T-Mobile Sprint Merger Means More Fixed Wireless Competition

How much market share 5G fixed wireless might actually get in the United States is a highly-contentious matter. Incumbents say fixed wireless is not a threat to cabled network market share and revenue. Attackers believe 5G fixed wireless will be material. Some have called 5G fixed wireless an existential threat to cable operators. 

The recent approval of the T-Mobile merger with Sprint boosts prospects for aggressive new competition, in a couple of years. And though T-Mobile has indicated it could capture 9.5 million fixed accounts by about 2024, for example. That alone would potentially reduce cable market share by nine to 10 percent, a huge shift. 

source: T-Mobile US 

Add in competition from other providers and a nine-point shift in market share is a reasonable expectation. 

Both sides could be right about the relatively small market share shift, and yet the impact could be quite substantial. There are several reasons. incremental sales--at the margin--that often provide a disproportionate share of profits. So fixed wireless could be highly relevant if it shifts accounts at the margin. 

One example might be that fixed wireless slows cable operator revenue growth in the business or customer segments. Fixed wireless might capture enough share to slice incumbent growth rates or cap growth rates. 

There are roughly 99 million fixed network internet access accounts active in the U.S. market. If fixed wireless manages to shift about 12 million accounts, that is a potential gain of 12 percent.

If 80 percent of that shift is from cable operators to telcos, implying a shift of 9.6 million accounts, that would mean a loss of 15 percent cable TV market share in internet access. 

To the extent that internet access is the cable operator  growth engine, that could have outsize financial and strategic impact. 

Another potential issue is possible average revenue per account hits, as incumbents attack cable services on the price dimension. So it might not be only the lost direct revenue loss but the impact on overall ARPU that emerges. 

source: Bain and Company

In recent quarters, for example, U.S. fixed network internet access net additions net additions have totaled about six tenths of one percent of the installed base, with cable gaining eight tenths of one percent while telcos lost about two tenths of one percent. 

In other words, a shift of about two-tenths of one percent per quarter halts the telco decline. A shift of perhaps six-tenths of one percent--from cable to telco--actually causes cable share to begin a decline. 

That is what the stakes realistically are: a chance for telcos to halt, and perhaps reverse, the long-term decline of their market share in internet access. 

Cable TV executives in the U.S. market naturally express as much skepticism about the dangers 5G fixed wireless services pose for their consumer broadband business as telco execs say they are optimistic. Basically, it will no scale, or will scale too slowly to keep up with cable’s own planned bandwidth plans, cable execs tend to say. 

It is very subtle stuff. Verizon, for example, only has to gain about 7,000 5G fixed wireless accounts per quarter to halt its customer losses. T-Mobile US and Sprint have virtually zero fixed network market share, so even smallish gains represent new accounts with average revenue possibly double what they get from mobile internet access accounts. 

The point is that skeptics and proponents alike can be right that 5G fixed wireless only shifts a small amount of market share. But it is precisely at the margin that fixed wireless could be significant. Fixed wireless could halt a 20-year decline in telco fixed network internet access share; choke off the cable operator growth engine and attack cable profit margins.

Effectiveness or Efficiency; Insight or Automation? What Do We Measure, and How Do We Apply What we Think We Know?

It is fair enough to argue that some organizations make better use of resources than others. It follows that some connectivity providers (mobile or fixed) will perform better than others, using any chosen set of key performance indicators, on business or network performance measures.

Firms also will tend to perform differently on different KPI measures, which can be set on business outcomes or network outcomes, for example. Financial metrics might be one thing, customer satisfaction or lifetime value another matter. 

Business KPIs can include revenue per account, revenue per cell site, subscriber counts, market share, market share growth, margin per customer or account or subscriber acquisition cost, churn rates, lifetime account value, inquiry conversion rates, capital expense per account or operating cost per account, for example. 

source: Sai Venkatesha

Consider the net promoter score, a measure of customer willingness to refer a company to others. Sometimes the scores are described on a scale of zero to 10, other times on a scale of -100 to +100. Either way, the NPS score tries to determine brand effectiveness at customer experience, boiled down to a willingness to recommend the product to others. 

Aside from the potential word of mouth impact, NPS studies tend to find that detractors spend less, promoters spend more. That stands to reason. Any customer that is unhappy will tend to look for other substitutes. Any customer that is quite satisfied will tend to keep buying, might tend to buy more and also look more favorably upon a brand’s other products. 

Having taken many such surveys, I would say the results are somewhat misleading.  Normally one is asked how willing one would be to recommend a product to others, or sometimes whether one would be proud to work for a certain company, or recommend that someone else work there.

