Mobile Ecosystem and Market are Changing

It is hard to make good long-term decisions when industries are changing in fundamental ways, and that could be an issue for the U.S. mobile industry, which is expected to change quite a lot over the next decade.

One reason for believing that any merger of Sprint and T-Mobile US would lead to less competition is that this is precisely what equity analysts say are the advantages of such a merger: it would lead to less competition.

To be sure, there is an argument to be made (and will be made by Sprint and T-Mobile US if such a merger is attempted) that the combination would create a stronger competitor to AT&T and Verizon, which likely is quite true. But “stronger” for what purpose is a reasonable question.

It might be reasonable to argue that Sprint is in danger of business failure, or to argue that T-Mobile US might be able to grow itself enough organically to become a stronger competitor, but would get there right away by merging with Sprint.

But no equity analyst seems to make the argument that a Sprint merger with T-Mobile US will increase competition. They all seem to argue such a merger will lessen competition, and lead to higher prices.

That might be considered a good thing if what one wants is sustainable levels of competition beyond a duopoly. Three nearly evenly sized competitors might mean more competition is possible, long term, since that new firm would have greater scale and financial resources to compete with AT&T and Verizon.

Beyond that, the structure of the market might also be changing. With Charter Communications and Comcast entering the market, and others with niche business plans (internet of things networks using unlicensed spectrum; possibly app providers with e-commerce or advertising models), it is not clear that even three or four traditional mobile operators are the only contenders.

At least in principle, one can envision a market that blurs significantly, becoming more porous and harder to define. If Comcast and Charter cooperate, effectively operating as one national firm, it remains possible that no matter what happens, there will still be four or more leading national operators.

In fact, some would argue that already is happening, with the “mobile ecosystem” already changing, with new competition coming from the device supplier and app supplier parts of the value chain.

That is what Deloitte consultants now argue. In the mobile industry, handset and other ecosystem players are capturing an increasing share of revenue.

App providers also are effectively removing demand from the wide area data transport business, and operating their own captive networks. At the same time, value is migrating up to the app layer of the business.

And, in some cases, app providers are entering the access and device businesses as direct providers.

As a result, though total mobile ecosystem revenue is growing, more of the revenues now accrue to app and device partners, not access providers. Where in 2000 U.S. mobile operators might have retained about 85 percent of billed revenues, by 2013 access providers were retaining only about 63 percent of billed revenues.

Where we will be in a decade is not so clear.

source: Deloitte University Press

Foghorn Systems Intros New Industrial IoT Edge Computing System

FogHorn Systems today announced the availability of Lightning ML, the newest version of its Lightning  edge intelligence software platform for the Industrial Internet of Things (IIoT). Lightning ML is now the industry’s first IIoT software platform with integrated machine learning capabilities and universal compatibility across all major IIoT edge systems.

“The money and time required to move massive amounts of machine data to the cloud for analysis, only to send the results back to the edge, often makes little sense,” said Mike Guilfoyle, Director of Research and Senior Analyst at ARC Advisory Group. “In many instances cloud computing won’t be practical, necessary, or desirable.”

Lightning ML leverages existing models and algorithms, using live data streams produced by existing physical assets and industrial control systems, with tools directly accessible by non-technical personnel.

Lightning ML enables complex machine learning models to run on highly-constrained compute devices such as PLCs, Raspberry Pi systems, tiny ruggedized IIoT gateways, as well as more powerful Industrial PCs and servers, FogHorn Systems says.

Even with the addition of advanced machine learning capabilities, the complete Micro edition of the Lightning ML platform requires less than 256MB of memory footprint, Foghorn Systems notes.

Can Easier Make-Ready Change the FTTH Business Case?

"Make ready" costs (the cost of readying an aerial facilities pole for a new set of communication cables) might represent $4,000 to $35,000 per mile of cost for a new distribution network. That represents about a low of two percent and perhaps a high of eight percent of total distribution network costs.

So it stands to reason that rules that lead to "make ready" costs that are lower, with execution faster, should improve the business model for either fiber to home or 5G small cell access networks.

