How Will Cable Operators Re-Architect to Add Upstream Bandwidth?

Hybrid fiber coax upgrades intended to increase upstream bandwidth can take a number of forms. Shrinking the serving areas; switching to fiber-to-home and re-architecting the network for different frequency plans are the typical choices. 

For operators who want to delay the shift to FTTH, moving from the standard HFC low-split design, and substituting a mid-split or high-split frequency plan, are the two architectural choices other than shrinking the fiber node serving areas or moving to an entirely-new FTTH network. 

As always, incrementalism is favored. Comcast appears to prefer the mid-split option, while Charter seems to be leaning towards a more-radical high-split approach. In terms of capital investment, the mid-split choice might be a shorter-window bridge to FTTH, while high-split might allow a longer window before FTTH is required. 

More symmetrical bandwidth is a large part of the thinking.  

DOCSIS 4.0 is going to force decisions about which path to take to support symmetrical multi-gigabit-per-second speeds of as much as 10Gbps downstream and up to 6 Gbps upstream.

source: Comscope 

Hybrid fiber coax networks still use frequency division, separating upstream and downstream traffic by frequency. So when a cable operator contemplates adopting mid-split or high-split designs, there are implications for active and passive network elements, especially for the more-radical high-split design. 

At this point, executives also will ask themselves whether, if radical changes are required, whether it would not be better to simply switch to fiber-to-home. 

source: Broadband Library 

Our notions of mid-split and high-split frequency plans have shifted a bit over the years, as total bandwidth has grown beyond 450 MHz up to 1.2 GHz. A designation of “mid-split”  made more sense in an era where total bandwidth was capped at about 450 MHz or 550 MHz. In those days, 108 MHz to 116 MHz of return bandwidth was perhaps 42 percent of the usable bandwidth. 

Hence the “mid-split” designation. 

Likewise for high-split designations, where as much as 186 MHz was designated for the return path, the return bandwidth represented as much as 67 percent of usable bandwidth on a 450-MHz coaxial cable system. 

source: Broadband Library  

Definitions remain, though with some new standardization of return bandwidths. “Mid-split” now features 85 MHz of return bandwidth, while “high-split” offers 204 MHz of upstream bandwidth. 

source: Broadband Library  

“Ultra-high-split” designs also are being investigated, where the upstream spectrum’s upper frequency limit can be 300 MHz, 396 MHz, 492 MHz, or 684 MHz, says Ron Hranac, consulting engineer. 

What remains true is that the ability to wring more performance out of hybrid fiber coax plant has proven more robust than many expected a decade ago. 

Also being considered are full duplex designs that swap time division for frequency division multiplexing. That is an option for DOCSIS 4.0 networks, and is a break from the frequency division HFC has used.

source: CableLabs 

Full duplex networks would allow the upstream and downstream traffic to use the same spectrum at the same time. That would require an HFC upgrade to a node-plus-zero amplifiers” design that is similar to fiber to the curb. The drop to the user location still uses coaxial cable, but without any radio frequency amplifiers. 

source: CableLabs 

The whole point of all these interventions is to supply more upstream or return bandwidth than HFC presently provides. 

source: Qorvo

Cable operators are a practical bunch, and will prefer gradualism when possible. So one might hypothesize that either mid- or high-split designs will be preferred. 

Next HFC Upgrade Will be Driven by Business Assumptions

Cable operators and mobile operators share one business commonality: capacity improvements hinge on the availability of spectrum and the degree of frequency reuse (smaller cells or serving area sizes). 

Both mobile and cable operators can effectively boost capacity by using different modulation techniques as well. But cable operators face a bigger problem, architecturally. “At some point” in the future a shift to fiber to home designs seems inevitable. 

But there are many ways to upgrade the hybrid fiber coax network before then, with varying degrees of capital investment and complexity, as well as capacity improvements. So each upgrade path embeds assumptions about what the market will require in terms of both upstream and downstream capacity , and for how long. 

DOCSIS 4.0 is going to force decisions about which path to take to support symmetrical multi-gigabit-per-second speeds of as much as 10Gbps downstream and up to 6 Gbps upstream.

source: Comscope 

Hybrid fiber coax networks still use frequency division, separating upstream and downstream traffic by frequency. So when a cable operator contemplates adopting mid-split or high-split designs, there are implications for active and passive network elements, especially for the more-radical high-split design. 