It is a brute force methodology, in many respects. I might recommend a particular product, from a particular company to some people, and not to others. Some buyers are price conscious, some are value conscious and some are brand conscious, irrespective of price. 

Some products have a wide zone of tolerance--in terms of value or effectiveness--while others might require more discernment. Flour, sugar, gasoline or salt might not be products where brand matters. For a gourmet cook, spices and meats might be products where high discernment is required. 

Most people likely have high preferences in fragrances, clothing, personal electronics, cosmetics, pets,  transportation or housing. Most other products, though, might have high zones of indifference and high product substitutability. 

I would make different recommendations to each type of buyer, so I often question the relevance of NPS rankings. Some products have very high value for segments of the population; others have relatively low value, or no value. Many products arguably have high substitution potential, simply because the products are commodities, or are items about which a particular customer has no great preferences. 

source: Statista

“What to measure” and “what we can do with what we measure” are key issues for efforts to apply artificial intelligence to business processes and network management. Consider the discipline of AIOps, the effort to apply machine learning to network management. 

Whether AIOps is about insight or automation often is unclear, especially because the stated goal of AIOps to gain insights that lead to automated action, supervised or unsupervised by humans. Ericsson, for example, talking about applied artificial intelligence in communications networks, prefers the “automation” label. 

In large part, that might reflect the particular challenges of the connectivity service provider industry, where many revenue and business problems grow from unhappy customers and poor customer experience (dropped calls, no coverage, slow internet speeds, poor connection quality). 

“Previous Ericsson research shows that almost 50 percent of consumer network perception is based on personal experiences of the network, indicating the huge importance of network quality as the key to customer satisfaction,” Ericsson says. 

source: Ericsson

Customer satisfaction, in turn, is believed to be causally related to word of mouth referrals, prospect perceptions of quality and value, customer churn, customer acquisition and therefore revenue, profits and market share. 

“Whether customers give you US$2 or $20 ARPU, if you do not provide the quality they expect, they will churn,” says Vicente Cotino Director of Network Operation Maintenance, Orange Spain. 

To be sure, network performance is not the only driver of satisfaction. “At least one-third of the total NPS (net promoter score, a measure of customer willingness to recommend a product or service to others) score is derived from network performance.” 

Of the service providers surveyed by Ericsson, 80 percent use NPS as a key metric in operations. Also, several service providers indicate that 40 percent to 60 percent of operations key performance indicators are business-related.

Service providers, in other words, must do many things right, beyond ensuring that the network works as it is supposed to work. What is hard to untangle is the percentage of benefit that AIOps might provide, and whether it is automating changes or detecting issues that is “more important.” 

Clearly the two are related. Action is not possible without insight; nor is insight useful unless changes can be made fast. 

In surveys undertaken by Ericsson, 80 percent of respondents say automation is key for the cost and customer experience. About 90 percent of operations personnel say AI is important in protecting customer experience. 

As always, methodology matters. I do not know how the questions were framed. It is not clear how the responses might have been different if poll takers were asked about whether better network and consumer behavior insight and prediction would protect customer experience. 

But Ericsson frames the issue as one of “automation.” That might simply be a reflection of our general confusion about effectiveness and efficiency. People often speak about the importance of efficiency, which might be expressed as getting work done faster, with fewer people, at less cost or with fewer mistakes and rework. 

source: Insight Squared

Less common are evaluations of effectiveness, which might be expressed as “doing the right things” to produce value or desired outcomes. A traditional way of illustrating the difference is to note that an organization gains little to nothing by automating things that should not be done. 

In principle, AIOps as applied to a communications network requires automated insight to produce proactive network responses. So far, we seem to have gotten better at insight, while IT managers still debate the value of unsupervised action by AI-driven systems to correct and modify network operations. 

Still, there already are instances where radio resource management, for example, is made both more effective and efficient because AI allows the network to apportion capacity where it is needed most, “right now.”

It is inevitable that human managers are going to want to start small and apply AIOps in narrow areas, gaining confidence to apply more generally. Put simply, “nobody trusts the system to behave autonomously” at the moment.

Should Business Services for 5G Go Vertical or Stay Horizontal?

Should 5G services strategy for business customers go horizontal or vertical? Mobile executives in different regions take different positions. 

There is a growing consensus that vertical 5G use cases will prove important. But nearly half of survey respondents in Asia believe the better approach is the traditional horizontal connectivity approach, BearingPoint says. 

