Thursday, June 21, 2018

How Much Profit Margin Can a Telco, Cable or Municipal ISP Expect?

Government owned and operated internet access networks are opposed so fiercely by private suppliers because those private suppliers are quite realistic about the potential implications for their business models.

The possibility exists that such networks could essentially displace current providers of internet access services, driving one or more out of business in local markets where a municipal provider takes significant market share.

Craig Moffett, then an analyst at Bernstein Research, estimated in 2012 that a 15-percent drop in access lines would lead to a 15 percent to 20 percent increase in operating cost for AT&T, while for Verizon a 15-percent drop in access line customers has caused a 20- to 25-percent increase in operating cost.

So one might infer that a loss of 30 percent market share could lead to something like a 40 percent increase in operating costs for an AT&T or Verizon fixed network operation in any market where a robust new competitor is able to get 30 percent share of internet access.

Any attacker could do just as well, at lower household take rates, if it offers internet access, voice and video services.


But other estimates suggest profit margins are much slimmer than that, being in single digits at Ve4izon in 2014, for example. And pressures have only grown since 2014.


So it is not hard to argue that, faced with share loss of 30 percent (theoretically, 15 percent lost at a local telco, 15 percent lost by the local cable company), telco or cable profit margins could evaporate.

Under some circumstances, it is theoretically possible for an upstart provider, owned municipally or privately, operating on a niche basis (not citywide, in many cases) to take so much market share (50 percent, for example) that at least one incumbent provider could be forced from the market.

But it still is quite risky, consultants suggest. A proposed municipal broadband in the suburbs of Portland, Ore. would be “marginally viable” at a 28-percent take rate, for example.

One might argue that a municipal network could have some advantages in construction, make-ready or marketing cost, but at least one study of such a network in San Francisco suggests that is not true. In other words, municipal network construction costs are on par with what a private firm would expect to pay.

If one assumes the objective of such municipal networks is to offer citizens and consumers lower prices, then some other economies are required. Lower operating or marketing costs, no need to generate funds to pay dividends, lower costs of capital or other cost advantages are necessary.

Tuesday, June 19, 2018

IoT Annual Spending to Reach $1.2 Trillion by 2022

Internet of Things (IoT) spending will experience a compound annual growth rate (CAGR) of 13.6 percent over the 2017-2022 period and reach $1.2 trillion in 2022, IDC now predicts. And among the segments with greatest growth will be vehicle use cases.

From an enterprise use case perspective, vehicle-to-vehicle (V2V) and vehicle-to-infrastructure (V2I) solutions will experience the fastest spending growth (29 percent CAGR) over the forecast period, followed by traffic management and connected vehicle security, according to IDC.

The consumer sector will lead IoT spending growth with a worldwide CAGR of 19 percent, followed closely by the insurance and healthcare provider industries, IDC predicts.

Manufacturing and transportation will each exceed $150 billion in spending in 2022, making these the two largest industries for IoT spending.

Almost by definition, the greatest mobile operator opportunities in the broad internet of things area are those use cases requiring mobility, as that is among the more-unique features mobile networks can bring to bear. For that reason, autonomous vehicles are significant.

Most of the potential upside, though, does not come from connections to the mobile network, but devices, software solutions and other services or products required to make autonomous vehicles work, at scale.

The actual number of new auto connections for autonomous vehicles might be as large as you would suppose.

According to the U.S. Bureau of Labor Statistics, 3.8 million people operate motor vehicles for their livelihood. This includes truck driving, the most common profession in 29 U.S. states, which employs about 1.7 million people.

Many expect self-driving trucks to be among the first autonomous vehicles to hit the road. When autonomous vehicle saturation peaks, US drivers could see job losses at a rate of 25,000 a month, or 300,000 a year, according to a report from Goldman Sachs Economics Research.

Still, even some additional millions of autonomous vehicle mobile network connections are not going to generate a whole lot of new revenue, for any single mobile operator in any single country.


Most of the potential value will come from ownership of platforms, device supply, services and apps supporting autonomous vehicles.

Monday, June 18, 2018

Where is the Edge, for Computing?

Edge computing is a subject of enormous interest for mobile service providers, some internet service providers and telcos, cloud computing and data center operators as well as suppliers of enterprise software and devices, as edge computing could create substantial new markets for communications, solutions and computing facilities.

