Next Normal or New Normal?

The post-Covid business environment--for connectivity providers as much as for any other industry--might be “next normal” or “new normal.” The former might indicate bigger changes for some industries but fewer disruptions for others, essentially accelerating trends already present.

The latter might indicate fairly permanent and significant life alterations that were not already in place. “Just different” is one way of describing “next normal,” while “never be the same” characterizes “new normal.”

McKinsey consultants analyzed the change potential across more than 2,000 tasks used in some 800 occupations in the eight focus countries.

“Considering only remote work that can be done without a loss of productivity, we find that about 20 to 25 percent of the work forces in advanced economies could work from home between three and five days a week,” McKinsey says. 

“This represents four to five times more remote work than before the pandemic and could prompt a large change in the geography of work, as individuals and companies shift out of large cities into suburbs and small cities,” McKinsey notes.

The geography of communications also should shift, with some possible ramifications. Pre-Covid, mobile traffic demand was generally concentrated at 30 percent of cell sites. That should lessen, with a greater percentage of traffic at the other 70 percent of sites.

That also should alleviate some capital investment intended to boost radio capacity at the busiest urban sites. Additionally, mobile data demand could grow less rapidly than before the pandemic, if significant percentages of workers stay at home, more of the time, connected to their Wi-Fi networks. 

Less urban traffic also means less demand for all the associated businesses catering to urban workers. That suggests less demand for small business connectivity, for some time, or perhaps even permanently.

Less demand for urban office space will shrink the market for business connectivity supplied to those locations. There eventually should be higher demand for at-home upstream bandwidth as well, as more people need better support for two-way video sessions. 

Use cases for fixed wireless should improve, as the suburban and rural locations more people will be working from are precisely those locations where sustainable business cases for new fiber to home installations are toughest. 

There will unpleasant social implications, as low-wage, lesser-skilled jobs are among those which will be displaced, post-Covid. As has been the case for decades, the growth will be happening in health care and knowledge work. 

source: McKinsey 

“Compared to our pre-Covid-19 estimates, we expect the largest negative impact of the pandemic to fall on workers in food service and customer sales and service roles, as well as less-skilled office support roles,” McKinsey says. 

“Jobs in warehousing and transportation may increase as a result of the growth in e-commerce and the delivery economy, but those increases are unlikely to offset the disruption of many low-wage jobs,” McKinsey adds. 

“In the United States, for instance, customer service and food service jobs could fall by 4.3 million, while transportation jobs could grow by nearly 800,000,” McKinsey notes. “Demand for workers in the healthcare and STEM occupations may grow more than before the pandemic.”

On the other hand, it also is fair to ask whether travel, hospitality and some forms of business travel will be permanently depressed. A year ago, some quipped that “trade shows are dead,” as a permanent trend. To be sure, all large in-person events were temporarily halted, for health reasons. 

But we need to be careful about extrapolating present circumstances into the future. The pandemic will pass. And we can be sure that any linear extrapolation from pandemic behaviors will prove incorrect. 

Gradually, demand for experiences provided by in-person events will return. For business-to-business sales operations, they will be almost necessary. 

“We found that some work that technically can be done remotely is best done in person,” McKinsey says. “Negotiations, critical business decisions, brainstorming sessions, providing sensitive feedback, and onboarding new employees are examples of activities that may lose some effectiveness when done remotely.”

Extrapolating Remote Work Trends from Immediate Circumstances is Likely Not Wise

Some of us have been hearing predictions about the growth of remote work (it used to be called telecommuting) for four decades or so. And while there have been secular changes, it is difficult to make a case that anything really has changed the adoption curve of full remote work, even if lots of people take some work home from the office, routinely. The underlying trends are what they are, and might get something of a boost, but that might be hard to detect.

A Gartner survey of 229 human resources leaders finds execs now believe more remote work will be done by their employees, post pandemic. “While 30 percent of employees surveyed worked remotely at least part of the time before the pandemic, Gartner analysis reveals that post-pandemic, 41 percent of employees are likely to work remotely at least some of the time,” said Brian Kropp, Gartner HR practice chief of research. 

What all that means is not yet clear, as the definitions of remote work vary widely. Some of us might consider remote work to be “employees who are based full time at remote or home locations.” 

