It Is Not that People Do Not Talk, It is That They Talk Using OTT

Like it or not, over the top apps now are becoming the standard way most applications are created and consumed on all networks.

The key issue, for mobile or fixed network service providers, is not whether that is trend, but more appropriately whether access providers participate in some way in the revenue generated by those apps.

In other words, whether access providers have any participation in  revenue is the issue, not whether OTT apps increasingly will dominate usage. The ideal scenario is that the access provider owns some percentage of the equity in important and leading OTT apps.

The more likely scenario is that an app provider has clear incentive to partner with a distributor, and is willing to consider some form of revenue sharing.

Some 26 percent of global smartphone customers in developed markets will make no traditional phone calls in a given week in 2016, predicts Deloitte. That provides one example of the important role now assumed by OTT apps.

It is not so much that smartphone owners do not talk at all, but that, when they do, they increasingly use an OTT app. Likewise, when messaging, that activity often will take place using an over the top social network.

90% of All People Will Have Mobile Internet Access by 2021

By about 2021, more than 90 percent of all people on the planet will have access to Internet access provided by mobile operators, Ericsson estimates.

That is significant for several reasons, not the least of which is that we need to keep focused on where we are going, and how fast, rather than where we have been.

Many observers have a vested interest in arguing that the digital divide remains wide and an intractable problem, even if the “problem” is being rapidly solved.

That is not a criticism, only an observation institutional bias exists. To gain resources to “solve” a problem, one must first convince decisionmakers that a problem exists. When a particular problem is solved, most agencies then seek a new problem to solve.

Though we have not yet completely solved the “access to voice and messaging communications” problem, we can confidently say we will do so, and in the near future. In a similar manner, we are making rapid progress on the Internet access front, despite the distance to be covered.

Coverage of 90 percent of the world’s people is quite an achievement.

That is not to say access speeds will universally be appealing. Much of the access will be provided by GSM Edge networks that are not so fast. But coverage of 3G networks will reach 90 percent, while 4G will reach about 75 percent of people in about five years.

In telecommunications time, that is really fast.

Verizon Losing Small Business Share to Cable TV

Verizon’s fourth-quarter financial results were consistent with a recent trend: higher reliance on consumer revenues and relatively rapid decline in the small business segment that is accounted for in the “mass markets” category.

That means cable TV providers really are taking market share in the small business market.

In the fourth quarter, where consumer revenue grew 2.6 percent and for the full year grew 3.5 percent, small business revenue declined 5.6 percent in the quarter and 4.6 percent for the full year. So one might conclude there is a possibility that share gains by cable TV providers are accelerating, in Verizon markets.

That noted, be watchful when any firm says its customers are “rightsizing.” That is a euphamism for “spending less.”

Shammo says a “change in the consumer revenue growth trajectory continues as customers right-size their existing bundles and core voice services decline.”

At the same time, high speed access revenue is increasing, while demand for linear video is dropping.

“At the end of the quarter, more than 70 percent of our consumer Fios internet customers subscribe to data speeds of 50 megabits per second or higher, and we have shifted our introductory offers to 50 megabits,” said Shammo. We are also seeing an increasing number of customers opting for higher speeds.”

That noted, Verizon still had higher net additions for linear video than for high speed access. Verizon added 99,000 net FiOS accounts, representing 42 penetration. Net broadband accounts grew just 5,000 in the quarter.

In linear video, Verizon added 20,000 net customers in the quarter and 178,000 for the year, hitting 35 percent penetration.

Those market share figures are worth noting. In any competitive market where two or more competitors are relatively evenly matched, in terms of skill, financial strength, marketing and network quality,

Recall that in a monopoly market, a rational operator could expect to deploy a full network and then get 90 to 95 percent adoption of lead services. That was the case for cable TV and telcos in the “monopoly” era.

Cable TV executives used to quip, off the record, that they enjoyed the best of all possible worlds: an unregulated monopoly. And local telcos once boasted 95 percent or higher market share in voice.

Competitive markets fundamentally change the dynamic. Now, cable TV and telco have to build full networks that actually have stranded asset rates as high as 65 percent.

