Will 5G Enable New Value Propositions?

Among the bigger questions for 5G service providers is whether the business model is going to be better than 4G and 3G, or worse. Perhaps that should not be a key question, but global service provider business models arguably have been getting more difficult, compared to 2G.

In brief, here is the thesis laid out by James Sullivan, J.P. Morgan head of Asia equity research (all of Asia except Japan): emerging market mobile now is revenue challenged, unable to generate new revenues at rates that justify current investments.

Since revenue cannot be increased, “asset restructuring” is necessary, to adjust the cost base. In emerging markets, that means surviving competitors will not be able to own their own facilities.

Emerging market mobile has faced several challenges, all based around limited revenue growth and higher capital investment that have grown faster than incremental revenue.

As mobile data revenues have grown, they have cannibalized voice revenues. Rapidly-increasing capital investment and operating expense have lead to declining earnings.

Growth without profits is the issue in many parts of Asia. The bigger issue for U.S. mobile service providers is the ability to create more value for 5G services, as that, in principle, allows service providers to earn more revenue.

There is an interesting bit of data from a survey conducted by HarrisX, and commissioned by T-Mobile US, about technology innovation and consumer attitudes about 5G networks and services.

Apple, by far, is top of mind for respondents, followed by Google and LG. Mobile service providers are lower on the perception of leadership. That might speak to some confusion on the part of consumers, since Apple has not yet committed to introducing 5G capability on its devices and Google benefits only indirectly.  

But those impressions might be key, eventually. If Apple can come up with something quite interesting in its 5G-capable devices--enough to entice service providers to subsidize its purchase, for example--5G adoption rates could get quite a boost.

A possible companion issue is whether service providers--working with Apple--can create something new in the value proposition. Perhaps a new retail sales model rebundling the device, apps and services could shake up retail market expectations.

HarrisX and T-Mobile 5 G Consumer Index Study from EniJucja

Apple Faces a Classic Telco Problem

Apple used to be viewed as a “technology” company. Many now view it as a consumer electronics company. But Apple faces an issue very common in the connectivity business, namely the challenge of finding a brand-new, sizable revenue stream to replace its lead product.

For telecom service providers, that problem has been the challenge of replacing voice revenues (actually long distance profits in the 1980s and 1990s, followed by access lines in the first decade of the 21st century).

A look at Apple’s revenue sources shows the magnitude of the challenge. At least so far, a growing services business is too small to move the needle. If any new hardware product is to emerge, it has not done so, yet.

source: ZDnet

U.S. Fixed Network Homes Passed Now Increasingly is Guesswork

With the caveat that there are wide areas of the United States where population density is exceedingly low, no single fixed network service provider has a geographic footprint that covers “most” of the landmass.

Here is Comcast:

source: Comcast

Here is AT&T:

source: AT&T

Here is Verizon:

source: Verizon

Here is CenturyLink:

source: Wikimedia

Here is Charter Communications:

source: Value Ventures

Of course, many will note that what really matters is not landmass but potential customer locations, such as homes and businesses. The Charter Communications network passes about 50 million homes, the number of potential customer locations it can sell to.

Verizon homes passed might number 27 million. Comcast has (can actually sell service to ) about 57 million homes passed.

AT&T’s fixed network represents perhaps 62 million U.S. homes passed. CenturyLink never reports its homes passed figures, but likely has 20-million or so consumer locations it can market services to.

Smart Speakers Might Set a Record for Adoption

It looks like smart speakers might be the fastest-adopted product in consumer electronics history. By some estimates it took about five years for smart speakers to be adopted by half of U.S. homes.

By other estimates, adoption reached 41 percent only in 2018. Either way, that is fast.

source: Xapp Media

The Science Behind the Definition of Broadband as 25 Mbps

Some criticize the Federal Communications Commission for wanting to keep a minimum 25 Mbps broadband definition instead of boosting it to some other figure.  Keeping in mind that figure is a minimum floor, not a ceiling, there is clear science behind the chosen definition.

After about 20 Mbps, there is little to no improvement in user experience when using webpages, for example. The key caveat, however, is that multiple users on any account make a difference, if multiple users or devices are used simultaneously.

source: FCC

Generally speaking, even in a household with multiple users, only 4K ultra-high-definition streaming will stress the connection.

source: High Speed Internet

That noted, even in many rural gigabit speed service is available at levels that would surprise many.