Others might include employees who work remotely at least half the time. That is a very small number of people, at the moment, perhaps as few as 3.6 percent of the entire workforce, by some estimates. 

The number of U.S. employees working at home 50 percent of the time or more in 2020 is estimated at five million, representing 3.6 percent of the workforce, according to Global Workplace Analytics. And that is after 40 years of evangelization that some of us are personally aware of. 

But most people likely take a broader view of remote work, including some work from home days each week or month. 

In the past, “telecommuting” has generally been thought of as employees working “at home” sometimes--or full time--instead of at the office, campus or plant. That sort of thing might not differ much from workers occasionally or even routinely bringing some work home from the office. 

One way of setting a reasonable universe of potential remote work is to evaluate the total number of jobs that conceivably could be done entirely remotely. By some estimates, only a third of jobs can be done remotely, according to a study conducted by professors Jonathan Dingel and Brent Neiman of the University of Chicago Booth School of Business. 

The study suggests 34 percent of U.S. jobs can plausibly be performed at home. Assuming all occupations involve the same hours of work, these jobs account for 44 percent of all wages. The converse is that 66 percent of jobs cannot plausibly be shifted to “at home” mode. 

If we assume that most people will consider “working from home” sometimes as a valid case of remote work, the universe of jobs appears to be close to 34 percent, looking at jobs that can be completely remote, full time. Using less stringent definitions would produce a higher number, but the value of such estimates might be questionable. 

It is not clear that the actual requirements of remote work, done on a casual or occasional basis, actually include much more than having a smartphone, a PC and adequate internet access at home, plus the standard cloud computing apps typically used in an office. 

More specific computing tasks, requiring sophisticated equipment (robots or industrial or process machinery) are not the sort to be done at home on a casual basis. 

To be sure, some executives will look to reduce spending on office facilities by shifting some work to full remote status, while allowing others to work substantially from home. But technology is not the only issue. Managers must trust that worker productivity remains substantially the same when work moves remotely. 

But recall that similar predictions were made in 2009 when the HiN1 virus outbreak happened. It is by no means clear that some non-linear acceleration of remote work trends happened after that, and was sustainable. 

How Much "Lost Economic Impact" from 5G Spectrum Licensing Delays?

A study prepared for ComReg suggests delays in awarding additional 5G spectrum have caused as much as €1.06 billion to €2 billion in lost economic benefit to Ireland. That estimate involves extrapolating from other studies of 5G economic benefit. 

source: ComReg 

To be sure, it is reasonable to assume that delayed spectrum awards also mean delayed construction projects, which, by definition, provide some temporary economic boost as the work is done. And if one believes 5G services boost average revenue per unit, then some losses might be expected on that score. 

But it is complicated. Not all the activity occurs locally, or in Ireland, so there is “leakage.” Also, there is “substitution.” Even if one assumes some 5G customers spend a bit more than they did for 4G, the net changes might not be so large. When a “new 5G customer” also was an existing 4G customer, a 4G account is “lost” as the 5G account is added. 

The net change is not as great as the raw numbers might indicate. And that is not a novel issue. One example is the estimated economic impact of new sports stadia. 

Economic impact studies on the impact of 5G, home broadband or artificial intelligence are always based on assumptions various observers will disagree about. 

One big issue is the necessity of qualifying every forecast with the caveat that it implicitly or explicitly assumes “all other things remain equal” or unchanged. Rarely does anything important remain “unchanged” when other big changes happen. 

But without assuming away all those changes, analysis would be impossible. 

For example, if one added up all the economic benefit estimates from all studies in a single nation, in a single year, from every industry and all investments, the total would clearly exceed total economic output by a substantial margin. 

Perhaps each participant in a value chain--such in car production--each adds value to a complete car, but cannot each claim the full economic value of the car produced. 

When many industries contribute to an examined area of economic growth, one ends up “double counting” output when each contributing industry claims the economic boost is entirely from its own efforts. 

In other cases, even claimed “growth” might simply be “substitution.”

Consider the example of economic benefits from municipal funding of sports venues and stadiums. One always sees estimates of revenue generated by such investments:

• Coates, D., & Humphreys, B. R. (2008). The growth effects of sports franchises and events. Journal of Regional Science, 48(4), 697-718.

