Google Fiber Going Fixed Wireless, Buys Webpass

Google Fiber is buying Webpass, a provider of Wi-Fi services for residential and commercial buildings. Note: Webpass does so using fixed wireless.

Webpass says it has tens of thousands of customers across five major markets in the United States, including San Francisco, Oakland, Emeryville, Berkeley, San Diego, Miami, Miami Beach, Coral Gables, Chicago, and Boston.

It is just a rational guess, but we would assume Webpass is going to be part of an effort by Google Fiber to functionally add a “Google fixed wireless” capability to quickly reach locations not presently reached by the fiber to home network.

As many other access providers have discovered, the business model for fiber to a home or fiber to a business depends largely on how many such potential customers can be reached by any single mile of access facilities.

For example, Vertical Systems Group estimates that fiber now reaches 46 percent of U.S. commercial buildings with establishments of 20 or more employees.

There always are potential customers who want to buy, but which cannot be profitably served by a direct fiber connection. Fixed wireless has, for decades, been viewed as one way to profitably connect a wider number of such customers.

And it appears Google Fiber aims to do precisely that.

Oi goes Bankrupt, But Has Not Made History, Yet

The former Brazilian monopoly provider now called Oi has filed the largest bankruptcy protection request in Brazil’s history. The request for a reorganization--not a dissolution--is not unprecedented.

Also, the action essentially will wipe out equity shareholders and force bondholders and other creditors to “take a haircut.” Oi obviously hopes that by doing so, it can reemerge as a sustainable entity.

What would have been remarkable, and history-making in a more profound way, was if Oi had filled for complete liquidation. That would have made it the first former monopoly telecom provider to completely disappear (not just be acquired). Oi bought the assets of the former monopoly provider Brasil Telecom and also acquired Portugal Telecom.

So far, no former incumbent telco, in any sizable country, has gone completely out of business.

Low market share in both mobile and high speed access were among the chief business model problems.

Brazil’s market leader is Telefónica Brasil (Vivo, owned by Spain’s Telefónica). TIM Participações (Telecom Italia) is number two while Claro (owned by Mexico’s América Móvil) is third. Oi ranks fourth.

Lots of U.S. telecom firms have gone bankrupt, notably many competitive service providers during the bursting of the the telecom and dot.com bubbles in 2001. In fact, the Dow Jones communication technology index has dropped 86 percent; the wireless communications index, 89 percent, between 2000 and about 2002, representing about $2 trillion in equity value.

At least 23  telecom companies went bankrupt, mostly in chapter 7 liquidations, many preceded by chapter 11 reorganizations. WorldCom’s bandruptcy was the the single largest in U.S. history up to that point, to be eclipsed only in 2008 by Lehman Brothers and Washington Mutual during the Great Recession of 2008.

So far, business model stress has not caused the disappearance of any former monopoly carrier. But neither does it appear such a possibility is impossible, either.

Restructuring is not dissolution. Oi might survive by shedding debt, shaving obligations to existing creditors and taking other actions. Eventually, Oi is likely to be sold, so its complete collapse and disappearance seems unlikely.

But Oi’s predicament illustrates the industry change. Even if a former monopoly firm were to completely disappear, it is virtually certain that other suppliers would have arisen to take its place. So, in answer to an old hypothetical question--can a telco go completely out of business?--the answer might now clearly be “yes.”

But even if that were to happen, the traditional arguments against such a fate--a nation would lose its communications services--no longer are true. There are other suppliers. And, in many cases, the newer suppliers have the upper hand.

AT&T and Verizon Have Diverging Business Strategies

With rather sudden speed, AT&T and Verizon--which like all former incumbent telcos once had similar business strategies and profiles--have become distinctly different. Put simply, Verizon emphasizes mobile revenue, while AT&T actually emphasizes business customer revenue, with a major contribution from video entertainment.

Of the $32.2 billion Verizon earned in the first quarter of 2016, $22 billion was earned from mobile services, or 68 percent of total. Verizon does not break out the portion that is consumer or business revenue.

In its first quarter of 2016, AT&T earned $40.5 billion. Mobile services contributed $18 billion, or 44 percent of total revenue, including both business and consumer accounts. So mobility is a significantly smaller percentage of AT&T total revenue.

The two firms also emphasize revenue in different ways. AT&T, in 2015, says it earned just 24 percent of total revenue from consumer mobility, and consolidates fixed network and mobile services for business customers.

In 2015, AT&T business solutions represented 49 percent of 2015 sales. In other words, in AT&T’s view, business services are more important than consumer mobile.

