Australian ACCC Says Many Households Only Need 50 Mbps

A new report by the Australian Competition and Consumer Commission says 50 Mbps is sufficient to support household consumption of two concurrent high-definition video streams. For that reason,  “higher priced NBN100 services are not generally required to support many households’ consumption of streaming services, and that in most cases an NBN50 service is sufficient.” In other words, 50 Mbps works fine for household HDTV video streaming. 

“For most RSPs (retail service providers), nearly all NBN50 services would be able to stream from Netflix in High Definition, even if two people were watching different programs at the same time. This remained true even during busy hours,” the ACCC says. 

source: ACCC

6G as Industrial Policy

It has been quite some time since the idea of national “industrial policy” has had much currency in the United States, but 6G mobile network platforms seem to be shaping up as one area where attitudes could change, especially in the areas of indigenous supply chain. To be sure, 3G and 4G have been viewed as arenas for industrial policy in other parts of the world, and 6G is viewed as an area of policy for China. 

Despite the growing interest in 6G standards, it might not be so clear how leadership leads to advantage that can be reaped by countries, suppliers, service providers or consumers. The Alliance for Telecommunications Industry Solutions speaks of  “core technologies and recommended government actions,”  “rapid innovation and development” and  “common national purpose.”

Referring to 5G, ATIS notes the advantages of “development and early deployments” that, in a 6G context, might also confer leadership of “ideas, development, adoption and rapid commercialization of 6G.”

The idea is to focus on ways to “complement–not abandon or usurp–global standards in the ICT sector.” Key is “leadership of ideas.”

ATIS says “leadership begins with identifying a vision for the next decade,” although some related competencies include AI-Enabled Advanced Networks and Services, advanced antenna and radio systems, multi-access networks and likely a few key use cases. 

As a practical matter, that means “defining the technological breakthroughs that can lead the U.S. to sustainable technology leadership, with incentives for research and development and early investment.

Those steps, in turn, are viewed as vital to promoting time to market and “wide scale commercial adoption.”

More tactically, ATIs suggests tax credits for development in areas where U.S. firms might lead, continued spectrum policy support and support for efforts to commercialize 6G use cases. 

None of that would sound unusual, in the context of government policy in the 3G, 4G and now 5G eras. It is a mix of policies to spur supply and demand. Similar approaches arguably were common when many other nations--China, Singapore, South Korea, Japan, Israel--likewise chose to target economic growth in leadership, and as many others now also intend (Malaysia, Thailand, India and others). 

The methods will vary, but the idea is to focus effort, perhaps always easier on the supply than the demand side, but both have roles. 

It also is not too soon to argue what ultimately will matter most is not standards, which, by definition, will be global, but the ability to usefully deploy technology. By definition, every firm and nation will have access to the standards. 

But some firms, nations and regions might hope to create competencies in supply, or advantageous demand profiles. Scale, experience curves and intellectual property will matter. But so will skill at the application of new technology and leverage of existing assets.

Were that not the case, we should never see significant differences between productivity gains, for example, among any countries. As we used to say, tele-density and economic development should be directly related. And yet benefits are differential, even when tele-density, or internet usage, or network speeds, are identical or similar. 

The point is that what matters is the ability to leverage technology for economic advantage. High rates of deployed technology are only proxies for what benefit those deployments are expected to bring. 

That is not to say standards are unimportant. 

Technology standards in computing and communications are said to provide benefits for enterprises by reducing cost, minimizing risk, increasing the range of suppliers and making possible standardized training for employees. Such standards historically have been crucial in the hardware realm, much more than in the applications arenas. 

For consumers, standards are expected to produce the best goods and services, more value, lower cost and therefore wide availability. 

Benefits might also accrue to particular suppliers when proprietary standards become consumer or enterprise commercial “standards,” as was true for IBM and become true for Microsoft and Apple, Cisco and others. 

“Open” standards have also grown more important in the hardware and firmware spaces, as Linux, Android and Transmission Control Protocol/Internet Protocol suggest. 

The world of applications is much less dependent on international standards. In the internet era, Google, Facebook, WeChat, Amazon, Alibaba, Netflix and other solutions have not established themselves so much through standards as because consumers simply prefer to use them. 