Removal of barriers to investment in next-generation mobile and fixed broadband networks proposed by the U.S. Federal Communications Commission could lead to deployment of fiber-to-customer  facilities to 26.7 million premises that would not have gotten such investment under the older rules, according to an analysis by Dr. Hal Singer, Economists Incorporated principal, Ed Naef and Alex King,  partners at CMA Strategy Consulting.

Those moves would make it faster and less costly to deploy next-generation networks, including measures such as reducing pole-attachment costs, the time and cost of make-ready and barriers to copper retirement. Those moves potentially are significant because construction represents most of the cost cost of a fiber-to-home network.

The new rule also would accelerate legacy time-division multiplexing (“TDM”) product discontinuance and reduce barriers to locating and deploying wireless infrastructure.

If the rules are changed, Economists Incorporated estimates an incremental 26.7 million U.S. premises would be passed by fiber-to-home facilities, as the better business model would make the investment worthwhile.

The analysis also suggests that the change in rules would enable about 15 million new fixed wireless 5G locations to be added, about 66 percent of those being in rural areas.

The new line of thinking assumes that faster and lower-cost network construction includes “fiber deep” distribution networks that create radio small cell sites covering areas of 1800-meters radius, or 3600-meters diameter, using 3.5-GHz frequencies. That implies coverage of roughly four square miles from each such small cell.

In urban and suburban markets, that could cover significant homes per small cell In U.S. suburban areas, that might mean one small cell, using 3.5-GHz spectrum, might cover 200 to 600 homes.

Since connecting new customers represents such a huge part of the total "cost to serve a customer" ($830 per customer up to $1870 per customer, it is possible the ability to use small cells to supply a fixed wireless drop, not a cabled connection, would allow a huge improvement in business model.

Some still argue FTTH costs less to deploy than 5G fixed wireless. Others think 5G fixed wireless might well be more affordable than deploying FTTH.

source: Economists Incorporated

source: Economists Incorporated

Big Opportunities and Risk for 5G

Not since the advent of 3G has a next-generation mobile network promised so much, and carried such risk. Recall that 3G was the first to have as a key premise the creation of many new apps, services and revenue models. The 2G network did add text messaging as an important new application, but 2G mostly was about efficiency for traditional apps.

Whatever the opportunities and risks, 5G is coming fast. GSA researchers have identified at least 36 operators from 23 countries that have demonstrated 5G technologies, or announced 5G tests, or trials. More significant are the early commercial deployments.

MTS now expects to have a 5G network in Moscow at 2018 Football World Cup. SK Telecom plans to launch a pre-5G network by the end of 2017, and a 5G network by 2020. Telefonica is likely to launch 5G first the U.K. market. Japan will have commercial deployments by 2020, with targeted deployments before then. U.S. carriers likely will deploy pre-5G for fixed wireless in 2018, with more-limited commercial deployments in 2017.

Widespread commercial launches likely will not happen until 2020, in most countries that say they will deploy “soon.”

But 5G is likely to be quite different from 4G. The big new use cases and revenue streams will come from enterprise customers, not consumers. And, to an extent we have not seen since 3G, use cases must be created; they are not obvious extensions of current demand.

The coming 5G era is likely going to prove even tougher than 2G and 4G, in terms of business model, for one key reason.

Most “human user” requirements will be satisfied by 4G. The big new revenue opportunities for 5G are going to come from “non-human” users (internet of things sensors and applications) and enterprises. Mobile operators in markets with fewer enterprise customers are going to find the business model more challenging.

That might mean 5G is more akin to 3G than to 2G or 4G, in terms of adoption. Arguably, 3G, which was supposed to lead to a wave of app and service innovation, did not immediately do so. Instead, many would argue, those benefits were deferred to 4G.

In similar manner, 5G, it is hoped, will lead to a wave of app, service, product and revenue innovation. The similarities are that both 3G and 5G assume a shift of demand.

The 5G network’s real upside is “non-human” use cases, as 3G’s real upside was “new digital apps and services.” But there was an innovation lag with 3G, and some might say that is the danger with 5G as well.