• Rosentraub, M. S. (1999). Major league losers: The real cost of sports stadiums and arenas. Brookings Institution Press.

• Wenner, L. A. (2000). Sports economics: A survey of the literature. Journal of Sports Economics, 1(1), 1-31.

On the other hand, rival studies suggest there is no net benefit:

• "The Economic Impact of Sports Franchises: A Critical Review of the Literature" by Dennis Coates, Brad Humphreys, and Andrew Zimbalist (2006)

• Baade, R. A., & Matheson, V. A. (2003). The economic impact of sports teams and facilities. Journal of Economic Perspectives, 17(3), 115-132.

• Coates, D., & Humphreys, B. R. (2002). The economic impact of professional sports teams and facilities: A critical review. Journal of Economic Policy Reform, 5(1), 1-24.

• Noll, R. G. (1974). The economic effects of professional sports leagues. Brookings Institution Press.

For all such reasons, it is difficult to say much about what delays in licensing 5G spectrum might actually mean, in terms of economic output.

In U.S. Market, Cable Broadband Increasingly is Preferred to Telco Broadbvand

In 2006, U.S. telcos as a whole were adding more high-speed access customers than U.S. cable companies. Since 2008, cable companies have been adding more high-speed access customers than telcos, with the gap really opening by 2010.


During the second quarter of 2012, cable companies took a 140 percent share of broadband flow during the quarter, according to UBS Research telecom analyst John Hodulik notes.


Given the commanding telco ownership of the strategic wireless business, the continued slow decline of the telco consumer voice business, again largely to the benefit of cable operators, plus the heightened importance of the business customer segment, all might suggest that the tier-one U.S. telcos quietly have decided to focus their efforts on wireless services, with fixed network attention increasingly focused on business customer accounts. 


Some of us would say, in fact, that the U.S. leaders in consumer local access, in the future, might be the cable providers, while the telcos remain dominant in wireless and business services. 


That isn't to say that telcos can afford to give up on fixed network consumer accounts; simply that the approach has to be "mobile first," "business second." In the consumer segment, telcos will basically try to stay "close enough," without real expectations of sustaining market leadership in consumer services. 


That will be a huge change in U.S. communications industry dynamics, but it is hard to predict any other outcome, extrapolating from current trends. 

No Challengers in Belgium 800-MHz Spectrum Auction

Belgacom, Mobistar and KPN-owned BASE are the only three bidders for new 800-MHz spectrum being auctioned in Belgium. 

Without implying too much, or extrapolating beyond this one auction, in one market, the lack of bids by new contestants (some thought cable operator Telenet might bid) suggests contestants are not confident about their business prospects, should they win spectrum and be able to enter the Belgian mobile market.

That's a rational conclusion. The three licenses up for award each offer only 2 paired 10 MHz spectrum allotments (10 MHz up, 10 MHz down), not enough for a competitive operation, would-be contestants seem to have rationally concluded.

China Mobile IoT Connections Grow 155 Million in First Half of 2018

With the caveat that one has to be careful about extrapolating too much from a single year’s financial results, or even a half year’s worth, China Mobile financial results so far in 2018 provide an excellent illustration of why mobile service providers are pinning so much hope on internet of things and other “non-human user” revenue sources.

In the first half of 2018, China Mobile has seen communications service revenue dip 5.5 percent, year over year, with mobile average revenue per user dipping 6.6 percent, year over year.

“In the first half of 2018, our IoT business achieved rapid growth, with a net addition of 155 million IoT smart connections,” China Mobile says. “The total number of IoT smart connections has reached 384 million and revenue from IoT business recorded a year-on-year growth of 47.6 percent.”

CBS Joins HBO in Over the Top Video Streaming Market

The crack in the over the top video streaming market just widened a bit more. CBS Corporation has launched CBS All Access, its new over the top subscription video service, following the announcement by HBO earlier in the week that it is launching its own over the top streaming service.

CBS All Access offers subscribers thousands of episodes from the current season, previous seasons and classic shows on demand, as well as the ability to stream local CBS Television stations live in 14 of the largest U.S. markets at launch.

CBS All Access is available at CBS.com and on mobile devices through the CBS App for iOS and Android.

CBS All Access will be available on other major connected devices in the coming months.