Verizon’s enterprise business also is declining. Global enterprise revenue declined 3.3 percent, 2.1 percent on a constant currency basis

For the full year, global enterprise revenue declined 5.2 percent, 3.5 percent on a constant currency basis. The global wholesale business declined slightly in the fourth quarter and 3.4 percent for the full year.

Total operating revenues for the fixed segment declined of 0.9 percent in the quarter and down 1.8 percent for the full year.

Asia has 51% of All Mobile Subs, Pacific Basin Up to 66%

If we can speak meaningfully of a region spanning the Pacific Ocean, and therefore including Asia and the Americas, then that "region" includes 66 percent--two thirds--of global mobile subscribers.

That is significant for several reasons, including the fact that global fixed voice lines now number only about 800 million. In other words, there are 7.8 billion carrier voice lines in service, of which mobile represents about 90 percent of all lines.

So knowing the volume of mobile lines very nearly captures the extent of voice line usage in any region, the trend being most pronounced in “developing” regions.

Asia alone represents 51 percent of global mobile subscribers.

source: Ericsson

source: Ericsson

You can Move Down the Stack on Your Own; To Move Up, You Have to Partner

It no longer is unusual for an app provider to become an access provider. Google Fiber provides only one example. Tucows, originally a domain name registrar, has become both a mobile services provider and now a gigabit Internet service provider.

Both Google and Facebook are developing entirely-new access platforms based on unmanned aerial vehicles and, in Google’s case, fleets of balloons. Facebook now leases transponder time to support Internet access operations in sub-Saharan Africa.

Facebook also is testing Wi-Fi services in India.

Virtually every major telco thinks about ways to enhance value by “moving up the stack” and bundling more apps.

That naturally raises questions. Is it easier to move up the stack or down the stack? In other words, is it easier for an app provider to move down the stack, and provide access, or for an access provider to move up the stack into new apps beyond voice and messaging?

Most of us will conclude that it is easier to move down the stack, compared to moving up the stack.

One can think of many reasons why that is so, even if the core competence, either way, is not present, when occupying new adjacencies in the ecosystem.

It is not necessarily the case that “access” is easier to learn than “apps,” though that likely is the case. The simplest explanation is that an app provider moving into access has one major advantage: it is the “customer” for access, and therefore knows precisely why such a move has value.

That also would be true for any app provider getting into the cloud data center or transport business. The move “down the stack” supports core app provider business operations.

Google, for example, even can quantify what “faster access” means for its core business model (at least the present business model). Faster access means more pages can be viewed in any unit of time. That, in turn, creates more ad inventory to sell.

That is a lot easier than figuring out where and how to spend money to move up the stack. The access, transport or data center provider is not the “customer” when moving up the stack. A firm does not necessarily “know” what the customer requires, finds valuable and will pay for, when moving up the stack.

So moving up the stack is more risky. All of that suggests any move up the stack will be less risky when a partnering approach is taken. Not riskless, by any means, but less risky than trying to be right about the end user value proposition, in a major way.

An illustration: service providers created the value of voice and messaging, and were able to build significant  businesses around enterprise need for connectivity. Cable operators were able to create a huge business model around video entertainment choice.

Other entities have been able to create meaningful businesses around enterprise computing (cloud computing and data center operations).

But the app creation function mostly has been separated from infrastructure operations. And it is app providers who must figure out what buyers (consumers) want, and will pay for. In many cases, that includes indirect revenue models, where the actual buyer is an advertiser, not the retail end user.

It all means that service provider app creation typically will require partnering with app providers. App providers, on the other hand, often can simply move into access, transport or data center operations themselves. They are the “customers” for such services.

So there are only three rules for service providers creating important new apps, and moving up the stack. Partner, partner, partner.

Fiber to Home No Longer is the Key Metric: Gigabit Access Is the Issue, and Pessimism is Completely Unwarranted

Vern Fotheringham, V-Satcast executive chairman, asked an interesting question at the Pacific Telecommunications Council’s 2016 annual conference: “what percentage of U.S. homes now are connected to by fiber?” Eventually answering his own question, he said “five percent.”

