Verizon "Very Confident" in Spectrum Position

Most informed observers outside of Verizon believe it will have to boost its spectrum assets. But Verizon continues to insist it is “very confident” with its present and potential spectrum assets, according to Matt Ellis, Verizon CFO. “We have significant opportunities to continue to grow within the spectrum holdings that we currently have; we’re refarming spectrum as we've talked about for a while; we still have the AWS-3 spectrum; and then unlicensed,” said Ellis.

It is not an unrealistic position. Even if, historically, gaining new spectrum has been the main way mobile operators have added new capacity, using smaller cells is the other typical way additional gains have been achieved. With the fiber deep architectures Verizon is pioneering in Boston, it is creating the backhaul infrastructure to do just that: add small cells to reuse existing capacity.

So, in terms of the physical options, Verizon does not absolutely need more spectrum to add more capacity. On the other hand, there is no advantage to Verizon to claim otherwise, even if it believes it might, or will, add more spectrum in the future.

Verizon maintains bargaining advantage over potential sellers if it continues to insist it does not need to buy additional spectrum assets from would-be sellers, especially to support 4G operations.

Keep in mind that the usable capacity the smaller providers (T-Mobile US and Sprint) can wring out of any amount of raw spectrum is greater than can be deployed (all other things being equal) by AT&T and Verizon, which have many more customers to support.

source: Allnet Insights

AT&T Adds Gigabit Service in Eight More Metro Areas

AT&T plans to add eight more metro areas to its AT&T Fiber service, reaching at least 75 major metros with the fiber-to-home, gigabit per second service.

AT&T now markets gigabit connections to 4.6 million locations across 52 major metros. AT&T expects to add two million locations in 2017, and plans to reach at least 12.5 million locations by mid-2019.

Some critics will point out that the deployment is neighborhood by neighborhood, and not a “ubiquitous” deployment. That is a simple case of selling gigabit connections where there is enough demand to warrant the investment. Even Google Fiber, which did build in the same way, found insufficient demand to continue. AT&T expects its deployments to be sustainable.

Some observers characterize AT&T fixed network investment plans as “running away” from that business. Some of us would disagree. AT&T, it is undoubtedly true, will not drive most of its future revenue growth from its U.S. fixed network. That will tend to come from international expansion, mobile services related to new 5G services and internet of things (connected car and other verticals) and consumer video delivered using wireless networks (satellite and mobile).

The issue is how to target capital investment to drive financial returns, obviously. In that regard, using DirecTV to deliver linear video nationwide has worked far better than ubiquitous fiber to home or fiber-to-the-neighborhood in making AT&T the market leader in linear video, nationwide.

Some would say AT&T is targeting its capex to use a range of platforms--fiber, mobile, fixed wireless, satellite--to produce the best mix of financial returns, without abandoning its traditional access business, in region, but also without stranding capital in assets that do not product revenue.

In U.S. Market, Internet Access is Broadband; Phones are Smartphones

In many markets these days, there is very little functional difference between “internet access” and “broadbamd internet access,” as there is very little distinction between a “mobile phone” and a “smartphone.”

In the case of internet access, though, there is one important observation to be made, namely that buying of fixed internet access seems to have passed its peak, as mobile broadband continues to grow, suggesting there is product substitution going on.

For those of you who live in a developed market, when was the last time you met anybody who uses a dial-up connection to the internet? For most of us, the answer is that we cannot remember the last time we saw anybody using a dial-up connection, or actually know somebody who buys such a connection.

source: Pew Research Center,  source: Pew Research Center data

source: Pew Research Center

source: Pew Research Center

Smartphone Sales (Percent of Total, 4Q 2016)
China	96
India	50
US	96
Indonesia	68
Brazil	92

source: Gartner

"What if Computing and Communications were Free?" Still Are Key Questions to Ask

Though it is not something anybody really thinks about on a daily and routine basis, virtually every business, in every industry now operates in a context where “computing and communications are nearly free.”

Even if it is not yet true everywhere on the planet, for everyone, computing and communications are shaped by Moore’s Law, which means those products and capabilities ultimately will be so affordable people do not have to worry about using the tools.

That is a good thing, in a broad sense, if often challenging for suppliers of computers and other computing devices; as well as suppliers of communications services. Bill Gates and Reed Hastings, though, are among the executives who correctly figured out how to leverage those trends.

For Gates, the insight that free computing would be a reality meant he should build his business on software used by computers.

source: Deloitte University Press

source: plot.ly

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.

Not that often are huge businesses built on such bets.