For $5.99 per month, CBS All Access includes the full current seasons of 15 primetime shows with episodes available the day after they air.

Oddly enough, as more programmers launch their own over the top streaming services, consumers will have more choice, and also face more more potential hassles.

Already, most Netflix customers also buy a linear video subscription. And some consumers might already buy a few over the top video services, as well. That potentially will create a fragmentation issue, where multiple subscriptions are necessary.

So, as more channels launch their own streaming offers, a new problem is going to develop.

One advantage of the linear video subscription model is that it bundles channels and genres, so customers do not have to buy discrete channels, one by one. That also is the downside, as users complain that they are forced to buy networks and channels they do not want to watch.

Ironically, end user hassles will grow directly as each channel makes it own over the top offers available. Inevitably, demand for a bundled solution will grow again.

Still, lighter users may well benefit. Heavy users might continue to find a linear subscription, with over the top access as a feature, still makes better sense.

The first new crack in the streaming market was caused by HBO, long expected to take the lead in transitioning to a full streaming capability, among traditional cable channels.

The leading subscription services already in the market, including Netflix, Amazon Prime and others, have emphasized movie content. In a real sense, HBO itself relies substantially on movie content, though it long has emphasized its original series.

HBO always has been sold as a “stand-alone” product, separate from the advertising-supported channels and networks that are part of standard subscription video packages.

For that reason, HBO has less to lose than the ad-supported channels by offering its content both as part of a linear subscription video package, and as a streaming service.

That is not to say risks are absent, or negligible. It isn’t clear how many incremental subscribers would buy a streaming HBO service if they did not also have to buy a linear video service first.

Nor is it clear how HBO’s current distribution partners will react.

But the big new developments are over the top offerings from providers of live television, such as CBS, the other broadcast TV providers, and then the ad-supported “cable channels, since much movie content already is available from the likes of Netflix or Amazon Prime.

The CBS service also includes the ability to live stream local CBS stations in 14 of the largest markets at launch, with more to be added as affiliates join the new service.

Full past seasons of eight major current series, including “The Good Wife,” “Blue Bloods” and “Survivor” also are included.

CBS All Access also offers more than 5,000 episodes of CBS classics, including every episode of “Star Trek,” “Cheers,” “MacGyver,” “Twin Peaks” and “CSI:Miami.”

Subscribers also will be able to view the Grammy Awards, Academy of Country Music Awards and the Victoria’s Secret Fashion Show, CBS says.

“Everything that we’re seeing is completely consistent with the whole society, not only the U.S., but around the world is moving to Internet video and Internet television,” Netflix CEO Reed Hastings has said.

“We saw Starz a week ago announced that they are doing an Internet video service; we saw HBO; perhaps all the other providers over the coming weeks,” Hastings said. “And so think of all the big networks are moving to Internet video and it’s just becoming a very large opportunity.”

How much more growth can Netflix expect in its most-mature markets? Extrapolating from recent comments by Reed Hastings, Netflix CEO, about double the number of subscribers it already has gotten.

If Netflix has about 50.65 million subscribers, with 72 percent of that in the U.S. market, then Netflix has about 36.47 million subscribers.

If Netflix really is in the middle of the product life cycle “S curve,” then Netflix might expect to add another 36.5 million U.S. subscriptions until it reaches market saturation.

But tomorrow’s market now is starting to become more crowded. Now that HBO, CBS and Starz have made OTT moves, others will follow.

Just how fast the cracks cause the dam to crumble is not clear. But a reasonable observer would have reasoned that a long period of gestation ultimately would culminate in an inflection point where consumer behavior could change quite quickly.

Maybe we haven’t reached the inflection point, yet. But that moment is approaching.

Netflix Users: 89% on "3 or fewer" Plans

Netflix has never given a breakdown on the number of subscribers in each type of rental plan, but using Feedflix, a site set up to allow Netflix users to track their usage of Netflix, some guesses can be made.

According to Netflix’s latest earnings report, they currently have 8.4 million subscribers. By extrapolating Feedflix’s breakdown of Netflix service plans to the larger subscriber base, we get the following estimates on where customers are spending their money, according to an investment advisor who goes by the pen name of Davis Freeberg.