Of course, we have to define “edge,” and the answer might be application dependent. In some cases, such as an industrial sensor that aims to aid decisions about when a particular piece of machinery is dangerously hot, and has to be shut down, to prevent damage, the edge is the device itself.

In that case, communications is not essential. The device must act autonomously, on its own.

In other cases, the edge might be someplace on the enterprise premises. In such cases, enterprise servers handle the processing load, and there is no need for wide area communications.

source: Industrial IoT Consortium

The sweet spot for remote edge computing starts with use cases where response times might be in milliseconds, but beyond the reach of a premises local area network, especially for distributed networks of sensors that are intended to control the behavior of other processors in real time.

And latency is the value driver, not bandwidth. In industrial settings, the value of monitoring for equipment failure often is measured in ability to respond times in seconds. In other cases, the value of notification (if not real-world response) is measured in minutes.

In other settings, such as autonomous vehicle support, response times in milliseconds might be necessary.

And though it might seem frivolous, one clear consumer use case for response times in milliseconds is “changing the channel on a 4K or 8K TV.” The issue is that users normally expect to press a button and see full-motion, real-time content displayed on the screen.

The issue with such operations in a 4K or 8K setting is that there is so much data to load that a noticeable and objectionable lag might occur, if content were not cached close to the edge of a delivery network.

The point is that the new value comes from use cases where transmission delay--to and from a cloud data center--cannot be tolerated, and where data processing must happen locally, and fast.

For many other applications, notification times are less stringent, and less latency-bound, so cloud computing still works.


How Big is UCaaS Going to Be?

I realize I am a skeptic about claims that unified communications “as a service”  is a “young” or especially fast-growing segment of the industry.

I do not see UCaaS as especially young. Keep in mind that suppliers have been touting and selling hosted communications solutions for two decades, and UCaaS still is purchased by less than 18 percent of U.S. businesses, for example, even using generous definitions.

By most estimates, actual UCaaS revenue is growing rather slowly. In its historically fastest-growing market (North America), UCaaS is growing about four percent annually, according to Transparency Market Research, although some forecasters believe license growth will be higher.

UCaaS growth rates of 10 percent are seen as realistic, some forecasters believe, a growth rate with some historical precedent.

That is not to deny the possibility of a step change in adoption; an inflection point where growth accelerates. If you consider UCaaS an information technology innovation similar to personal computing, you are open to the idea that rather significant time can elapse between investment and realization of quantifiable business value. That productivity paradox is an old story in information technology.

Nor is the size of the revenue opportunity so large. Had business phone systems been a big business, service providers would not have allowed third parties to dominate the business. Roughly the same thing can be said about UCaaS.

As important as UCaaS is to some segments of the ecosystem (some business users, all suppliers and their sales partners), it remains my contention that UCaaS--as well as the broader UC category--in the context of overall service provider revenues, remains a smallish niche.

In part, that is because premises solutions continue to make sense for larger entities and enterprises. So long as UCaaS remains a “by the seat license” model, at some point, a larger organization saves money by buying and operating its own servers and switches.

The other strategic issue is that, as important as voice communications remains, it is not viewed as driving higher value in the business, in the same way that other software-based initiatives do (e-commerce, artificial intelligence, machine learning, mobility, internet of things, robotics). And that means UCaaS remains a “cost of doing business” issue, not a “transform and grow the business” issue.

Consider that the global fixed wireless revenue stream now is about the same size as the global unified communications revenue stream (both UCaaS and premises-based solutions), if one excludes internet access and other business data access revenue that supports UCaaS. Some estimate as much as $10 billion of the total $28 billion of UCaaS revenues actually are data access pipes, not UC services and solutions. That suggests data access services represent as much as 36 percent of total UCaaS revenues.

In other words, actual USaaS revenue (excluding business data access services) probably amounts to about $18 billion globally, about the same size as the present fixed wireless revenue stream, and nobody considers fixed wireless anything but a small niche, in terms of global revenue and solution set, in an industry that books $1.2 trillion annually in total revenues.

Perhaps more to the point, it is not likely that UCaaS or UC, for that matter, can grow too much, even if it displaces all of the present business demand for phone service, conferencing and other “unified” communications capabilities.

Among the other nuances is the fact that the “UCaaS” and unified communications markets generally include a variety of services that used to be separate, including
business phone service, conferencing, international long distance calling and business internet access, UC servers and software and phone systems. So what most observers mean by UCaaS includes several services we used to track quite separately.