At this point, executives also will ask themselves whether, if radical changes are required, whether it would not be better to simply switch to fiber-to-home. 

source: Broadband Library 

Our notions of mid-split and high-split frequency plans have shifted a bit over the years, as total bandwidth has grown beyond 450 MHz up to 1.2 GHz. A designation of “mid-split”  made more sense in an era where total bandwidth was capped at about 450 MHz or 550 MHz. In those days, 108 MHz to 116 MHz of return bandwidth was perhaps 42 percent of the usable bandwidth. 

Hence the “mid-split” designation. 

Likewise for high-split designations, where as much as 186 MHz was designated for the return path, the return bandwidth represented as much as 67 percent of usable bandwidth on a 450-MHz coaxial cable system. 

source: Broadband Library  

Definitions remain, though with some new standardization of return bandwidths. “Mid-split” now features 85 MHz of return bandwidth, while “high-split” offers 204 MHz of upstream bandwidth. 

source: Broadband Library  

“Ultra-high-split” designs also are being investigated, where the upstream spectrum’s upper frequency limit can be 300 MHz, 396 MHz, 492 MHz, or 684 MHz, says Ron Hranac, consulting engineer. 

What remains true is that the ability to wring more performance out of hybrid fiber coax plant has proven more robust than many expected a decade ago. 

Also being considered are full duplex designs that swap time division for frequency division multiplexing. 

source: CableLabs  

Each technology upgrade path has business implications, especially the cost to upgrade HFC in some way without shifting to FTTH. The other assumption is the competitive environment and how long each alternative upgrade can support the expected business model.

Gigabit Networks Will Destabilize the ISP Market

There are times in the global communications business when stability is the main trend. The first 125 years of telecom history were such times of fundamental stability.

But there are other times when instability and change are the main trends. That might have been said to be the case when global privatization and deregulation happened in the 1980s and 1990s. And instability now is growing with the maturation of voice and the rise of Internet access and mobility as anchor services.

Some might argue growing instability is what we will see over the next decade. Consider only the impact of symmetrical gigabit Internet access service. Quantitative change is not the only issue. Qualitative competitive implications will exist for contestants using different network topologies and access media.

Consider cable operator frequency plans and use of hybrid fiber coax, for example. Executives typically argue that HFC can be upgraded incrementally to support future bandwidths of that sort.

To support gigabit networks, it is argued, fiber is simply extended deeper in the access network, decreasing serving area size by about an order of magnitude, creating the same sorts of advantages mobile operators gain by using a fixed amount of spectrum in a cellular configuration.

Though the least disruptive, such an upgrade might feature per-user peak bandwidth of 100 Mbps, still an order of magnitude slower than Google Fiber’s 1 Gbps, symmetrical. Some say only the high-split and new top-split frequency plans, all featuring more fiber, will support gigabit speeds.

But some might suggest it would be easier to overlay some sort of fiber to home capability than to dramatically change frequency plans now commonly used by U.S. cable operators to support symmetrical gigabit Internet access services. At least so far, most cable executives deem that too expensive an approach.

Though three different frequency plans (low split, mid-split, high split) have been available for decades, virtually all cable operators use the low split plan. Basically, that means frequencies up to 54 MHz are reserved for return signals, while all the rest of the bandwidth up to about 850 MHz is used to support downstream communications and services.

But even traditional “mid-split or high-split networks are not symmetrical. The mid-split frequency plan increases return bandwidth up to about 85 MegaHertz. The high-split network increases return bandwidth to about 200 MHz. The new top-split network offers support for gigabit speeds gigabit speeds.

For cable operators, as for others using radio frequency networks,  the challenge symmetrical gigabit services pose is not simply quantitative (more) but qualitative (equal split networks are needed).

Big Strategic Shift for FTTH?

The strategic context for U.S. home broadband is evolving. For two decades, cable TV operators have been able to consistently maintain installed base share close to 70 percent, in most years getting the majority to all of the net new account additions. 

That remains the case in 2021, as cable continues to hold its installed base lead and also continues to win the net new additions battle.  

All that now seems set for change, though. The biggest change is an up- tempo pace of fiber to home conversions by telcos. But new 5G high-bandwidth fixed wireless offerings should claim some share as well. 

source: New Street Research 

Also important is the way some telcos are positioning their upgrades. In the past, they might have been content to match cable offers. Now some are aiming to surpass cable offers, with symmetrical upstream bandwidth a weapon.  