1 at a time - 2.1 million subscribers
2 at a time - 2.4 million subscribers
3 at a time - 3.1 million subscribers
4 at a time - 500K subscribers
5 at a time - 168K subscribers
6 at a time - 84K subscribers

Since heavier users cost Netflix more (more postage, more DVD rentals, more handling), one would assume the profit is generated by the lighter users who rent less (less postage, fewer rentals, less handling cost).

Government Broadband Policy Too Often Ignores Moore's Law

Government planners often are too optimistic about what their proposed programs can achieve. In the case of broadband, they have tended to be too modest. The U.K. government launched in 2010 an effort to enable superfast internet access across the country. Keep in mind that a year earlier, the government said it wanted a 2 Mbps minimum speed across the country. 

In 2011 the goal goal was bumped up 24 Mbps per household by about 2015. To be sure, there is a difference between a minimum floor and a maximum aspiration. But past experience with speed increases--even in 2010--should have prompted lawmakers and policymakers to aim higher. 

Speeds increase at Moore's Law rates, one can argue, at least for some suppliers, such as the cable companies. 

Comcast has doubled speed every 18 months, for example. In 2010, typical Comcast speeds already were up to 100 Mbps. Few customers bought the fastest-available service, of course. But the minimum speed of about 12 Mbps grew to about 50 Mbps by 2015. Using the Moore’s Law doubling in 18 months would have produced speeds in excess of 100 Mbps by 2015, which is what happened. 

source: Comcast

This example from the Australian National Broadband Network actually is too conservative. Extrapolating from 1985, it suggests typical internet access speeds “should” have grown from about 10 Mbps in 2009 to perhaps 100 Mbps by 2015. 

source: NBN

When at least some suppliers are doubling speeds every 18 months, most targets and goals set by government are going to be eclipsed very quickly, no matter how ambitious the goals seem at the moment.

The point is that although government goals will tend to focus on minimums, as for universal service, aspirational targets need to incorporate what we know about Moore’s Law and its application to internet access bandwidth. 

With or without any specific government policies (other than staying out of the way), typical and minimum speeds would double about every 18 months to 24 months. So, one might argue, the U.K. government goal quickly was surpassed by commercial supply that did, in fact, increase at Moore’s Law rates, as did computing.

Most rational observers would have argued that physical networks could not improve speed so fast, as labor intensive and capital intensive as outside plant remains. Perhaps few thought Moore’s Law  rates of progress were possible for outside plant. On the other hand, few probably believed Moore’s Law would apply to computing hardware, either. 

The most-startling strategic assumption ever made by Bill Gates was his belief that horrendously-expensive computing hardware would eventually be so low cost that he could build his own business on software for ubiquitous devices. .

How startling was the assumption? Consider that, In constant dollar terms, the computing power of an Apple iPad 2, when Microsoft was founded in 1975, would have cost between US$100 million and $10 billion.

source: Hamilton Project

The point is that the assumption by Gates that computing operations would be so cheap was an astounding leap. But my guess is that Gates understood Moore’s Law in a way that the rest of us did not.

Reed Hastings, Netflix founder, apparently made a similar decision. For Bill Gates, the insight that free computing would be a reality meant he should build his business on software used by computers.

Reed Hastings came to the same conclusion as he looked at bandwidth trends in terms both of capacity and prices. At a time when dial-up modems were running at 56 kbps, Hastings extrapolated from Moore's Law to understand where bandwidth would be in the future, not where it was “right now.”

“We took out our spreadsheets and we figured we’d get 14 megabits per second to the home by 2012, which turns out is about what we will get,” says Reed Hastings, Netflix CEO. “If you drag it out to 2021, we will all have a gigabit to the home." So far, internet access speeds have increased at just about those rates.

"Law of Internet Bandwidth" Has Since 1998 Suggested 1 Gbps by 2020

In April 5, 1998, Jakob Nielsen projected that Internet access bandwidth was on a growth path to reach 1 Gbps by 2020, growing about 50 percent a year.

Up to this point, Law of Internet Bandwidth has proven quite accurate.

Nielsen plotted access speed starting with 300 bits per second in 1984, and updated the data through 2010 when Nielsen was using a 31 Mbps cable modem service.

Extrapolating just a bit further, one reaches 1 Gbps by 2020.

What is Capex Trend?