And it must be noted that although some of those constituent services and products continue to grow (internet access the best example), others are in long-term decline (phone systems), while retail price pressures in others (conferencing) are pushing down unit prices even when volume grows.

As important as voice and related communications are for businesses and other organizations, those costs of doing business are dropping, because there are a growing number of alternatives. In a real sense, mobile voice has supplanted much business need, even as UC costs have declined (or, more correctly, as the value-price relationship has shifted) as well.

The point is that UCaaS can only get so big, since business voice and communication solutions are a relatively small part of overall service provider revenues, and a smallish component of business spending on information technology.

Also, voice communications now are a cost of doing business, and less a perceived driver of revenues, facing rival (and often cheaper) communication alternatives. The cost per interaction using messaging or chat for customer service is far less than using voice.



Sunday, June 17, 2018

Use of Facebook to Get News is Falling

Use of Facebook for news has been falling since 2016 in many countries, according to the latest Reuters Digital News Report.

At the same time, more people have been using messaging apps such as WhatsApp to get news content, more than doubling to  in four years.



The point is that leadership in the internet ecosystem is not permanent.

Saturday, June 16, 2018

Build or Buy Content Assets?

Netflix likely has proven that a streaming service does need to create original content to achieve market leadership, but also suggests such a firm does not need to own a separate content creation company to do so. Apple’s recent decision to acquire the services of Oprah Winfrey might also validate the principle.

Does that mean that Comcast, Verizon and AT&T (or other connectivity services providers) could do the same? That cannot be determined, as each has acquired content creation firms.

But there are other reasons why Comcast, AT&T and Verizon have done so. Ownership of content assets, at scale, creates the foundation for advertising revenue streams, wholesale content revenue streams and some retail bundling opportunities as well.

That matters as content creation and aggregation might represent as much as 70 percent of the total value of the TV content ecosystem, with distribution representing about 30 percent.

In other emerging ecosystems requiring distribution and connectivity, the percentage of value earned by connectivity providers might be as low as five percent to 15 percent.   

In other words, connectivity providers have reasons for buying content creation assets that are related to new roles in the ecosystem and additional revenue sources, not simply the cost of acquiring content and creating original content assets.  

Tuesday, June 12, 2018

Except for Asia, Africa, Mobile Phone Business has Saturated

If you want to know why mobile service providers are so interested in internet of things, this graph suggests a key reason: sales of services and products to human beings using mobile phones is near saturation, and actually went to negative growth rates on two continents in the first quarter of 2018.

On other continents, growth rates were in low single digits. Africa and Asia are the two continents where double-digit growth continues to happen.
























Projections of potential IoT connectivity revenue also suggest why many tier-one service providers will be looking beyond connectivity, at other parts of the ecosystem, for new revenue and roles. Simply put, most IoT connections will not use the mobile networks.

Though mobile internet of things connectivity will grow fast, most of the connections will use some other form of connectivity, a couple of new forecasts suggest. However, by about 2023, mobile connections might take leadership, in terms of new sales.

That should provide a major warning for service providers who see a huge bonanza from internet of things connectivity revenue.

In 2017, almost three-quarters of all low power wide area network connections used non-cellular LPWA network technologies. By “2023, non-cellular LPWA will cede its market share dominance to NB-IoT and LTE-M, as cellular LPWA moves to capture over 55 percent of LPWA connections,” say researchers at ABI Research.

The Ericsson Mobility Report has about doubled its forecast for mobile network IoT connections, mostly due to ongoing large-scale deployments in China. Of the 3.5 billion cellular IoT connections forecast for 2023, North East Asia is anticipated to account for 2.2 billion, Ericsson says.

That noted, in 2023, Ericsson estimates that mobile IoT connections will represent 15 percent of IoT connections, with short-range networks handling as much as 67 percent of links.

Asset tracking, which includes tracking stationary or slow-moving assets, will have the largest share of LPWA connections in 2023, accounting for over 45 percent worldwide, ABI Research predicts.

Smart meters deployed by energy and water utilities will be the second largest vertical IoT application in 2023 contributing over one-third of the global LPWA device connections.

In 2017, SIGFOX had the largest share of public LPWA connections worldwide benefiting from its first mover advantage in Europe.

Google Leads Market for Lots of Reasons Other Than Placement Deal with Apple

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