Why Good Advice So Often Fails to Elevate Connectivity Service Provider Outcomes

Like any other business, internet service providers get some common recommended approaches for sustaining their profit margins under competitive market conditions. And one might argue there are good reasons why most--if not all--of these suggestions seem to have relatively little impact on industry fortunes.

If one assumes connectivity demand is both ubiquitous but also relatively inelastic, there is only so much customers are likely to spend on connectivity. As a percentage of household income or firm income, for example, connectivity spending is relatively low and does not change much.

Country	Household Connectivity Spending	Business Connectivity Spending
United States	2.0%	5.0%
Canada	3.0%	4.0%
Mexico	2.0%	3.0%
Brazil	3.0%	4.0%
Argentina	4.0%	5.0%
China	2.0%	3.0%
Japan	1.0%	2.0%
South Korea	2.0%	3.0%
India	3.0%	4.0%
Indonesia	2.0%	3.0%
Germany	2.0%	3.0%
France	2.0%	3.0%
United Kingdom	2.0%	3.0%
Italy	2.0%	3.0%
Spain	3.0%	4.0%
Egypt	4.0%	5.0%
South Africa	3.0%	4.0%
Nigeria	2.0%	3.0%

Among the range of recommendations are revenue-enhancing and cost-reducing measures. On the revenue side of the business model often include measures such as investing in network upgrades to increase capacity and improve performance. 

Other frequently-recommended stops also include:

• Bundling new products

• Create or raise prices for higher-usage customers

• Create or raise prices for higher-performance product tiers

• Maintain or create usage caps

On the cost side of the business model, ISPs often are urged to reduce operating costs or find methods to reduce capital investment. 

The issue is often that some of these steps help, but also require some additional costs, or can reduce take rates, increase churn or reduce market share, all of which are generally negatives. 

It might be very hard to cite any particular tactic whose revenue upside is clearly and consistently greater than the costs required to implement the policies. At least hypothetically, about the best an ISP can generally do is institute policies that increase revenue slightly more than new costs are imposed. 

Arguably, the cost of network upgrades--copper access to fiber for telcos; DOCSIS upgrades and FTTH for cable operators; 5G upgrades for mobile operators--impose high costs. In many cases, creating and then bundling new products also imposes new costs, even when new revenue also is generated. 

As a thought exercise, consider the benefits of margin protection that various tactics might represent, balanced by the cost of instituting those measures. 

Consider the cost of upgrading an access network to fiber-to-home, for example, or creating new products to bundle, reducing operating costs. All might help, but also require investments or additional costs. 

In the table, the degree of help for protecting margins also is accompanied by increases in total capex and opex costs, for example. 

At least in principle, if prices can be raised without causing customer churn, the upside clearly outweighs the cost (instituting price increases that most customers will accept). But nearly all the other tactics, while potentially yielding higher revenues, might also cause customer irritation and raise the risk of lost market share. 

Profit protection technique	Estimated profit margin protection	Cost percentage
Network upgrades	10%	20%
Bundling new products	5%	10%
Reducing operating costs	3%	5%
Raising prices	2%	1%
Charging for heavy usage	1%	1%
Using data consumption caps	1%	1%

In a way, the relatively-modest return from such tactics illustrates an aspect of the “low-growth” nature of the connectivity business in general; something the industry shares with other capital-intensive industries with utility characteristics. 

Demand is ubiquitous but also relatively inelastic. Under such conditions, there are limits to buyer spending propensity, no matter what is done to increase value, features or adjust prices.

Problem: 5G Cost More than 4G; 6G Will Cost More than 5G

By some estimates, the cost of 4G and 5G networks has gotten more expensive, and 6G is expected to be more expensive than 6G. 

There are several reasons, including the cost of new spectrum; the need for greater numbers of small cells, each supported by optical fiber connectivity; the cost of more-complicated radios; perhaps higher-cost engineering and higher site acquisition costs. 

Technology	Cost per location	Cost per square mile
4G	$10,000-$50,000	$500,000-$2,500,000
5G	$25,000-$100,000	$1,250,000-$5,000,000
6G (estimated)	$50,000-$200,000	$2,500,000-$10,000,000

All of that drives mobile operator concern about the business model for 5G and 6G. Some of that concern is about revenue, but much of the issue is the ever-higher need for capacity. 

By general agreement, mobile operator capacity gains have historically been driven by use of smaller cells (network densification) and allocation of additional spectrum. But most observers would tend to agree that denser architectures have contributed the most. 

In addition to use of smaller cells and additional spectrum, Wi-Fi offload, better radio technologies and modulation techniques also have contributed. And the mix of contributors arguably has changed over time. For example, Wi-Fi offload was not a factor for 2G networks.