And typical speeds in cities routinely are far above the minimum. “The median download speed, averaged across all participating ISPs, was approximately 72 Mbps in September 2017,” according the most-recent Federal Communications Commission report on U.S. broadband service.

Platform continues to matter. “While cable and fiber providers had median speeds ranging from 78 to 120 Mbps (with only one outlier provider with 56 Mbps median speed); the DSL and satellite providers had median speeds that ranged from 2 to 20 Mbps,” the FCC notes.

source: FCC

Is It the "Year of X"?

It’s that time of year when some feel compelled to prognosticate on “what will happen next year,” while others remind us of what did happen “last year.” And there always are a brave few who will try to capture the essence in a single phrase: “the year of X,” whatever X is said to be.

At a high level, we might well look back at such highly-distilled “year of X” predictions and note that it almost never happens. “The year of X,” whatever X is said to be, nearly always occurs (in the sense of commercial adoption or inflection point of adoption) some future year.

My simple way of describing this situation is to say that “whatever is said to be the ‘year of X’ trend almost ensures it will not be.” Of course, some will argue that is not what they mean.

Instead, they tend to mean this is the year some trend is popularized or discovered. Okay, in that sense, there is firmer--yet still tenuous--ground to stand on. Rarely does a big new thing just burst on the scene, in terms of public awareness, in a decisively-new way,

What does happen is that some arbiter “proclaims” that this has happened. It’s arbitrary.

The point is that any truly-significant new technology, platform or commercial activity takes quite some time to reach commercialization, and typically quite long after all the hype has been crushed by disillusionment.

source: Gartner

The point is that even highly-successful new technologies can take decades to reach commercial ubiquity, even if today’s software-driven products are adopted faster than innovations of the past.

It still can take a decade for widespread consumer use of any product or service to reach 50 percent to 60 percent adoption.

source: Harvard Business Review

Also, recall that most new products, and most new companies fail: they simply never succeed as commercial realities. Also, we sometimes overestimate the actual time any innovation takes to reach 10 percent or some other level of adoption on a mass level.

There is debate about how fast smartphones were adopted for example. Was it seven years or something greater than a decade for usage to reach half of consumers? Some estimate it took just seven years. Others have argued adoption never reached 50 percent after a decade.

And depending on how one defines “smartphone,” adoption levels of 50 percent took a couple of decades to nearly three decades.

source: Xapp Media

source: MIT Technology Review

For all such reasons, some of us tend to discount the notion of a “year of X.” Truly-significant innovations which achieve mass usage often take longer than expected to reach mass adoption levels. On the other hand, there arguably are points in time when public awareness seems to reach something like an inflection point.

In most cases it is difficult to measure the actual year when a shift becomes significant. Is it the point where 10 percent of people recognize a term, or say it is important? Or when 20 percent, 30 percent or 40 percent say so?

More significantly, at what point of innovation purchase or regular usage has something “arrived,” in a commercial sense?

80% of Results from 20% of Actions, Firms, Products, Services

Only 20 percent of actions lead to 80 percent of results, in business, life or telecom.

It usually is surprising how often a Pareto distribution occurs in business or nature. Most underlying trends in any business follow a Pareto distribution, commonly known as the “80/20” rule, where 80 percent of results flow from some 20 percent of the instances. That applies for consumer manufacturer warranty claims, for example.

In the telecom and most other businesses, as much as 80 percent of the profit is generated by serving 20 percent of the customers, while 80 percent of the revenue is generated by 20 percent of the products.

Apparently equity market returns also show a Pareto distribution.

source: Longboard Funds

Most workers make tradeoffs between housing costs and commuting time and hassle that show a Pareto distribution.

In  the healthcare domain, the sickest 20 percent generate 79 percent of health care costs.

In the domain of athletic training roughly 20 percent of the exercises and habits have 80 percent of the impact

It is likely that similar Pareto distributions exist for all forms of internet access and communications infrastructure, where 80 percent of the value comes from 20 percent of the decisions or instances.

As a practical matter, Pareto means I have to spend more of my research time on the relatively few connectivity firms that generate 80 percent of the revenue in any particular market, even if much of my work has included managed services providers, distribution partners and others that are part of the 80 percent of firms that generate 20 percent of the revenue.