One important reason some businesses do not see service providers as the most important player to help them develop 5G use cases is that they are looking to buy solutions, and service providers are looking to sell standard products, BearingPoint says. 

That is not a new problem. Telcos alway prefer to sell horizontally when they can. Businesses, on the other hand, sometimes prefer a vertical approach, since that provides a “complete solution” ready to be consumed in a bite-sized way, with no upfront investment or risk.

And most buyers seem to recognize that partnerships are necessary for telcos--or any other solution provider--to create those solutions. 

source: BearingPoint

Many European and Asian service providers consider their knowledge and expertise of 5G technology as their sole selling point. That is dangerous, BearingPoint suggests. 

“it’s the same approach that saw service providers become disintermediated during the 4G era,” BearingPoint says.

To be sure, connectivity providers have not been especially successful in most attempted solution provider roles. Their efforts to become computing suppliers, app providers, app store providers, data center operators, content creators, device manufacturers or mobile payments suppliers have generally faltered or failed. 

One might therefore be skeptical of telco efforts to become edge computing suppliers or internet of things solution providers, as crucial as those initiatives might be in creating sizable new revenue streams. 

On the other hand, the pattern is not monolithic. Connectivity providers have in some instances managed to become successful suppliers of subscription video services, mobile payments and banking in Africa, data center operators in some instances, successful technology integrators in some instances 

So some optimism about service provider 5G business solutions is not unrealistic. In fact, a BearingPoint survey suggests potential enterprise and smaller business customers believe telcos can be solution providers. 

Business customers seem to be much more confident that connectivity providers have a key role to play as suppliers of 5G-enabled solutions than many service providers do, in Europe and Asia. But service providers might be more realistic than customers are, at the moment. 

Asian service providers are more likely to focus their 5G efforts on more traditional connectivity-driven models than higher value services approaches, BearingPoint says. To be sure, 46 percent of Asian service providers see themselves as solution providers, going beyond the connectivity plus IT infrastructure services that are common today. 

Another 17 percent see themselves as end-to-end actors facilitating an ecosystem of providers But Asian business customers have more confidence in their service providers. Nearly all customers believe telcos are positioned to be more than communications providers.

source: BearingPoint

Full 92 percent of Asian businesses would consider buying new technology solutions from service providers BearingPoint’s survey finds  Enterprise and SMB customers would rather work with service providers due to their ability to orchestrate ecosystems of partners, manage complex programs, their knowledge and expertise around 5G and the fact they trust them more than other market players.

Nearly 70 percent of Asian business IT leaders think service providers should be offering 5G solutions combining connectivity with IT infrastructure, applications and other capabilities that would be offered through an ecosystem of partners. 

In Europe, service providers seem even more pessimistic about moving out of the connectivity role. Just a third of service provider executives believe their role will extend beyond basic connectivity and infrastructure offerings. 

Only 10 percent  of European service providers believe they will enact a role of end-to-end providers facilitating an ecosystem of partners. Yet 92 percent of European businesses agree that service providers have a bigger role to play in the market than simply providing communications and connectivity.

More than three quarters of North American service providers agree that creating vertical specific solutions using ecosystems of partners represents a big 5G opportunity, though. Half of North American service providers expect to evolve into 5G solutions providers, with 40 percent of these service providers anticipating a role in which they’re end-to-end providers facilitating an ecosystem. 

North American businesses are most positive about the role service providers will play in 5G, with 96 percent saying they  believe telcos will do more than provide connectivity.

Will 5G Become a Platform for Connectivity Provider Solutions?

Will connectivity service providers sustain themselves strictly on connectivity revenues through 2030? Maybe not. Bearing Point forecasts negative two percent industry revenue growth to 2030. Will 5G help?

Many business customers and service providers believe 5G will help.

Many service providers expect revenue lift up to 15 percent from 5G. The issue is whether this is a reasonable expectation, and where the anticipated revenues will be produced. Will the boost--and how much--come from connectivity services (more accounts, more revenue per account) or solutions built upon 5G?

At least at this point, an overwhelming percentage of surveyed business customers believe connectivity providers do have a role to play in 5G-enabled business solutions, especially when telcos partner with app providers, integration specialists and others. 

source: BearingPoint

Connectivity service providers generally anticipate that 5G business-to-business (B2B) use cases will have a significant impact on current revenues. On average, service providers expect a 15 percent revenue bump, with North American and European suppliers slightly more bullish at 16 percent. How that happens is the big question. 

Connection growth can help, especially if billions of new distributed internet of things connections are bought, and if a great bulk of those connections accrue to telcos, and not to rival suppliers, and if substantial numbers of connections are wide area, not local. 