Broadly speaking, broad global standards reduce risk for infrastructure suppliers, as they create larger markets and create more niches for original equipment manufacturers. 

What matters is productivity; the ability to wring value from investments. Industrial policy might help. Still, success will ultimately be determined by demand, not supply.

Short, Shallow Dip in Service Provider Revenue Because of Covid-19?

Though it might seem counter-intuitive, connectivity service provider revenue might not change all that much because of the Covid-19 pandemic, and a revenue rebound might be quite swift, in some markets.Some product lines and some geographies might not fare that well, but there are historical reasons to believe any dip will be shallow and short lived.

By way of comparison, that is what happened to telecom service provider revenue in the wake of the global Great Recession of 2008.

To be sure, some believe global telecom revenue will fall by 3.4 percent in 2020 compared to 2019, before returning to growth (0.8 percent) in 2021, according to Analysys Mason. Analysys Mason had previously forecast growth of 0.7 percent in 2020 and 0.8 percent in 2021. 

International Data Corp., on the other hand, predicts that global telecommunications and subscription TV services revenue will dip less than one percent in 2020. Most observers might agree that a dip of some size will happen. What is likely more contentious is the size of such a dip, or its duration. 

With all the talk about a new normal caused by the Covid-19 pandemic, where life in many ways will be permanently altered, it is worth keeping in mind that past traumatic events such as the Great Recession of 2008 can be very hard to detect in time series data where it is possible to track trends over time. 

So even if it seems too optimistic, the IDC prediction is well within historical expectations. The Great Recession of 2008 caused a momentary flattening of revenue growth, with the prior pattern asserting itself quickly afterwards. A modest dip would not be without precedent, even if we fear greater damage. 

And though it is reasonable to expect a dip in business customer spending (with economies shut down and significant bankruptcies expected), consumer spending on telecom services might well increase, as it did in the United States in the aftermath of the 2008 Great Recession. 

source: Statista

IDC estimates global service provider revenue at nearly $1.6 trillion in 2020, a decrease of 0.8 percent compared to 2019. IDC expects the decline to continue in 2021, but at a somewhat lower degree. 

The mobile segment, the largest segment of the market, will post a slight decline in 2020 due to lower revenues from roaming charges, less mobile data overages due to the stay-at-home situation, and slower net additions, especially in the consumer segment, IDC argues.

Fixed data services spending will increase by 2.9 percent in 2020. Spending on fixed voice services will continue to decline.

Subscription video services will be boosted by the lockdown, but also affected by the economic downturn, so the spending in this category is expected to decline slightly, says IDC.

The Americas market will see a tiny decline of 0.04 percent. Europe, the Middle East, and Africa (EMEA) and Asia/Pacific (including Japan) will dip more. Growth is not expected in EMEA or Asia/Pacific before 2022 as the users in emerging markets are expected to remain cautious about spending for some time, IDC estimates. 

source: IDC

Most Connectivity Service Providers Do Not Rank High on Customer Satisfaction, and Never Have

Connectivity service providers tend not to score high on customer satisfaction surveys, though it appears satisfaction with mobile services has improved over the last decade, according to the latest report by the American Customer Satisfaction Index (ACSI). 

Internet service providers still score near but not at the bottom of all industries for customer satisfaction. Linear TV subscription services, video on demand services hold that baleful distinction. Fixed line services are near the bottom of industry rankings as well. 

source: ACSI

Yesterday's Power User is Today's Light User

Definitions always matter. What is “fast” or “slow” changes over time. How much data a “power user” consumes also changes over time. The cost of supplying a bit likewise changes over time. 

That means we move the goalposts over time. Yesterday’s power user is today’s light user. 

For most potential U.S. internet access customers back in 1995, dial-up access ran at 56 kbps, tops. In 2002 or so, AOL had more than 26 million customers buying its dial-up service, for example, and speed had increased to perhaps 128 kbps, using better modems. At least, that is what I seem to remember. 

Pre-1996, the speed of a fiber-to-home internet access connection was 10 Mbps. When Verizon launched FiOS in 2005 speed was 30 Mbps. Now FiOS offers speeds up to a gigabit per second. 