At the same time, in 2015, AT&T’s entertainment group drove 24 percent of revenue, as important as consumer mobility. In other words, AT&T says it earns 73 percent of revenue from business and entertainment services.

In other words, Verizon in the first quarter earned 32 percent of total revenue from fixed network operations, both consumer and business.

But Verizon says it earned just just $4 billion from consumer fixed network operations, or about 12 percent of total revenue.

If total fixed network revenue was $9.3 billion in the first quarter of 2016, then business revenue (including wholesale) from fixed network operations was about $5.3 billion, or about 16 percent of total revenue.

So the story is Verizon mobile, AT&T business and entertainment video. That’s a pretty big distinction.

In South America, Facebook and Google Drive 70% of Traffic

So far in 2016, in North America, real-time entertainment apps drive data demand on fixed networks, largely Netflix traffic, which represented about 35 percent of all bits transferred over North American fixed networks, according to Sandvine.

Amazon Video drove about 4.3 percent of peak downstream traffic.

On North American mobile networks, music services as a whole are increasing in traffic share, yet no single service is among the top 10 applications.

During peak period, real-time entertainment traffic continues to be by far the most dominant traffic category on mobile networks, accounting for almost 40 percent of the downstream bytes on the network.

In Latin American mobile networks, Facebook and Google drive 70 percent of total traffic in the region.

10% of Wearable Owners Have Stopped Using Them

You never can be too sure what the “next big thing” will be, in the connected devices business.

Tablets and smartwatches might be among the categories that have failed to achieve that status. People use them, to be sure. But neither device yet has yet to prove it is transformative in the same way that PCs earlier, and smartphones recently, have been.

Some 10 percent of wearable owners have stopped using their wearable, according to an Ericsson ConsumerLab poll of wearable device owners from Brazil, China, South Korea, the United Kingdom and United States.

Ericsson says about 33 percent of those who abandoned use of wearables did so within the first few weeks of ownership.

Limited functionality was the primary problem for 21 percent of respondents who stopped using their wearable device. Some 14 percent of of those who had stopped using their wearable device said it was because the devices were not a standalone product, and required use of a smartphone.

source: Ericsson

IT Shifting from "Cloud First" to "Cloud Only," Gartner Says

By 2019, more than 30 percent of the 100 largest vendors' new software investments will have shifted from cloud-first to cloud-only, Gartner analysts now predict.

"More leading-edge IT capabilities will be available only in the cloud, forcing reluctant organizations closer to cloud adoption,” said Yefim V. Natis, Gartner VP.

By 2020, more compute power will have been sold by IaaS (infrastructure as a service) and PaaS (platform as a service) cloud providers than sold and deployed into enterprise data centers.

The Infrastructure as a Service (IaaS) market has been growing more than 40 percent in revenue per year since 2011, and it is projected to continue to grow more than 25 percent per year through 2019.

By 2019, the majority of virtual machines (VMs) will be delivered by IaaS providers. By 2020, the revenue for compute IaaS andPlatform as a Service (PaaS) will exceed $55 billion — and likely pass the revenue for servers.

“Unless very small, most enterprises will continue to have an on-premises (or hosted) data center capability,” said Thomas Bittman, Gartner VP.

In Every Ecosystem, One Segment's Cost is Another Segment's Revenue

Ecosystems always are contentious, since one segment’s revenue is another segment’s cost.

We saw an obvious example of that when Verizon’s fixed network workers went on strike for higher wages and benefits.

We see the conflict often when various parties argue about rights to use spectrum; whether spectrum can be shared; whether spectrum should be available license exempt, or not; whether zero rating should be allowed.

We also will see that principle in action as the Indian government auctions a prodigious amount of mobile spectrum--as much as 2300 MHz-- later in 2016. Consider that the whole Indian mobile industry presently uses between 200 MHz and 300 MHz of spectrum. So the upcoming auction represents an order of magnitude (10 times) increase in spectrum.  

To put that into perspective, the potential spectrum rights could cost more than double the industry's gross revenue and more than 20 times the annual free cash flow of the entire mobile industry.

The expected spectrum payments also represent a sum four times higher than the last auction.

Shockingly, projected spectrum payments in this one auction could represent a sum as high as twice as much spending as in all prior mobile spectrum auctions put together.

So there you have a clear example of ecosystem tension because one segment’s revenue is another segment’s cost. The Indian government thinks it could raise a sum representing as much as 25 percent of the government’s total annual revenues.  

Some analysts would note that India already has some of the highest costs in the world, where it comes to spectrum rights.

In the end, all costs, everywhere in the full ecosystem, are paid by other parts of the ecosystem, with all ultimate costs borne by end users and consumers, or parties subsidizing use of ecosystem products (advertisers, for example).