When Facts are Not "Truth"

A recent report states that the “average household cable package is now $217.42 per month.” Some will interpret that finding as a case that video subscription prices are too high, or that a “cable package” is too high, compared to other “utilities” consumers purchase. That is a case of facts and truth not aligning. 

The key phrase there is “package.” Perhaps 50 percent to 60 percent of buyers of “cable services” buy some form of bundle. 

So while it might be factual that the “average household spends $205.50 per month on all major utilities combined (electricity, gas, water, sewage, garbage),” this is not an apples-to-apples (a comparison of services on a like basis) comparison. 

source: Decision Data

A cable “package” can include two to four different services: internet access, linear video subscription, voice service, mobile service. So one might argue that, truthfully, the cost of three or four cable-delivered services are about the same as three of four other “utility” services, and not much more than that. 

Also, “average” might mean half of customers pay more, while half pay less, for any of the products (median) or that, considering all bills, the blended costs are as stated. It is not clear which definition is used, in this case. The big point remains that the “package” represents two to four services. 

Crudely assuming that half of the cable packages include three services suggests a single component cost of about $71 each. But that is an attributed cost. One derives different numbers assuming just two services per bundle or four services per bundle. 

A more plausible estimate is to value internet access at $40 to $50 per month; video at $80 to $100 per unit; voice at about $35 to $40 a month and mobile service at $40 to $50 a month. That would explain the $217 cable bundle “average.”

The analysis of cable bundle prices is plausible and factual. It is not, strictly speaking, “truthful.”

Verizon Says Gaming Traffic up 75%, Presumably Because of Covid Keeping People at Home

Verizon says it has seen a 75 percent increase in gaming over its networks in recent weeks, presumably because workers and students are working and playing from home. Video streaming increased by more than 12 percent and overall web traffic by just under 20 percent.

Full network impact will be hard to predict, as the increase in at-home usage will be accompanied by a near-zero level of usage from school and business locations. Still, it appears that total usage is up, especially in areas hard hit by Corona outbreaks. 

But Cloudflare says South Korea internet usage went up about eight percent, while up perhaps eight to 10 percent in the United States, as a result of social distancing policies that keep people at home. Peak hour usage might up 10 percent to 20 percent in some U.S. locations. 

source: Verizon

Traffic seems to be substantially more--perhaps 30 percent--in northern Italy,

AT&T, Nokia Collaborate on 20-Country Managed IoT Network

AT&T will be using Nokia’s Worldwide IoT Network Grid (WING) for enterprise IoT customers. The deal includes the core network, dedicated IoT operations, billing, security, and data analytics.

Wing is  expected to be available in more than 20 countries by the first quarter of 2020. That means the company’s enterprise IoT customers will be able to manage connectivity across all those networks.

Worldwide IoT Network Grid (WING) is a cloud-native, globally-distributed, IoT core network managed service compatible with 3G, 4G, NB-IoT access networks, allowing operators to accelerate time-to-market, at lower costs and risk, 

The managed service includes four initial offerings, two horizontal and two vertical,  for agriculture, livestock management, logistics and asset management. 

• Smart Agriculture as-a-Service: Sensors capture environmental, soil and crop data that is then analyzed to provide insights that help farmers manage crops more effectively, potentially saving costs on irrigation, pesticides and fertilizers.
• Livestock Management as-a-Service: Tracking devices and biosensors monitor animal health and welfare to provide ranchers with early alerts if abnormalities are detected, protecting valuable livestock and improving yields.
• Logistics as-a-Service: IoT sensors enable tracking of the global movement and condition of goods through the complete supply chain to help enterprises instantly identify incidents and even predict future events to optimize delivery and logistics process efficiency.
• Asset Management as-a-Service: Connecting products anywhere in the world enables their status and performance to be monitored centrally, helping enterprises provide a better service to their business and consumer customers.

Will Corona Virus Stress Networks?

We might soon get a good test of internet service provider network resiliency, as Corona virus precautions keep more people at home. In Spain, IP networks have experienced increases of nearly 40 percent,  while mobile use has increased by about 50 percent in voice and 25 percent in data, Telefonica says.

But service providers have generally not seen congestion issues, at least not yet. Most likely believe core networks are up to the challenge. App providers might face some greater challenges, though.

Is Carrier Billing an Opportunity?

“Low profit margin” and small revenue opportunity generally are good reasons for a service provider to avoid offering any particular service, and direct carrier billing provides a reasonable example of both drawbacks, despite periodic efforts to popularize the service.

Direct carrier billing has been a low­-margin opportunity and might, perhaps best case, account for less than one percent of total mobile service revenue, according to Mobile World Live. So even if successful, most service providers might simply find they have more-important priorities. 

One can make the argument that the opportunity is greatest in emerging markets, as banking system inclusion is generally underdeveloped there. But there are other alternatives, including mobile money services, mobile banking and internet-based payment apps as well.

A tier-one service provider simply cannot afford to chase every conceivable revenue opportunity. In fact, for the largest tier-one service providers, any potential opportunity generating less than $1 billion in annual revenue is too small to tackle. Even success does not move the revenue needle. 

For that reason, many service providers will continue to look elsewhere for revenue growth, since even carrier billing success generates too little incremental revenue, compared to other possible alternative growth initiatives. 

source: Mobile World Live

The shortcomings have been clear for purchases of  physical goods, where carrier billing costs to merchants have been so high that other alternatives are preferable. Nor is it clear most service providers can get costs down low enough to compete with other alternatives. 