Frontier Communications, for example, is preparing rollout of a 2-Gbps offer, in addition to its standard 1-Gbps and entry-level 500-Mbps offers. That will likely feature symmetrical bandwidth. 

To be sure, cable is working on its own 10-Gbps capabilities, as well as methods to add more upstream bandwidth. But many of those solutions are not graceful upgrades from the existing hybrid fiber coax platform. The choice is whether to revamp HFC in significant ways or switch to FTTH as the replacement. 

More upstream bandwidth could be provided, to some extent, by pushing fiber deeper into the HFC network. Alternatively, cable operators can swap frequency plans, moving to mid-split or high-split designs. But all those moves require disruption of the physical plant, and cannot be accomplished by swapping out end user gear, as has been the case in the past. 

And any shift to fiber deeper networks, mid-split or high-split architectures (or two of the above) essentially delays an eventual shift to FTTH in any case, many would argue. So the decision comes down to “spend less now, but more in the long term, while undertaking a major network disruption twice” or “spend more now, and be done with it, and only disrupt operations once.” 

The larger point is that upgrading to FTTH comes with other choices that can confer advantage. Bandwidth can be symmetrical, or not. Bandwidth can top out at various levels: higher or relatively lower. And retail pricing, terms and conditions also make a difference. 

Much thinking now seems to be going into how to tweak those parameters to gain advantage over cable operator competitors. Many might assume FTTH means gigabit speeds. It does not. FTTH is physical media. Service providers still must decide how much bandwidth they want those networks to supply. 

Historically, FTTH might have meant speeds in the hundreds of megabits. Some U.S. FTTH networks installed in the mid-1990s to late 1990s offered speeds only up to 10 Mbps. User experience might be an order of magnitude less than advertised, however, even on FTTH platforms.  

What seems to be changing is a willingness to leverage FTTH to gain a speed advantage. 

 

“Our network is already 10-gig capable end-to-end, so we can carry on driving up speed tiers, as demand requires, in a very low-cost, very quick way, again, in a way that cable can't, says Nick Jeffery, Frontier Communications CEO. 

But that only matters if most Frontier customers can buy the service. 

“Our plan (is) to reach a total of five million fiber locations by the end of 2022 and 10 million locations by the end of 2025,” says Nick Jeffery, Frontier Communications CEO. 

Frontier has 15.2 million locations passed, so 10 million total FTTH passings means about 66 percent of the potential customer base would be able to buy FTTH services. 

Of course, a higher installed base does take time. “Our 2020 expansion cohort continues to show strong penetration of 30 percent at the 12-month mark,” says Jeffery, though noting that figure is based on a small sample. 

“For the overall build plan, we continue to expect a 15 percent to 20 percent penetration rate at the 12-month mark, and with penetration continuing to rise in subsequent years toward a terminal penetration of 45 percent,” he added. 

Government subsidies also are expected to improve the business case for FTTH and other high-speed services, as they are increasing substantially. 

George Ford, economist at the Phoenix Center for Advanced Legal and Economic Public Policy Studies, argues that about 9.1 million U.S. locations are “unserved” by any fixed network provider. 

Though specifics remain unclear, it is possible that a wide range of locations might see their deployment costs sliced by $2,000 or more. Lower subsidies would enable many more locations to be upgraded to FTTH, for example: not the unserved locations but possibly also many millions of locations that have been deemed “not feasible” for FTTH.

Much hinges on the actual rules that are adopted for disbursement. Simple political logic might dictate that aid for as many locations as possible is desirable, though many will argue for targeting the assistance to “unserved” locations. 

But there also will be logic for increasing FTTH services as widely as possible, which will entail smaller amounts of subsidy but across many millions of connections. The issue is whether to enable 50 million more FTTH locations or nine million to 15 million of the most-rural locations. 

Astute politicians will instinctively prefer subsidies that add 65 million locations (support for the most-rural locations plus many other locations in cities and towns where FTTH has not proven obviously suitable). 

The issue is the level of subsidy in various areas. 

“According to my calculations, if the average subsidy is $2,000 (which is the average of the RDOF auction), then the additional subsidy required to reach unserved households is $18.2 billio,” Ford argues. “If the average subsidy level is $3,000, then $22.8 billion is needed. And at a very high average subsidy of $5,000, getting broadband to every location requires approximately $45.5 billion.”