The "original insight" for Microsoft was the question: "What if computing were free?" It was an apparently crazy question at the time.

“We saw that the power of these machines would go up very, very dramatically, and we felt we could write software that would exploit that power," Gates has said.

Hastings essentially asked a similar question: what would our business look like if bandwidth were nearly free?

Some might even argue that an understanding of Moore’s Law, in the 1980s, also “saved the cable TV business” from a disaster that would have been caused by high-definition TV with bandwidth requirements of up to 40 MHz per channel, in a business set up to support 6-MHz channels.

For telecom executives, as for computing hardware suppliers, the key insight is the absolute imperative of value-added services, content, transactions or retailing and advertising as drivers of revenue beyond access.

Nothing is Going to Prevent Internet Access Prices From Falling

It is helpful to remember some historical facts whenever a regulatory policy is changed in a way that critics argue “will lead to higher prices.”

And that lesson is that internet access prices decline over time. That seems to be the case for fixed or mobile internet access, and certainly has been true for transport prices. Sometimes observers focus only on retail prices, not consumption. That is important, as users tend to consume more data over time, buying tiers of service that are faster, and often have higher retail prices.  

In other words, in addition to retail price declines, quality of service keeps improving (looking only at speed) while volumes consumed keep climbing as well. So cost per megabyte or cost per gigabyte matter. Now is it crazy to argue that prices are going to fall further, as much more supply, and more-efficient platforms are introduced.

Such price changes are clear in both consumer and business realms, as well. Consider T1 prices, DS3 prices or Ethernet prices.

For some observers, maybe nothing matters but the absolute level of prices. That is nuts. Businesses used to pay a coupe of thousand dollars to many hundreds dollars for a T1 line. Now Ethernet connections running a couple of orders of magnitude faster than that sell for scores of dollars.

As with our computing devices, quality has to be accounted for. A given amount of money buys substantially more than it used to.

source: Extreme Networks

source: Deloitte University Press

Wi-Fi Offload Now Mostly is a Matter of How Mobile Usage Plans are Built

With the caveat that “being connected to Wi-Fi” is a different matter from “using Wi-Fi,” the incentive to use Wi-Fi offload obviously is directly related to consumer perception of the value of doing so. An analysis by OpenSignal finds that T-Mobile US customers (presumably the customers most likely to have unlimited-usage plans) shift to Wi-Fi access the least of customers of the top-four U.S. mobile service providers.

source: OpenSignal

In the coming 5G era, and assuming data tariffs remain affordable (no particular consequences for relying on mobile networks instead of offloading to Wi-Fi), customers might not find it useful to offload to Wi-Fi.

Assuming mobile data usage policies do not penalize video consumption, while usage charges remain affordable, the economic incentive to offload will be lessened. Also, given the speed fo 5G networks, offloading to Wi-Fi will not often result in better user experience.

source: Cisco  

Why Revenue Sources Beyond Mobile, Mobile Data, Must be Found

Some trends now are so well established they are a background issue, no matter how important. Revenue earned by mobile service providers, in developed markets, from mobile data, from human customers, has past its peak. In markets such as Japan and the United Kingdom, mobile data, no matter how important, is no longer driving growth.

That is why hopes for internet of things are so important. Growth prospects for all human uses of mobile services--with one possible exception--are largely negative, in developed markets, even if growing in developing regions.

That possible exception is entertainment video. If some mobile operators can shift enough market share from traditional fixed network linear video services to “owned” mobile video services, that access revenue segment still could grow.

The other important shift is indirect. Or, one might say, what happens with telco diversification efforts. Put simply, the access business is declining, in mature markets. To keep growing, service providers will have to hope IoT really is as important as many believe.

Even so, IoT access revenues might only replace lost “revenues generated by services to humans.” To truly grow, access providers will have to transition to new sources of revenue based on content, platforms, transactions, advertising or other sources.

That is a very tall order for an industry that has struggled for success in most business lines outside the network services domain.

However difficult, that is what has to happen. Among the most-successful access provider transitions has been made by Comcast, which made the leap from video distributor and provider of other access services to owner of major content assets, ranging from studios to theme parks to content networks.

That’s the essence of the strategy: move to revenue sources beyond access, both consumer and enterprise. Be it connected vehicle or other services and apps, the key is to own the assets that are used by customers who need the access networks to do so.

That noted, the next wave of new sources also will come from sensor connections--or machine-to-machine apps and services--or might not come at all.

source: Telco 2.0

source: Telco 2.0