To compete, carrier billing charges to merchants would have to drop to no more than three percent of sale value, but “their cost structures simply aren’t set up for this.”

Carrier billing also comes with  increased risk of bad debt exposure, and also could shift prepaid customer purchasing away from connectivity services.

In many markets, that simply makes carrier billing a non-starter as a payment mechanism for physical goods. 

Digital goods possibly are another story. In 2018 Apple accounted for 10 percent of global carrier billed digital goods and services revenue while Google represented 19.3 percent, according to Ovum.

Still, Mobile World Live still says the value of carrier billing might not be “direct revenue.” In fact, that could be the least valuable outcome. 

“Enhanced customer lifetime value, higher ARPU and improved customer loyalty” arguably are the chief benefits. That might not be sufficient to convince many operators to enter the business.

Is Municipal Broadband Business Case Getting Worse?

Greeley, Colo. has concluded there is too much risk in launching its own municipal broadband network. The city council has voted 6-1 against proceeding with the undertaking. 

Fort Collins, Loveland and Longmont, Colo. have built or are building municipal broadband networks, but the oldest network in Longmont, though hailed as a clear success, might now be encountering a tougher business case, and the other data Greeley lawmakers faced was not strong enough to convince them to take the risk. 

The numbers simply were not reassuring, and there are reasons why early adopters faced a different challenge than cities considering municipal networks today. The price umbrella--the reference price charged by the leading provider in the market--has been reduced. 

According to the U.S. Bureau of Labor Statistics, prices for internet services and electronic information providers were 22 percent lower in 2018 versus 2000. Not lower in relationship to income or local price levels, just lower, period. 

That means any challenger has to confront less topline revenue than once was the case, in addition to stranded assets. Any provider might expect to earn revenue from about one in every three or four locations passed by the network.

The ability to defray costs by voice revenue and video entertainment likewise has shrunk. Where would-be new entrants could build a business case based on selling as many as three key services, most challengers must build a business case on internet access alone.

The municipal network in Longmont, Colo. has been cited as a clear success, so any change in economics is important. And there now are reasons to believe that the business case is deteriorating. 

An open records request by Complete Colorado for updated balance sheets through 2019 that were previously released by the city for 2015 and 2016, show that in 2018, Longmont stopped separating its broadband enterprise liabilities, assets, revenue and expenses from its electric enterprise liabilities, assets, revenue and expenses.

That change coincides with recently increased electric rates in Longmont. Noting that change in reporting, some might conclude that Longmont’s internet service operation is not operating as profitably as it once did, when both incumbents mounted no challenge to Longmont’s gigabit service. 

That no longer is the case, as Comcast and CenturyLink now both offer competing gigabit internet access services. Elsewhere across the country, speeds are higher and prices are lower than was the case a decade ago, or two decades ago. 

It is not just that revenue per bit falls toward zero as consumption grows sharply and internet service providers react by boosting supply. Over time, retail costs have declined, in relationship to household income or disposable income, not just in cost per bit terms. 

We often forget that half to perhaps 60 percent of U.S. internet access customers do not buy, or pay, the posted “internet access” price per month, since they bundle that service in a bundle of some sort with discounts. 

As always in competitive markets, the degree of competition matters, and Longmont got a headstart when the incumbents did not respond quickly. That is no longer the case. 

The policy argument for a municipal network might be stronger, despite hurdles, if no service is available in a community, or if only a single provider operates. In Greeley, both Comcast and CenturyLink already operate, and Comcast offers gigabit service everywhere in the city. CenturyLink speeds top out at about 200 Mbps. There are third parties operating also, such as Front Range Internet, also offering gigabit speeds, and Rise Broadband. 

So a new municipal network would be the number five fixed network supplier. There also are two satellite internet services available in Greeley. The issue is market share required to reach sustainability. Many analyses suggest market share of at least 30 percent is the minimum requirement. 

The other issue is that while network costs climb, average revenue generally does not. In fact, despite much popular complaints, internet access costs about $50 a month, nearly everywhere, globally, when adjusting for local price levels and incomes, and without adjusting for inflation effects. 

That especially is true for municipal networks that must offer lower prices, higher speeds, or both, to get voter approval. Almost by definition, a municipal network has to assume lower revenue per account than an incumbent might expect. 

Even some touted successes might be questioned, when the cost of a network is $23,000 per passing, a figure so high that most industry executives would say does not offer a payback for any private firm attempting to build such a network.

The argument that municipal broadband creates jobs has been refuted by some studies. 

In some ways the economic argument is akin to public funding of sports stadia, which almost all studies suggest provides no net economic benefit to a city. 

Market dynamics can change over time, and that might well be the case for municipal networks. Incumbents open a market opportunity whenever they offer high prices and lower quality for a product in high demand. As Jeff Bezos, Amazon CEO is fond of saying, “your margin is my opportunity.” 

And margin is being sucked out of the access business. In some markets, revenue growth has gone negative, as well. It is one thing to attack a market that is growing, rather than declining. It is one matter to build a business case on the assumption of growing revenues, quite another matter to model strategy when revenues are declining and profit margins shrinking.

We might be a different point in time, where the economics of municipal broadband have become more challenging, simply because the internet access business has gotten more challenging.

Electric Wave

Steph Gilmore, Coco Ho and Leah Dawson on a beautiful wave. I am told this is a car ad. No idea! But elegant surfing on a long, translucent wave.