The point is that, compared to the business case 20 years ago, FTTH is better in a number of ways. Strategically, copper facilities simply are outmoded. Any fixed network operator clinging to that platform is destined for death. 

Financially, the older triple-play model--with its cost structure and complexity--now is out of favor. The new model is based on home broadband: the sole service for an independent ISP, and the growth driver for an incumbent telco. 

Oddly enough, the older justification for FTTH--that it allows telcos to support many services--now is eclipsed by the simple value of internet access. The value of the “do anything” platform still remains. 

Only these days the primary value driver for an incumbent telco or independent ISP is “access.” Voice or video entertainment might contribute additional revenue and value, but where there is a choice, new providers simply build on home broadband, leaving apps to be supplied by others. 

All that is a big potential change.

Asia Mobile App Use Grows 77% Over One Year

Mobile now drives revenue growth in the telecom industry, and Asia drives mobile revenue  growth. Since mobile also drives Internet access, it can be said that mobile drives Internet access growth, and Asia drives global Internet access growth.

Between 2014 and 2015, Asia experienced double digit growth in its mobile app economy.

When we compared at total session growth in the trailing 12 months from April 2014 to the trailing 12 months from April 2015, we found that sessions in Asia grew 77 percent, Flurry says.

The double-digit growth in the region is driven by consumer categories that provide a clue about the growing purchasing power and sophistication in the region.

Three categories of apps stand out as driving this growth: hopping and lifestyle, news and reading, plus utilities and productivity.  

The fastest growing category of mobile apps now is “shopping and lifestyle,” followed by “news and reading.”

Growth in use of messaging and social apps is a reflection of already-high usage in that category. Simply, most people already rely on messaging and social apps to a high degree.

In Asia as elsewhere, “everybody” uses messaging. Messaging apps’ daily use is 4.7 times higher than the average app, Flurry notes.

The average daily use of an app across all categories is 1.9 times. Messaging apps are used, on average, almost 9 times every day.

Although messaging is a large driver of sessions in Asia and around the world, it only represents 13 percent of users time spent in their mobile apps.  That means smartphones are used for a wide variety of purposes on a typical day.

Asia also is a region where the phablet is the fastest growing device type to date, with 148 percent year over year growth worldwide.

Globally, session distribution between medium phone and phablet is 60 percent and 31 percent, respectively.

In Asia, sessions are split evenly between the devices, with medium phones contributing 45 percent and phablets 42 percent.

In Asia phablet users also conduct 78 percent more sessions than the average smartphone user.

Compared to the rest of the world, Asia is a unique app market, where it comes to photography, lifestyle and shopping, and personalization categories.

Although 81 percent of Asia’s photography app users are female, men in Asia are 1.9 times more likely to use photography apps than men in the rest of the world.

Women in Asia dominate the lifestyle and shopping category in terms of use, but are also 1.4 times more likely to shop in mobile apps as compared to women around the rest of the world.

Globally, 81 percent of personalization app users are men, though in Asia, usage is split evenly between men and women, 51 percent and 49 percent respectively.

This makes women in Asia 2.7 times more likely than the global female population to use personalization apps. That might be a result of Android adoption, Flurry suggests.

AT&T, Verizon Strategies Diverge

AT&T and Verizon--like most other tier one service providers--have increasingly adopted different business strategies since the era of competition began in the 1980s. Back then, most tier one providers were very similar to each other in that regard.

These days, firm business and product strategies can be quite different. That is the case for AT&T and Verizon, on the subject of product bundling. Simply, Verizon is less enthusiastic about quadruple play offers, never having found what it believes is clear evidence of end user demand.

AT&T, on the other hand, is much more optimistic about the value of quadruple plays and bundles in general.

In that respect, AT&T holds views more similar to most tier-one service providers in Europe, who generally believe the quadruple play is a fundamental strategy.

To a large extent, the difference in views between AT&T and Verizon also flows from their respective positioning in the market. Verizon has pitched itself as the “premium” brand and generally abhors competing on price.

Verizon sees consumer demand for quad play offers as fundamentally a matter of price savings, something that goes against the company positioning. Also, Verizon has less fixed network revenue to protect and grow, and has focused mostly on its mobile business.

