Which Growth Path for AI: PC or Internet?

It is not yet clear whether artificial intelligence is going to affect business models more on the pattern of the personal computer or the internet. For the most part, the PC primarily enhanced existing business models by improving efficiency and data management, while the internet enabled entirely new business models and revenue streams. 

To the extent that a smartphone is a mobile computing device, smartphones have enabled more personalized, location-aware, and always-on business models. Compared to the PC, the smartphone (assuming use of the internet as well) has enabled peer-to-peer sharing models, such as ride hailing.

But most of us might agree that the internet has produced the greater range of new business models, in part because it enabled new industries (search, social media, e-commerce, content streaming). 

Business Model	Description	Examples
Subscription-based Services	Recurring payment for continuous access to digital content or services	Netflix, Spotify, Microsoft 365
Freemium	Basic services for free, premium features for a fee	Dropbox, LinkedIn, Skype
Ad-supported Platforms	Free services monetized through targeted advertising	Google, Facebook, YouTube
E-commerce Marketplaces	Online platforms connecting buyers and sellers	Amazon, eBay, Etsy
Sharing Economy	Platforms facilitating peer-to-peer sharing of resources	Uber, Airbnb, TaskRabbit
Software as a Service (SaaS)	Cloud-based software delivery on a subscription basis	Salesforce, Slack, Zoom
Crowdfunding	Platforms for raising funds from many small contributors	Kickstarter, GoFundMe, Indiegogo
Digital Content Creation	Monetization of user-generated content	YouTube creators, Twitch streamers, bloggers
Affiliate Marketing	Earning commissions by promoting others' products online	Amazon Associates, Clickbank affiliates
Microtransactions	Small payments for virtual goods or in-app purchases	Mobile games, virtual currencies in apps

So the issue is whether AI mostly enhances existing business processes or is a foundation for entirely-new industries, much as the internet enables search, social media, content streaming or e-commerce. 

It is possible that both outcomes--automating existing processes and also enabling new industries--will happen. In the early going, AI might appear to be a tool for automating existing  business processes. Later, it might enable new industries we haven’t thought of, yet. 

So the evolution of AI in business is likely to follow a similar trajectory to the internet:

• Initial phase: Automating and optimizing existing processes.

• Intermediate phase: Enabling new business models within existing industries.

• Transformative phase: Creating entirely new industries and economic sectors.

Verizon Signals Shift in Growth Prospects to Fiber-Based Home Broadband

Some will explain Verizon's acquisition of Frontier Communications as a signal that revenue growth is shifting in the direction of fiber-based home broadband as mobile service growth slows.

Virtually all the leading U.S. telecom (mobile and fixed) or cable TV companies have grown through acquisition. In fact, some will argue that more growth has happened that way than by organic revenue growth.

So although some might criticize the debt implications or the strategy, there is a reason Verizon is pursuing an acquisition of Frontier: it is one way to gain scale in the home broadband market. And acquisition arguably accounts for most of Verizon’s growth over the past couple of decades. 

Despite Verizon’s hefty mobile market position, it lags in the fixed network area, compared to rivals.  And that matters to the extent that high-speed home broadband is a significant growth driver, as AT&T recently indicated.  

Consider that although all telcos trail the two leading cable providers (Comcast and Charter) in national market share (those two firms have at least 63 percent national share, Verizon has just nine percent share compared to AT&T at 23 percent share. 

That is a result of the smaller fixed network geographic footprint Verizon has, relative to AT&T, Comcast and Charter. 

ISP	Subscribers (millions)	Market Share (%)
Comcast (Xfinity)	32.1	32.6
Charter (Spectrum)	30.4	30.9
AT&T (Fiber)	22.6	23
Verizon (Fios)	9.2	9.3
Lumen (CenturyLink)	4.8	4.9
Cox	7	7.1
Altice USA	4.7	4.8
Other (including smaller ISPs)	1.6	1.6
Total	98.5	100

U.S. internet service providers compete on a geographic basis and not all providers face all other providers. Comcast and Charter, both cable companies, generally do not compete head to head. Neither do AT&T, Verizon and Lumen Technologies. 

But sheer numbers of homes and other locations passed vary as well, with Comcast and Charter passing the most U.S. homes. 

ISP	Estimated Homes Passed (Millions)
Comcast	60
Charter	55
AT&T	30–35
Verizon	15–20
Lumen	10–15
Frontier	10–15
Altice USA	8–10
Windstream	6–8

ISPs also generally count small business broadband accounts within their “home broadband” totals, as well. 

ISP	Estimated Homes & Small Businesses Passed (Millions)
Comcast	65–70
Charter	60–65
AT&T	40–45
Verizon	20–25
Lumen	15–20
Frontier	12–15
Altice USA	10–12
Windstream	7–9

Also, differences in “homes and businesses” passed by any single ISP’s network long have mattered for assessments of the degree of competition. For example, when looking at telco fiber-to-home competition for cable hybrid fiber coax networks, the actual degree of competition has been shaped by the huge cost of upgrading telco copper access networks to fiber. 

That has limited the actual degree of competition between telcos and cable companies for decades, as it rarely is the case that a given telco has FTTH deployed ubiquitously in all its geographies. 

ISP	FTTH Homes & Small Businesses Passed (Millions)	Total Homes & Small Businesses Passed (Millions)	FTTH as % of Total Passings
AT&T	25–30	40–45	60–67%
Verizon	17–20	20–25	80–90%
Lumen	5–7	15–20	25–35%
Frontier	6–8	12–15	50–53%
Windstream	3–4	7–9	35–45%
Consolidated	1.5–2	4–5	30–40%

Traditionally, the “best” data we have had on the market share positions of cable and telco competitors has come from Verizon areas, as that is were FTTH facilities are most-ubiquitously deployed. And in those areas, Verizon has been able to gain a bit more than 40 percent market share, while the local cable operator has been able to hold on to 45 percent to 55 percent of the market, with other independent providers holding generally single-digit shares but growing. 

In a growing number of markets third-party providers have targeted areas where telco FTTH is not available, and in such areas have generally been able to garner up to 20 percent share. 

In some instances, where a cable company mostly competes with a municipal fiber network, and the local telco has no appreciable residential and small business fiber coverage, the municipal provider tends to get 20 percent to 30 percent market share. 

Provider Type	Estimated Market Share (%)
Cable Company	60–70%
Independent ISP	20–30%
Telco (non-FTTH)	5–15%
Other ISPs	2–5%

The degree of “other ISP” market share is shaped by the coverage area selected by the attacking independent ISP. Generally speaking, such ISPs will choose portions of an incumbent’s territory to operate in, rather than overbuilding an entire city or town, for example. 

As in the case of telco-cable competition, that necessarily restricts the degree of head-to-head competition across an entire market area, and is reflected in the lower take rates we generally see when a cable company competes against any fiber provider that does not cover the whole local market. 

So Verizon's acquisition of Frontier suggests greater emphasis by Verizon on growint its high-speed home broadband business using fiber-to-home capabilities.