs, could be higher when knowledge work that can be conducted individually is performed. 

As a long-timer journalist, analyst and researcher who has worked remotely for 30 years, monitoring work is unnecessary when output can be quantified: so many stories per day, week or month; a major report delivered in three months’ time; a white paper produced by deadline. 

But not all jobs can be evaluated purely quantitatively. How does one measure the “quality” of computer instructions; a painting; a report; a story? But those intangibles exist no matter where the output is produced. 

Since it is nearly impossible--if not completely impossible--to measure knowledge worker and office worker productivity, much of what we think we know consists of opinion. So we really cannot say whether remote work “always” leads to higher productivity. It might just as often lead to lower productivity or equivalent output. 

What we might observe anecdotally is that lots of remote workers like remote work because it leads to “more free time.” They can use that free time to do other things than work. Whether employers have a “right” to expect more is a matter of debate. 

But it already seems clear enough that C-level executives question the productivity impact of widespread remote work. I suspect we would not be having discussions about quiet quitting, and much anecdotal evidence that remote workers get their work done faster, but then use their free time for non-work pursuits, if this were not the case.

Is T-Mobile About to Begin its Move into FTTH?

It was virtually inevitable that T-Mobile, in the U.S. market, would eventually move beyond its “mobile-only” approach to services. Virtually everywhere globally, dominant service providers have both mobile and fixed network retail operations. In the U.S. market, where T-Mobile primarily competes with AT&T and Verizon, those competitors have large-scale fixed networks businesses that T-Mobile cannot presently confront, head to head.

So it is not surprising that T-Mobile is looking to create a joint venture, funded at perhaps $4 billion in total, with T-Mobile investing $2 billion initially, to enter the home broadband market using a fixed network platform. 

For those of you who have watched other internet service providers get into the fiber-to-home business, the initial foray would not have huge scale. At network costs of perhaps $900 per location, that level of investment--in suitable markets-- might create a network passing about 400,000 home locations. And the actual number of connected customers would require an additional incremental capital investment of perhaps $600 each. 

So the initial footprint would not change national installed base or market share figures. At first, the joint venture would reasonably expect to connect 20 percent of locations passed, ramping over perhaps five years to as much as 40 percent. 

Still, the move is not unexpected. As well as T-Mobile is doing in gaining mobile customer market share, it could not forever ignore the fixed networks business as a growth driver. In fact, the foray into fixed wireless was a half step in that direction, allowing T-Mobile to compete for some portion of the existing home broadband market where it has not been present before. 

But most observers would agree that fixed wireless competes best in the value segment of the market. 

Fixed wireless has been the go-to platform for wireless internet service providers operating in U.S. rural areas. The issue now seems to be how important fixed wireless could be for some internet service providers such as Verizon and T-Mobile, who do not have the financial resources to overbuild 80 percent of the U.S. home market (Verizon) or all of that market (T-Mobile).

And that would not change were T-Mobile to invest a few billion dollars in FTTH. 

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. In the meantime, joint ventures are likely the fastest way to start scaling into the business. 

“Scale” is  largely a “tomorrow” issue for T-Mobile. 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. But it appears T-Mobile is about to move on that part of the strategy.