The Cure for High Prices is High Prices

Some observers worry that the growing cable operator market share in consumer internet access means higher prices are coming, as telcos increasingly are relegated to almost-marginal roles.

In a new research note, New Street Research analyst Jonathan Chaplin says cable providers controlled 65 percent of the overall consumer internet access market at the end of 2016, possibly growing to as much as 72 percent by 2020.

Of course, the concern about higher prices assumes new challengers, or new methods of competing, cannot arise. That is likely an unwise assumption. In virtually all markets that are open to competition, high prices and high market share are invitations for competitors to attack.

“The cure for high prices is high prices,” a commodities industry adage suggests. In other words, high prices encourage more production, which leads to lower prices.

To be sure, many observers of the communications might deny that can happen with the commodity known as internet access, but history suggests the internet access commodity will respond to competitive forces in the future, as it has in the past, bringing additional supply to a market that concentrated, and also featuring “higher prices.”

In principle, several conceivable lines of attack exist. New platforms and new providers both are coming. Though some might doubt the amount of share that can be taken by new challengers on new platforms, several new platforms are coming, ranging from fleets of low earth orbit satellites, possible use of balloon fleets, unmanned aerial vehicles, fixed wireless and 5G mobile substitution.

Some of those platforms will come to market because new providers (Facebook, Google, OneWeb) are sponsors of the new platforms. In other cases, existing providers (mobile operators) will compete with fixed network providers.

What seems clear is that the era when telco fixed internet access networks based on digital subscriber line were competitive with the cable TV platform has largely past. Fiber to the home will be a choice in some cases, but the business case has gotten harder as cable has gained more share (stranded investment risks are far higher as the addressable market shrinks).

That likely means the future competition will come from new platforms and providers (mobile substitution as well as new competitors).

That might seem unlikely with the pause in Google Fiber deployments. Longer term, a big and attractive consumer market with rising prices, where one contestant has 70 percent share, will be attacked. The only issue is “by whom?”

Verizon to Deploy 8,000 to 10,000 Small Cells in Boston

Verizon CEO Lowell McAdam says it will deploy 8,000 to 10,000 small cells in Boston, as part of its One Fiber optical infrastructure in Boston, investing  $300 million over six years. That massive deployment of new cell sites explains why the One Fiber deployment of transport fiber is so important.

Those 8,000 to 10,000 cell sites all will need gigabit per second backhaul.

Separately, he says Verizon will purchase up to 12.4 million miles of optical fiber from Corning each year beginning in 2018 through 2020. The minimum purchase commitment is $1.05 billion, Verizon said.

To put those Boston small cells into perspective, there were about 300,000 cell sites total, in the U.S. market, in 2016, and about 150,000 towers.

source: SNL Kagan

Computing Models Have Business Model Implications

The Open System Interconnect model (and the incompletely compliant internet protocol) is a reference model for the way modern computing works, and illustrates why the global telecom industry faces some common problems.

For starters, OSI was developed because modern computing requires communications across disparate systems. That heterogeneity is one key foundation of modern computing. As computing no longer is monolithic, so telecom no longer is monolithic.

As modern computing assumes (in principle) that “any authorized app” can be used by “anybody who is authorized” on “any authorized device,” so the structure of telecom now makes similar assumptions.

That is far different from yesterday’s world, where “my authorized apps” can be used by “any of my authorized users” on “any of my authorized devices.”

That dramatically changes customer lock-in and therefore supplier power. So all access providers now are “less powerful” than they used to be. Look at the market capitalization of the world’s leading apps, compared to the market capitalization and multiples of telecom and access providers and you will see how “value” translates into valuation. As early as 2011, app providers had leapt to market values far higher than the largest telcos, creating what some have called valuation envy on the part of access providers.  

source: Telco 2.0

But the OSI model (and Internet Protocol) also explains why access providers have lost value in the ecosystem. By creating logical separation of computing functions, business role separation also was enabled.

By definition, it is possible for apps to be created and accessed irrespective of the ownership of access facilities or the actual applications themselves. That is the fundamental opposite of the old model, where applications and network ownership were vertically integrated.

That takes profit margin out of the access business at the same time it enables product substitution that does not require network ownership. Apps now are effectively virtualized and abstracted from access and transport functions and ownership.

Wi-Fi provided an early example of how even access has become more virtualized, allowing users to connect over networks not owned by their “service providers.” More examples of that are coming.

And though some have argued that over the top apps do not compete with telco and access provider revenue, only control of the value chain, one might now argue that is only partly true. OTT providers essentially destroy the former access provider markets (look at voice, messaging, now video).

source: Vision Mobile

source: IDATE

FCC Wants to Streamline Pole Attachment Processes

I cannot prove it is true, but I believe one reason why young digital natives often miss the business challenges of creating access network infrastructure is that it is so physical, so resistant to Moore’s Law improvement and other advantages available to creators of virtual products.