Still, 5G is coming. A reasonable rule of thumb for mobile network generations is that the next-generation network (in the post-2G networks era) tends to be initially deployed when adoption of the prior network has not even reached 40 percent of customers, globally. That is likely to be the case for 5G as well.

The point: 5G is coming fast, but will pose huge business model challenges, beyond those typically seen when amortization of the prior generations is not complete.

source: A.D. Little

Mobile executives in developing markets have faced a key challenge in the post-2G eras: deployment of the next-generation networks always occurs when adoption of the prior generation remains rather moderate.

That means there is a potential business model problem: amortization of each network generation is tough. The problem arguably has gotten worse. The first digital platform--2G--had a very long life cycle. The succeeding 3G platform has had a shorter life cycle, with sluggish adoption rates, initially,  while 4G might have even a shorter life cycle.

There are a number of reasons amortization is difficult. Technology cycles are dictated by market demand in the developed markets, where a new network tends to be introduced at least once every decade.

On a global level, for example, 4G was commercialized when 3G adoption had not reached 10 percent. In North America, 3G service was launched about 2005. The LTE launch occurred only five years later.

In 2017, in North America, 4G adoption is above 85 percent. Keep in mind that LTE service was launched in the U.S. market in 2010. So 85-percent adoption took seven years.

That means lead users in developing markets will want access to that latest platform as well, even as suppliers struggle to get costs to price points lower-income users can afford.

source: Ovum

source: Telegeography

source: GSMA

source: GSA

5G Will be Built on Innovations First Seen in 4G

It now is clear that 5G will be built on 4G, in several different ways. Consider only the issue of bandwidth, which will increase in the 5G era by an order of magnitude or two orders of magnitude over 4G.

No single technology element will drive all or most of the speed increases. Instead, a few different approaches, used together, will be key:

• New spectrum
• Unlicensed spectrum
• Spectrum sharing
• Wider channels
• New radios
• New modulation
• Small cells
• New devices and chips

All of those elements, together, will be pioneered first for higher-speed 4G networks, and then will be developed in a 5G context.

In the near term, small cells, new chips and devices, better radios and modulation and shared spectrum will have the most impact. Most of the new spectrum will come later. The reason is simple: most of the new spectrum lies in millimeter wave regions beyond 6 GHz, and have not yet been licensed for commercial use to support 5G.

But it is fair to note that all the other fundamental improvements will first see commercial application to support 4G networks. In the spectrum (physical capacity) area, several approaches--new, unlicensed and shared spectrum--will be key, and in many ways are inseparable.

The biggest innovations come in the use of shared spectrum, in several ways. First, new dynamic ways of enabling spectrum use will be commercialized, using methods such as the Citizens Broadband Radio Service (CBRS), which allows new commercial users access to licensed spectrum allocated to government users, without relocating those users, using new spectrum access systems.

source: Qualcomm

Also, 4G will be the first mobile network generation to make use of coordinated aggregation of licensed and unlicensed spectrum that essentially bonds those assets to support 4G access.

This is a step beyond “offload” of traffic from the mobile network to Wi-Fi, and actually integrates licensed and unlicensed resources so that, from a device or user perspective, both sets of spectrum assets are part of a unified access network.

In other words, spectrum sharing will happen within existing licensed bands, as well as across licensed and unlicensed bands.

Use of better radios (multiple input, multiple output) also will be seen first in 4G, and will boost throughput about four times, ultimately.

source: Qualcomm

Taken all together, the enhancements first seen in 4G will continue with 5G, creating something historically new in the retail parts of the mobile and telecom business: capacity abundance where all prior networks have been bound by scarcity.

That has huge business model implications. To the extent that all telecom business models and profit margins have been built on “scarcity,” the fundamental underpinnings of the business will change.

When there is abundance, economics teaches, unit prices fall. Scarce goods with known demand always get “cheaper” in terms of retail price when there is much more supply.

Like it or not, in the “access” part of the telecom revenue model, “dumb pipe” economics and business models are going to hold. That trend has been made clear enough in the whole internet era as more retail bandwidth has been accompanied by lower prices per bit.