Compared to AT&T, Verizon has less to gain from bundling that lowers churn of its consumer fixed network customer base.

AT&T, on the other hand, has a much-larger fixed network profile and a correspondingly smaller--though still significant--contribution from mobile services. Quad plays arguably represent more value for AT&T, as it has more customers to potentially lose in the consumer fixed network segment.

In the second quarter of 2016, for example, AT&T--which reports its business segments differently than Verizon--said it had about 23 million video accounts and about 13 million high speed access accounts, split between its DirecTV and wireline networks.

In its first quarter of 2016, Verizon said it had about seven million FiOS Internet accounts.

So looking only at consumer high speed access, AT&T has nearly twice the number of fixed network accounts as does Verizon.

Trailing Verizon in the mobile accounts area, but leading Verizon in fixed network accounts, AT&T has more to gain in mobile, and more to lose in fixed network services, than Verizon.

The other notable divergence is international operations. While both AT&T and Verizon sell enterprise services globally, AT&T has more exposure internationally, with its Mexico mobile operations, in particular.

With the exception of its fixed network global enterprise business, Verizon remains a U.S.-focused company.

SMBs in Industries with Moats Spend Much More on IT Than SMBs in Risky Sectors

U.S. smaller businesses (defined as “small” when there are up to 99 employees and “medium” with 100 to 499 employees) can be split into four market segments, according to Analysys Mason. 

You likely would not be surprised to find that bigger spenders also are firms that face less competition--and therefore are more profitable--while also being larger firms overall. That has traditionally been the case. 

It would not surprise you that firms in financial distress, or in declining markets, spend less than growing or prosperous firms. You also would not likely be surprised if growing firms were more focused on growth--and investing for growth--while most declining firms are more interested in harvesting revenue for as long as possible and spending as little as possible. 

That is one way to interpret the way SMBs can be characterized in terms of their information technology spending volumes. 

Analysys Mason sees SMBs in four spending groups: super spenders, ahead of the curve, constrained strugglers or disengaged groups. 

What also might catch your attention is that firms that spend more tend to be in well-protected industries with moats of some sort that keep competitors out. They tend to be larger, growing and likely more profitable. 

The firms that invest less are all in high-risk industries, perhaps declining industries, are smaller and in financially-stressed industries. 

Source: Analysys Mason, 2020

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The super spenders make up roughly one third of the Analysys Mason sample and tend to be found in well-protected industries such as professional services.

The constrained strugglers and disengaged SMBs are mostly small businesses in challenged industries who focus on cost cutting and survival. These businesses tend to be found in high-risk industries such as retail, construction and manufacturing.

Is a 50-50 Revenue Split for Apple News+ Unreasonable?

Content suppliers for Apple’s news-based subscriptions complain about revenue splits (as did app and game suppliers about similar distribution costs in the App Store). The channel conflict is real enough: unless a content supplier can go direct to consumer, distribution represents  a healthy chunk of total cost to deliver a product.

In principle, distribution costs include direct sales; advertising; packaging; incentives for distribution partners; credit and bad debt costs; market research; warehousing; shipping and delivery; invoice processing; customer service and returns processing, for example.

In some industries, the “cost of goods” can range from 30 percent to 80 percent of total retail cost. That might be likened to the digital content Apple will distribute.

source: McKinsey

Granted, traditional distribution operations have been oriented around physical products, not software, streaming and non-tangible products. One study suggests direct supply chain costs  represent four percent to 10 percent of cost; direct transportation costs a couple of percent to 10 percent of revenue; warehouse or distribution center costs perhaps two percent to 16 percent of revenue. The larger point is that distribution can range from a low of 10 percent to a high of 35 percent of total retail cost.

source: R. Pinon

The point is that any content supplier can go direct or indirect. Apple’s News+ is an indirect distribution or sales channel. What that is worth is a matter of perceived value and market power, played out in contract negotiations.

So much of the disagreement about revenue splits harken back to the older arguments between content owners and distributors generally. In the U.S. linear video business, some argue sports content alone represents half of the retail cost of the service.

It might therefore be the case that distribution (everything required to get the content to the end user) represents 40 percent or so of total end user price.  

source: Pocket Gamer

The point is that a 50-50 split of revenues between Apple and any specific content owner might seem out of whack. The alternative is the cost to sell the product direct versus indirect, using Apple. And that is far from an insignificant cost for any supplier, even of digital goods.