In other words, internet access facilities are construction projects. And, over a five-year period, the cost of getting a pole ready for hanging of one new cable can represent two orders of magnitude most cost than the cost of renting space on the pole for five years.

For such reasons, impediments to construction allow incumbents to delay competition. That has been an issue in access networks as long as I can remember (only a few decades, admittedly). One clear example is disputes over pole attachment rates and rights.

That is among the reasons the U.S. Federal Communications Commission wants to make the process of gaining pole attachment rights easier.

Federal Communications Commission Chairman Ajit Pai of the has proposed a Notice of Proposed Rulemaking (NPRM), Notice of Inquiry (NOI), and Request for Comment (RFC) to remove barriers to infrastructure investment by streamlining pole attachment processes.

Reforming the FCC’s pole attachment rules will make it easier, faster, and less costly to access the poles, ducts, conduits, and rights-of-way necessary for building out next-generation networks.  

The FCC chair also hopes the rulings will provide greater regulatory flexibility and expedite the process of retiring copper facilities by streamlining the regulatory process by which carriers must obtain FCC authorization to discontinue legacy services.

source: McLean Engineering

source: FCC

source: FCC

PTC Academy, Spectrum Futures Collaborate for Training

A training program for mid-career telecom professionals will be held Sept. 20-22, 2017 in Bangkok, organized by the Pacific Telecommunications Council and taught by about a dozen industry professionals with long experience in the business.

PTC Academy is aimed at "up and coming" younger executives, and designed to give them a taste of the challenges they will face as they move up the management ranks.

In conjunction with PTC Academy, attendees at the tutorial segment of Spectrum Futures, the PTC conference on 5G and spectrum policy, can register for both events and receive credit for  “5G/mobile” training.

• 5G: key principles and business implications
• How millimeter wave will revolutionize mobile and maybe fixed access
• Spectrum sharing: what it is, how it will work and why it is important
• The new roles for unlicensed spectrum

The Academy course will cover a number of key topics, including:

• A strategic overview of the global telecom business and its key business challenges
• Business strategy in difficult markets
• How organizations deal with internal issues related to business change
• Product innovation
• How organizations deal with key competitors
• A case study exercise on how market disruption was handled
• International communications

Virtualized Networks are Coming

Virtualization is among the very-biggest trends in networking, both in the core and in the access network, with the biggest changes to come as 5G becomes a reality. Gone will be the days when a facilities-based service provider relied mostly on its own, owned networks. 

Instead, the access function will be handled in a number of ways, combining use of owned, leased and borrowed facilities; licensed and unlicensed spectrum; unlicensed spectrum augmented by licensed spectrum or sometimes mostly using unlicensed or shared spectrum. 

In Addition to Connectivity, What Other New Revenue Streams Might Connected Car Create?

It might be obvious that if internet of things apps and services become a big set of businesses, that connectivity services must underpin those services. What remains unclear is the precise nature of those connections. In many settings, Wi-Fi or some other connection protocol might be used, which will indirectly affect the market for internet access services and revenues.

In the connected car market, which assumes mobility, mobile networks are almost certain to be a connection of choice. Just how big a choice remains a matter of some debate.

One big divide is likely going to be between “outdoor and ambient” connections versus “indoor ambient or stationary” deployments, where Wi-Fi and other short-range connectivity solutions will work.

But though connectivity will undoubtedly be among the new revenue streams, business-to-business applications and services are among the more-promising new revenue streams. For example, insurance companies are among the new users of connected car information, and the issue is which entities will package up that data and make it consumable.

The survey, commissioned by the GSMA and sponsored by Interdigital, Gemalto, Cisco, Volkswagen and F5 of nearly 1,000 respondents did not believe bandwidth would be an issue, even as soon as 2020, when meaningful deployment was expected. Fully 36 percent of respondents said connected cars were already available.

About half the respondents to a survey sponsored by Interdigital suggested Wi-Fi and existing mobile networks  would be sufficient for the next five years.

Half thought higher-bandwidth alternatives such as 5G, satellite links or low power wireless access (LPWA) solutions would be needed to support some IoT apps.

In any case, respondents believed incremental revenue would be earned by average revenue per user (ARPU) from end users (48 percent), B2B revenue from vehicle manufacturers (49 percent) and B2B revenue from automotive industry players (48.9 percent).

Some nine percent said they would be available within the next year and 14 percent estimated connected cars would be available within the next two years (before 2018).

Network technology itself was not seen as a significant issue, with just 11.6 percent of respondents identifying insufficient bandwidth or throughput as an issue for connected cars.

However, 36.6 percent identified patchy network coverage as the main connectivity deficiency that has potential to hold the market back. Security, on the other hand, was viewed as a significant issue.

About 60 percent of respondents agreed that security would be an issue.

source: Interdigital

source: Interdigital