One sees the same progression for digital subscriber line and cable TV hybrid fiber coax networks, or U.S. average speeds.  

source: NCTA 

source: Alcatel-Lucent

With static reference points, over time, all users become power users. So we adjust the definitions upward. 

The latest OpenVault data shows the power user category grew to about 10 percent of subscribers, the definition of power user being the consumption of more than 1 TB of data per month. 

source: OpenVault

Can Challenger ISPs Compete When They Do Not Offer Gigabit Speeds?

Consumers are rational about their internet access purchases. At any given point in time, most consumer customers buy service plans in the middle of the range (price and speed), instead of the fastest or slowest tiers of service. Of U.S. and Western European accounts tracked by OpenVault, for example, about four percent of consumers are power users. 

source: OpenVault

Perhaps two percent to three percent of customers actually buy the gigabit speed tier. Globally, the 64 percent of customers buy service between 50 Mbps and 300 Mbps. 

source: OpenVault

Marketing claims by service providers notwithstanding, that is a good pattern to remember. When Verizon launched its fiber-to-home FiOS service in 2005, top speeds were 30 Mbps. Earlier FTTH deployments had a top speed of 10 Mbps. 

I recall saying, back then,  that if I ever was able to buy the product, I would do so. Fast forward to 2016 or so, when I could buy gigabit per second service, but still have not done so. 

So the clear question is “why” that has not happened, and the clear answer is that the apps I use do not actually require 1 Gbps, or even 500 Mbps. There is, in fact, no perceivable experience advantage to buying such services, at the moment. Beyond perhaps 25 Mbps to 50 Mbps per user, I am not convinced I could discern any advantage from higher speeds. 

I am fairly convinced that no application I use actually benefits from speeds faster than 100 Mbps on my end of the access connection, whether I can experience the difference or not. 

That could have implications for would-be challengers in the residential internet access business. As a practical matter, most of the addressable market--as much as 95 percent of all potential buyers--will actually buy service up to about 300 Mbps. 

So most of the market can be contested when an internet service provider provides speeds up to perhaps 150 Mbps to 300 Mbps.

Execution Risk or Mssing a Transition: Which is Worse?

Which would you rather face: execution risk or execution? Not to overplay the thesis, but the former is what telcos face in trying to move up the stack or into new parts of the value chain; the latter is the danger connectivity providers face in a world where dumb pipe (low margin) operations increasingly are the norm and legacy services are shrinking.

With the caveat that smaller specialty firms have different constraints and opportunities, tier-one telcos face big choices. 

Much hinges on one’s assessment of the ability to sustain a business on connectivity services alone (voice, messaging, internet access, internet of things), or whether sustainability eventually requires new revenue sources beyond connectivity. 

The matter is more confused than is typical at the moment because, though all connectivity providers face some risk in economies that have been largely shut down, connectivity providers with content production,  linear video, theme park and cruise operations also face the revenue -disruption from those lines of business. 

In other words, it can seem safer, at the moment, to have only connectivity lines of business. We will only know the outcome--stick to connectivity or diversify-- after a decade or more. There will be substantial execution risk. Telcos have not proven especially adept at seizing leading roles in new lines of business. 

And even early approaches by telcos towards edge computing arguably have been more “dumb pipe” than “new roles in value chain.” For most tier-one telcos, that is rational. We are early in the shift to edge computing, so opportunity and risk really have to be balanced. And, for most tier-one telcos, the upside from edge computing might not extend too far beyond the possibility of new connection revenue. 

source: PwC

Some would argue that the firms that diversified into content ownership (Comcast and AT&T, for example) have not fared as well, in the context of the Covid-19 pandemic, as did firms that are not in those parts of the business, and still make nearly all their revenue from connectivity services. 

Whether that remains the pattern after the pandemic is among the key questions. Perhaps edge computing or the internet of things will allow some telcos to create big new connectivity businesses substantial enough to replace lost legacy revenues. 

But it could also happen that, in the core connectivity business; subscription growth remains muted; average revenue per user continues to drop; profit margins remain slender or drop and product substitution continues. 

In that case, firms with more-diversified portfolios, elsewhere in the internet ecosystem, could well do better than firms limited to connectivity roles.