In the 4G and 5G era, Wi-Fi offload might represent as much as 75 percent of mobile device data (principally internet access), but rarely less than 45 percent of total mobile internet data. 

Country	Percentage of mobile phone traffic offloaded to Wi-Fi
United States	60%
China	70%
India	50%
Japan	65%
South Korea	75%
United Kingdom	55%
Germany	60%
France	50%
Brazil	45%
Russia	55%

As mobile executives resist the ever-growing amount of capital they must spend to increase capacity, data offload might be one of the most-fruitful ways to add effective capacity while containing capital investment, at least to a point.

If Your Business Generates Content, Generative AI Almost Certainly Can Help

Nobody should be surprised by the results of a study of consultant work using generative AI, which suggests “consultants using AI were significantly more productive (they completed 12.2 percent more tasks on average, and completed task 25.1 percent more quickly), and produced significantly higher quality results (more than 40 percent higher quality compared to a control group).”

Generative AI is designed to aid content creation, and consultants at firms such Boston Consulting Group, a global management consulting firm, are required as part of their work to produce content, including advice, for their clients. 

Mirroring some other early studies, the study, “Navigating the Jagged Technological Frontier: Field Experimental Evidence of the Effects of AI on Knowledge Worker Productivity and Quality,” suggests that GenAI especially increases performance of consultants considered to be below average. 

“Those below the average performance threshold (saw performance) increasing by 43 percent and those above increasing by 17 percent,” the authors argue. That might also not come as a surprise. 

GenAI arguably provides its greatest value when users are less expert, have less domain knowledge, and might take longer to identify, summarize and apply existing domain knowledge to the context of a particular engagement. 

It might also not come as a surprise that GenAI seemed to be most useful for tasks “within the frontier” of tasks GenAI is known to be good at. “For a task selected to be outside the frontier, (specifically tasks that GenAI is known not to perform well at the moment,) however, consultants using AI were 19 percentage points less likely to produce correct solutions compared to those without AI,” the authors say. 

The key observation, though, is that “tasks that appear to be of similar difficulty may either be performed better or worse by humans using AI,” the authors note. And there are indications that worse performance by GenAI models occurs when the models are asked to produce content that is known to require skills GentAI does not yet perform well. No surprise there. 

It is worth noting that the “Hawthorne effect” might also be at work. 

The Hawthorne Effect is the phenomenon that individuals alter their behavior when they are aware of being observed. It is named after the Hawthorne Works, a Western Electric factory in Chicago where a series of experiments were conducted in the 1920s and 1930s to study the effects of working conditions on productivity.

In the Hawthorne experiments, researchers found that workers' productivity increased regardless of the changes they made to working conditions, such as lighting, break times, and work hours. 

The researchers eventually concluded that the increase in productivity was due to the fact that the workers were aware of being observed and wanted to perform well.

The point is that we must evaluate such GenAI studies with the possibility that subject performance might be, to some extent, independent of the tools and work scenarios studied. 

Content Design When People Have the Attention of a Goldfish

“I have no attention span,” says singer Carrie Underwood. “I get bored so fast.”

All of us do, these days. So, getting and keeping your attention matters. And keeping you engaged is harder than ever.

Every post-conference survey tells us that many attendees are too busy to attend conference sessions.

“We’ve all got ADD now, short attention span and all that,” says actor Hugh Grant.

Ninety percent of millennial business professionals, 85 percent of Gen Xers, and 82 percent of baby boomers report they “shifted their focus away” from the speaker during the most recent presentation they saw live. It gets worse. It is not true that attention spans are just eight seconds among millennials, but the direction is right.55 percent of professionals say you must tell a great story to get their attention.

* 95 percent of professionals multitask during meetings
* Professionals in their 30s and 40s decide in eight seconds whether content is relevant
* Millennials expect ads to last only six seconds
* Content for apps and web is fast-paced, so people are accustomed to shorter content

No one has time for what isn’t relevant, convenient, or compelling.

5G Has Brought Less Change Than Many Expected

The primary value still seems to be "more capacity" and "higher speeds." It's similar to the value of fiber to home or DOCSIS 4.0: more capacity; faster speed. In many ways, greater capacity is a "hygiene" issue: what one has to do to remain relevant in business and sustain the business.

So far, at least, there has been precious little adoption, at scale, of new use cases and features. The advantages of sensor device density or lower latency have yet to be embraced, for example. 

It might grate, but the value of 5G is that it supports a more-capable (faster) "dumb pipe." That is to be expected when a permissionless app architecture is in place.  

The Zero Touch, High Transaction Telco, Marc Halbfinger, Console Connect CEO