But most observers believe the bigger revenue upside will come from solutions, not connectivity, potentially. And that is likely where the big challenge will come. 

A survey by BearingPoint found that “roughly a third of enterprises and four in ten SMBs perceive the CSP’s role in 5G use cases as a simple connectivity provider.” Those are significant numbers, if they prove to be correct. 

If service providers were to limit themselves to this role, and maybe five percent of enterprise and SMB ICT spend, then they will both be commoditized and struggle to fund 5G investments, particularly standalone 5G networks, BearingPoint argues. The economics simply won’t work, BearingPoint argues. 

Perhaps the good news is that significant percentages of end users believe connectivity providers, partnered with other entities, will be reasonable choices as solution providers. 

source: BearingPoint

Loon Speeds Might Range in Low to High Single Digits

Wireless networks other than Wi-Fi tend to have capacity far less than networks built using cables. That is likely to remain the case even as new platforms such as 5G using millimeter waves and small cells; low earth orbit satellite constellations, millimeter fixed wireless networks and more exotic platforms such as balloon networks or drones become possible. 

Alphbest’s balloon-based Loon network features a 2x10 MHz channel in Band 28 (DL = 795.5 MHz). 

In recent tests, “we observed sustained data speeds in the high teens (Mbps) and a peak physical layer throughput that was just over 40 Mbps,” says Signals Research Group. “We believe more typical data speeds with Loon are in the mid- to high- single digits.”

The point is that many wireless networks will feature coverage where wired networks cannot reach, but that data rates also are unlikely to reach cabled network speeds. As always, wireless networks face a trade off between coverage and capacity. 

Voice Product LIfe Cycle Shows Magnitude of Product Replacement

Product life cycles now are recognized to apply to the telecom industry as much as any other. The basic idea is that any new product goes through cycles, from development to growth and eventually maturity and then decline. 

source: Harvard Business Review

The management task in any industry is to develop new products to take the place of declining products, in a timely manner. Almost by definition, the next set of products must be large enough to replace the lost revenues driven by legacy products. 

source: Idea Genius

The magnitude can be glimpsed by looking at what happened to U.S. fixed network voice. Between 2000 and 2020, U.S. telcos lost 86 percent of traditional phone lines. One has to add back telco VoIP lines to measure the net loss of accounts, but telco VoIP lines are not such a big deal. 

source: Bureau of Labor Statistics

There are about 34 million VoiP accounts in service in the U.S. market, according to Statista. 

source: US Telecom

Perhaps 15.7 million of those VoIP lines are sold by traditional telcos. Some 62 million are sold by new suppliers in the market, including independent VoIP suppliers and cable TV companies. 

So if U.S. telcos sell 27 million switched lines, plus 15.7 million VoIP lines, all U.S. telcos sell about 32.7 million lines, roughly 17 percent of what they sold in 2000. 

source: US Telecom

All that points out the magnitude of product replacement telcos and other service providers must undertake.

How Do You Replace $750 Billion in Revenue over 10 Years?

When the global telecom industry faces the prospect of losing half its total $1.5 trillion revenue over a decade, that shortfall alone is $750 billion. That illustrates the magnitude of the “find new revenues” challenge. Simply to replace lost current revenues, service providers must create more than $750 billion--without inflation adjustment--simply to keep revenues where they are at present. 

The point is that a few billion in revenue here and there will not move the needle. The telecom industry would require a hundred to a few hundred new revenue sources of that size to fill a hole of $750 billion. 

To the extent it matters, the single biggest “revenue” boost mobile service providers will get from 5G will come from consumer subscriptions. In terms of gross revenue, no new revenue stream enabled by 5G is likely to surpass the annual recurring revenue from two billion mobile phone subscriptions. 

source: Omdia

Mobile-enabled sports content is seen as a growth area, with Omdia estimating that device sales plus recurring revenues from sports events could reach $11 billion globally by 2024. The issue is that much of that revenue will be device sales, not recurring or pay-per-view revenues. 

Live sports might generate $2.6 billion by 2024, part of $4.9 billion in over the top media revenues earned by mobile service providers in 2024. In other words more than half of total mobile OTT revenues will be earned by device suppliers in 2024. 

Net margins might be an issue, as there is a content cost of goods issue: gross revenue is shared with content owners. Historically, content rights consumed as much as half of gross revenue. 

source: Omdia

Consider that Omdia also predicts 5G fixed wireless will generate $7.4 billion in 2024 revenue, likely with substantially higher profit margins, as the content cost of goods is absent.