Will Most IoT Connections Use Fixed Network Access (Wi-Fi and other)?

In the past, long-range, low-power networks have had leading share of market (55 percent) for machine-to-machine applications, with short-range solutions such as Wi-Fi having perhaps 35 percent share, with mobile networks having about 10-percent share.

How that might change as internet of things use cases proliferate is one issue. Maravedis, for example, believes that mobile platforms ultimately will have the largest share. Others believe low power wide area networks will do better than that, connecting perhaps 16 percent of IoT devices, while mobile networks connect some seven percent of devices.

That suggests most IoT devices will use other methods, such as Wi-Fi. That matters, in part, because it means most IoT connections might not increase the amount of revenue earned by access providers in a direct way.

source: Maravedis

source: Analysys Mason  

Short-range connection technologies will continue to represent the overwhelming percentage of internet of things connections through 2022, Ericsson predicts.

source: Ericsson

As Big as it Seems, Mobile Industry is Shrinking

Many observers, and many other parts of the internet ecosystem, believe and act as though the "telecom" or "mobile" industry is a powerful, dangerous gatekeeper. Ironically, those views come at a time when the mobile industry arguably has past its peak, in terms of industry revenues, and faces huge challenges that likely will lead to most suppliers leaving the market (being acquired, for the most part).

Some will see such consolidation as a sign of growing power. In actuality, such moves will highlight industry stress.

We now are five years past “peak revenue” for the global mobile business, some would argue.

Virtually all analysts who follow revenue and profit trends in the global telecom business will agree that, despite growth in some regions, at a global level revenue and revenue growth have become key issues. Indeed, revenue is the paramount industry issue, heading into the 5G era.

The signs are quite evident. Operator average revenue per user is declining, globally.

Competition is one reason. Over the top product substitution is another source of pressure. Regulatory intervention such as caps on retail and wholesale voice and data charges and on mobile termination rates also are an issue.

source: Juniper Research

There are other issues, though. As always seems to be the case, later users tend to spend less than earlier adopters. That puts pressure on overall ARPU.

The decline in certain regions is exaggerated because of the depreciation of local currency bundles against the dollar (eg in Latin America and Europe) as well.

Using 2015 as a  baseline, Juniper argues that while subscribers are expected to increase by 1.24 times their 2015 value by 2022, over the same period global ARPU is expected to fall to less than 75 percent of its 2015 value.  

Total revenue--not just ARPU--also is declining. Using 2012 (the year revenues peaked) as the baseline, by 2016 alone revenues have fallen to just 88 percent of peak values.

Also, mobile  operator revenues from international mobile roaming are expected to experience an 11% decline in 2017  in key markets including Europe, North America and Asia, Juniper argues.

Mobile roaming annual revenues, worth an estimated $54 billion in 2016, will decline to $48 billion in 2017.

We are 5 Years Past "Peak Mobile"

We now are five years past “peak revenue” for the global mobile business, some would argue.

Virtually all analysts who follow revenue and profit trends in the global telecom business will agree that, despite growth in some regions, at a global level revenue and revenue growth have become key issues. Indeed, revenue is the paramount industry issue, heading into the 5G era.

The signs are quite evident. Operator average revenue per user is declining, globally.

Competition is one reason. Over the top product substitution is another source of pressure. Regulatory intervention such as caps on retail and wholesale voice and data charges and on mobile termination rates also are an issue.

source: Juniper Research

There are other issues, though. As always seems to be the case, later users tend to spend less than earlier adopters. That puts pressure on overall ARPU.

The decline in certain regions is exaggerated because of the depreciation of local currency bundles against the dollar (in Latin America and Europe) as well.

Using 2015 as a  baseline, Juniper argues that while subscribers are expected to increase by 1.24 times their 2015 value by 2022, over the same period global ARPU is expected to fall to less than 75 percent of its 2015 value.  

Total revenue--not just ARPU--also is declining. Using 2012 (the year revenues peaked) as the baseline, by 2016 alone revenues have fallen to just 88 percent of peak values.

Also, mobile  operator revenues from international mobile roaming are expected to experience an 11% decline in 2017  in key markets including Europe, North America and Asia, Juniper argues.

Mobile roaming annual revenues, worth an estimated $54 billion in 2016, will decline to $48 billion in 2017.

The point is that we now are past the peak of the human-driven mobile services product life cycle.

How Big a Gamble are 5G Networks? Big.

Just how big a gamble are 5G networks? Big, according to Juniper Research. “Unlike 4G, there is no discernable use case that will encourage operators to roll out 5G networks,” Juniper says.

Beyond that, in the early going, most of the 5G revenue might well come from customers replacing 4G accounts with 5G, with some revenue lift, but no net increase in subscriptions.

So great is the risk that private investors might not make the move to 5G without subsidies. “Juniper anticipates that increased investment from governmental bodies will be needed to encourage the development of these networks, with the exception of North America.”

Juniper Research forecasts that total operator billed 5G revenues will rise to $269 billion by 2025, from $850 million in 2019, the anticipated first year of services. That represents a 161 percent compound annual growth rate over the first seven years of 5G services.

What that portends, in terms of new service revenues, is unclear, as most of that revenue will come from 4G customers switching to 5G, with no automatic net gain in revenue or accounts.