In addition to worries about what conceivably could happen to consumer demand for various communications services over the next year or so, suppliers to the telecommunications industry undoubtedly are worried about what happens to carrier demand for hardware and software.

Some, such as ABI Research, anticipate a mild dip of perhaps 1.3 percent in capital spending in 2009, compared to 2008. Others, such as Ovum, think the most-likely scenario is a reduced rate of growth through 2009.

There are other possibilities, though, with a return to 2007 levels of spending in 2009 or a severe dip of as much as 28 percent.

To be sure, carrier capital spending fluctuates over time, and many analysts believe U.S. service provider capital spending, which has been on an upswing over the past four to five years, will start to decline soon, as part of a natural part of the completion of some major upgrades by Verizon and AT&T, for example.

Looking at the average capex as a percentage of revenue, the five largest telecom providers in North America spent 18 percent of revenue in 2005, 17 percent in 2006 and 12 percent in 2007.

Capex at firms such as AT&T and Verizon in recent years has been running at 14 to 18 percent of revenue, a higher level than typically is the case, historically, and which at least some observers think will back down to more-normal levels after next-generation access network investments largely are made.

Those sorts of underlying drivers are not driven by short-term economic fluctuations, so one has to be careful extrapolating too much if a dip in capex should occur over the next several years, as that might be explained by a natural reversion to more-normal rates, not financial or economic conditions, necessarily.

Maybe Video Won't Crash the Mobile Internet

Bandwidth growth shows it is so difficult to accurately and consistently forecast the volume of change, even when the direction of change is clear enough. Everybody expects bandwidth consumption to keep growing. But we rarely get the magnitudes right.

Nor do we necessarily and normally hit the limits linear extrapolation suggests will be encountered, because actors behave rationally. Faced with higher prices for a product, they substitute other products, especially when suppliers encourage such substitution.

One might argue the potential explosion of video bandwidth will not happen in precisely the way observers and forecasters now predict, because users and suppliers will change their behavior. In other words, when there is no financial penalty for using bandwidth to watch video, people will watch. 

When there are incremental costs, behavior will change. And that is why, in the end, even mobile video will not crash the networks, though one could make a decent argument for that eventuality, extrapolating in a linear way from today's trends.

One might explain the Internet bubble demand forecasting failures. There were false signals being sent, in part because of fraudulent activity on the part of bandwidth sellers. But even when that is not the case, we tend to overestimate the degree of bandwidth demand growth.

At least one reason is that people and service providers have learned to act in ways that alter behavior. In other words, given service provider and end user self interest, mobile bandwidth growth has slowed because both suppliers and consumers benefit financially by doing so.

By 2017, almost 21 exabytes of mobile data traffic will be offloaded to the fixed network by means of Wi-Fi devices and femtocells each month, Cisco estimates. 4G Americas says Wi-Fi offload of mobile traffic is at 35 percent today in the United States and is estimated to be 68 percent by 2016.

Without Wi-Fi and femtocell offload, total mobile data traffic would grow at a compound annual growth rate of 74 percent between 2012 and 2017 (16-fold growth), instead of the projected 66 percent CAGR (13-fold growth), 4G Americas says.

Cisco notes that tthe global average for daily data consumption over Wi-Fi is four times that of cellular, averaging 55 MBytes per day for Wi-Fi, and 13 MBytes for cellular.

 Average Daily Wi-Fi and Mobile Data Consumption

Some think the same sort of trend ultimately will characterize mobile broadband bandwidth growth rates as well, In fact, there is little reason to doubt that future trend, given historical precedents.

In March 2011, for example, AT&T projected that data bandwidth growth would be on the order of eight to 10 times over then-current levels between the end of 2010 and the end of 2015.

That forecast appears to be based on an expectation that volumes would roughly double in 2011 and then increase by a further 65 percent in 2012.

Instead, AT&T seems to be seeing something like 40 percent annual growth. To be sure, 40 percent annual growth is significant. It means bandwidth consumption doubles about every two to three years.

Cisco estimates mobile broadband grew about 70 percent in 2012, and will grow at a compound annual growth rate of 66 percent from 2012 to 2017.

Some believe Wi-Fi offload will slow the rate of mobile broadband growth. On the other hand, even such offloading, at high rates of perhaps 80 percent, would slow the rate of growth by about 50 percent.