As with all such figures, context is required. The Fiber to the Home Council estimated in 2015 that 26 million U.S. homes were passed by fiber-to-home connections and could buy service. If there are 134 million U.S. homes, then perhaps 19 percent of U.S. homes are passed by fiber to the home networks and are able to buy service.

As always, though, the issue is not where we are, but where we are going, and there the FTTH statistics do not tell the story. FTTH is one method of providing very high speed Internet access. But it is not the only way.

Cable TV networks able to provide gigabit service would, for many, be a functional substitute for FTTH access.

Also, the issue is the impact of new fiber providers such as Google Fiber, as well as stepped-up gigabit programs by AT&T. The way some of us would frame the issue is the percentage of homes able to buy gigabit service, not the number using a specific access technology.

That paints a different picture. With the commercialization of Data Over Cable Service Interface Specification (DOCSIS 3.1) platforms, cable operators can upgrade Internet access speeds up to 10 gigabits per second by means of a software change to modems and routers.

The DOCSIS 3.1 platform supports speeds up to 10 Gbps, depending on how much bandwidth a cable operator wishes to devote for that purpose.

Comcast, for example, already has announced it will upgrade its entire consumer high speed access base (both customers and passings) to gigabit speeds using DOCSIS 3.1. Comcast originally believed it might do so in 2015 or 2016. It now has said that could happen, nationwide, by 2018.

Make no mistake: that will change the picture dramatically. Comcast has shown it can increase high speed access speeds at Moore's Law rates. Comcast passes 54 million U.S. homes. So once the gigabit upgrade is completed, Comcast alone will represent gigabit coverage of 40 percent of U.S. homes.

Cox's consumer gigabit service will be available in all of its markets by the end of 2016. Cox passes 9.2 million U.S. homes. That adds another seven percent.

So Comcast and Cox alone will pass 47 percent of U.S. homes, with unduplicated gigabit coverage.

Assume Charter’s acquisition of Time Warner is approved by regulators. Time Warner passes 30 million homes. That is 22 percent of homes. So Comcast, Time Warner and Cox eventually will provide gigabit access to an unduplicated 69 percent of U.S. homes.

Telcos are moving as well.

Separately, CenturyLink is deploying gigabit access as well, though those locations will overlap with some of the Comcast and other cable operator homes.

AT&T is expanding its GigaPower service to parts of 38 more cities. It's now in 56 metro markets.

AT&T's GigaPower service now reaches one million addresses, with plans to double that in 2016 and ultimately reach 14 million homes and businesses, Goldman Sachs said in a research report.

MoffettNathanson, for its part, says AT&T has committed to expanding its fiber-optic service to 5 million "customer locations" by the end of 2017, 8.3 million by year-end 2018 and 12.5 million through July 24, 2019, as part of conditions tied to the approval of its DirecTV acquisition. Based on regulatory definitions, MoffettNathanson contends the 14 million "locations" will translate to 9.9 million "cable equivalent" homes and businesses, or 7.3 percent of U.S. households.

Google Fiber is on a path to serve Chicago and Los Angeles, as well as the 4.3 million or so homes it already could potentially reach with its already-announced deployments of gigabit service.

The point is that the present and coming competitive market business model for high speed access will change dramatically over the next several years. Where we are does not matter. Where we are going matters.

Fiber to the home availability is not the metric you want to watch. Watch for gigabit access to become the dominant and normal advertised speed across most locations cable can reach. And keep in mind, cable reaches 98 percent of all U.S. homes.

Soon, cable alone will potentially reach 70 percent of U.S. homes, with Google Fiber and telcos offering a second provider option across some of that cable footprint.

Fiber to the home passings do not tell the real story.

Infrastructure as a Service Grows 51%, Private and Cloud Computing 45%

During the 12-month period ending September 2015, public cloud services revenue grew to $110 billion, up 28 percent on an annualized basis, according to Synergy Research.

Public infrastructure as a service or platform as a service(IaaS/PaaS) had the highest growth rate at 51 percent, followed by private and hybrid cloud infrastructure services at 45 percent.