Juniper “anticipates that the majority of acquired 5G connections will be users upgrading from 4G connections.”  For that reason, Juniper does not expect an increase in the number of the active subscriber information modules (SIMs) from the introduction of 5G networks.

Juniper  predicts that 66 percent of all 5G operator-billed revenues will come from North America the Far East and China by 2025.

At least at first, Juniper believes mobile operators will charge a premium over 4G for 5G services.

Also, early adopters will tend to be those customers who spend the most, each month.

So in  the early years, the actual numbers of connected subscribers will be very low, Juniper suggests.

Those projections, it can be argued, miss the impact of services sold to non-human devices, which many believe represents most of the opportunity for incremental revenue, beyond new opportunities for fixed wireless services.

Verizon Counts on Millimeter Wave to Lead 5G Capacity Race

Verizon is not the only tier-one mobile service provider pushing fast into 5G. But it has very-specific reasons for wanting to do so. Having been the first U.S. mobile provider to launch the Long Term Evolution 4G network (Sprint earlier had opted for WiMAX), Verizon now finds it has pushed revenue opportunities just about as far as it can with 4G.

Verizon, additionally, given its large subscriber base, is generally recognized to be capacity challenged, in terms of spectrum assets, compared to other key competitors who have more spectrum and fewer customers.

So Verizon has huge motivation to lead in 5G, both to crank up revenue opportunities and also to add capacity that, in the U.S. market, will come from new millimeter spectrum of various types.

And Verizon arguably has a lead in such spectrum resources, in some cases. That especially is true for millimeter wave assets.

Still, in the 4G area, Verizon is capacity constrained at the moment, and seems to be angling for dominance in 5G assets instead.

source: Fierce Wireless

T-Mobile US, citing new tests conducted by Ookla, says its network in early 2017 now is faster than Verizon’s, after essentially being in a tie with Verizon in 2016. T-Mobile US also says its 4G network coverage now is better than Verizon’s LTE coverage as well.

That poses a “brand promise” problem for Verizon, which always has claimed to have “the best” network.

source: T-Mobile US

source: T-Mobile US

Enterprise Executives Have High Hopes for IoT

Though of course we might all be wrong, and enterprise managers with us, enterprise internet of things almost uniformly believe IoT will improve service operations, increase visibility into operations, enable new business models, and create new product and service offerings.  

Boeing workers now use IoT wearables and augmented-reality tools on wiring-harness assembly lines, which has resulted in up to 25 percent improvement in productivity, McKInsey reports.

Some 98 percent of executives surveyed by McKinsey reported that most companies within their industry include enterprise IoT initiatives in their strategic road maps.

Also, 92 percent of survey respondents believed IoT would have a positive impact over the next three years, either by improving operations or by allowing companies to develop new products with embedded IoT capabilities.

Some 62 percent of respondents believe that enterprise IoT’s impact will either be very high or transformative.

But just 48 percent said that company leaders either strongly supported or were directly engaged in IoT initiatives.

When asked which department would benefit most, 40 percent of survey respondents cited service operations and 30 percent chose manufacturing.

For service operations, respondents believed that enterprise IoT would produce the most value in three areas: diagnostics and prognostics, predictive maintenance, and monitoring and inspection.

In manufacturing, the top use cases were resource and process optimization (for instance, improving yield, throughput, or energy consumption), asset utilization, and quality management.

source: McKinsey

Is "Telecom" a Stable Segment of the Equity Market?

One way of looking at the traditional telecom segment of the total public market is that it is, in some ways, too small to constitute a “sector” in its own right, like transportation, industrials or health care, especially when considered on a “single country” basis.

Consider the U.S. market, which essentially consists of AT&T, Verizon, CenturyLink, T-Mobile US, Sprint, and a handful of other firms with significant market capitalization.

Some funds include a wider basket of companies, on a weighted basis. But most of the market value is driven by a handful of firms. Verizon, for example, has a market cap of about $177 billion. AT&T has a market cap of about $223 billion.

CenturyLink has a market cap of about $13 billion. Sprint is worth perhaps $35 billion. T-Mobile US is worth about $50 billion.

Comcast is valued at about $186 billion, but the access business is valued at perhaps 61 percent of that, or perhaps $113 billion. Charter is worth about $92 billion.

The point is that including fixed network, mobile and cable TV providers as a single market, nearly all the market capitalization is held by seven firms.

Going forward, we might expect not only further consolidation, but also a shift in revenue towards “applications” revenue (video entertainment networks, studios and enterprise apps related to internet of things). At least for the moment, it does not seem that truly-significant additional market cap will be generated by cloud computing or hosting, devices.

Equity analysts often follow a larger basket of firms and industries called “telecommunications, media and technology.” That might not only offer enough diversification to create a more-stable “segment,” but also likely represents the future of the former “access” segment as well.

Provider	Market Cap
AT&T Inc.	223.049B
Verizon Communications Inc.	177.796B
CenturyLink, Inc.	12.577B
Shenandoah Telecommunications Company	1.421B
Consolidated Communications Holdings, Inc.	0.9B
Frontier Communications Corporation	1.1B
Cincinnati Bell Inc.	0.7B