In other words, over time, the retail cost of consuming internet bandwidth has dropped continually. That, in turn, has enabled (or forced) near-zero pricing levels, which is why telcos always fear becoming simple “dumb pipe” providers and why the search for ways to create roles “up the stack” also is considered so important.

That will be the key challenge for mobile operators in the 5G era: even as the network itself offers vastly more bandwidth, the retail price of units of bandwidth will keep falling, forcing ISPs to look elsewhere within the ecosystem for roles that have higher profit margins and different revenue streams.

"Fiber to the Home" is No Longer the Right Answer, or the Right Question

For the last 30 years, in many quarters, the generic answer to almost any retail telecom problem (bandwidth, new services, operating cost, future-proofing) was “fiber to the home.”

It is reasonable to ask, given the outsized role now played by mobile networks (and despite the acknowledged value, in some markets, for some apps and business models) globally, whether “how to do FTTH, when, where and why,”  is even the right question to be asking.

It is relevant to ask how best to supply gigabit-per-second internet access (eventually) to every potential user.  

source: Ericsson

Part of the issue is that fixed voice lines have been in decline since it peaked at 1.3 billion in 2008, with significant reductions in developed countries. That means a growing “stranded asset” problem, as access network investments must be paid for by a shrinking base of customers.

That effectively raises the “investment per customer” threshold.

In Europe, adoption rates (as percentage of population, not location) dropped from 45 percent to 26 percent in the last 10 years, according to Statista. That accentuates the problem, as homes and small businesses buy lines “per household” or “per location,” not “per person.” Enterprises buy trunks, not lines.

Europe: Percent of Population Using a Fixed Voice LIne

source: Statista

The global peak for fixed line subscriptions appears to have happened about 2006, with continued declines, going forward. In the United States, fixed lines peaked in 2000 or 2001.

source: FCC

Global Fixed Line Subscriptions

source: ITU

In the U.S. market, fixed line subscriptions (as a percentage of households) dropped from 95 percent to just over 50 percent over the decade starting at 2000.

Customers shifted purchasing of fixed network services from voice to internet access over the same period, partly offsetting voice line losses. Fixed broadband worldwide grew from 220 million to 794 million over a decade.

The point is that “fiber to the home” is not the answer to revenue, profit of growth problems, as we have passed the peak of fixed network subscriptions, as a percentage of total human network connections. We might still see incremental, but low growth, globally, in the fixed network subscription area, but growth will be modest.

The lesser problem of “how” to supply internet access therefore is better phrased as “how do you provide gigabit per second speeds to every location or device?” Formulated that way, mobility and fixed wireless often will be better answers than “fiber to the home.”

“Fiber to the home” is not the universal (or mostly universal) answer to the question of “how do we create a platform for growth?” FTTH is not even the answer to the question of “how do we provide gigabit per second speeds to consumers?”

What we care about is “gigabit access speeds.” Physical media is a lesser--and more tactical--problem, with more answers than once seemed possible.

Cable modems on hybrid fiber coax networks, satellites, fixed wireless and even standard mobile access are potential answers. More exotic solutions might yet also arise (balloons, unmanned aerial vehicles).

AI Can Boost Productivity 40%, Accenture Argues

Artificial intelligence has the potential to increase productivity 40 percent or more by 2035, according to Accenture and Frontier Economics.

AI could increase economic growth rates by an average of 1.7 percent across all industries through 2035, according to consultants at Accenture.

Information and communication (4.8 percent), manufacturing (4.4 percent) and financial services (4.3 percent) are the three sectors that will see the highest annual gross value added growth rates driven by AI in 2035.

The bottom line is that AI has the potential to boost profitability an average of 38 percent by 2035 and lead to an economic boost of $14T across 16 industries in 12 nations by 2035.

Artificial intelligence adds value by boosting the productivity of some other process or product. AI is not so much a “big new product” as a feature of a cloud computing service, analytics capability or an enabler of a product’s features (voice recognition for home computing appliances).

source: Accenture

source: Accenture