Flat Growth for Asia Telcom in 2020; Return to Growth in 2021

Average revenue growth for the Asia-Pacific telecom business will be flat to low-digit to single-digit in 2020, compared to four percent in 2019, according to Fitch Ratings. Growth will return to pre-pandemic levels in 2021.

source: Fitch Ratings

Balance sheets will be maintained by cost cutting and capital investment reductions or dividend cuts, says Fitch. 

In most countries discretionary capex has been slowed to conserve cash, without skipping necessary capacity investment. But Korea, China and Singapore are pressing ahead with 5G plans. 

In part, that is a reflection of the importance of mobile broadband average revenue in some of those countries. South Korea mobile ARPU is higher than fixed network internet access, for example. In Singapore, mobile ARPU is equal to fixed network internet access ARPU. 

source: Fitch Ratings

The other noteworthy observation is that capex intensity is far lower in Singapore and South Korea than in India or the Philippines, for example. It is easier to sustain capex programs in adverse circumstances when capital investment is a lower percentage of revenue. 

source: Fitch Ratings

Internet Access will be 64% of Total Service Provider Revenue in 2024, Says Omdia

The two biggest revenue drivers for connectivity providers in 2024 will be mobile data and fixed network broadband, according to Omdia analysts. Internet access, in fact, will be 64 percent of total connectivity provider revenues in 2024. Voice services on all networks will generate 14 percent of total revenue. 

source: Omdia

Global revenue trends will be negative for voice, positive for internet access, smart home and video. Mobile data revenue will grow about twice as fast as fixed internet services. 

Service	Revenue $ Billion	% of Total
Mobile Voice	147	10%
Fixed Voice	61	4%
MobileText	14	1%
Mobile Data	570	41%
Fixed Data	329	23%
Video	120	9%
Smart Home	162	12%
Total	1403

Source: Omdia data, IP Carrier calculation

In terms of strategy, revenue growth will be most critical for mobile data, since that is the single biggest revenue driver. Voice services and messaging simply must be harvested and run to maintain profit margin. The growth areas of video and smart home must be cultivated.

Will Internet Access Patterns Return to Normal?

The percentage of subscribers provisioned for gigabit service increased to 3.75 percent in the first quarter of 2020 year-over-year, essentially driving changes in a couple of months that otherwise might have taken a year, according to OpenVault. But what remains to be seen is the sustainability of those trends, once most people return to work and school. 

What is clear is that average data consumption at the end of the first quarter jumped to 402.5 gigabytes, an increase of 47 percent over the same quarter of 2019, when the average was 273.5 GB.

The areas of sharpest growth were power users consuming one terabyte or more of data. The percentage of subscribers who were power users in 1Q20 reached 10 percent,  an increase of 138 percent over the 4.2 percent of power users in 1Q19.

Median usage was 233.6 GB, up 60 percent from 1Q19 levels, driven by heavier media consumption, Open Vault says.

B2B Sales Just as Effective When Remote? Really?

A survey of business-to-business executives by McKinsey has found that virtually all firms in the B2B space have adapted to Covid-19 pandemic “stay at home” rules by shifting to online support and e-commerce, while dramatically shrinking in-person sales. 

Over a few months, 60 percent to 70 percent of those executives say they believe remote sales are just as effective as the former in-person sales methods. 

That might shock you. “Remote selling” is 60 percent to 70 percent “just as effective” as in-person selling? 

source: McKinsey

Maybe not. 

If they really believed that remote sales truly were “just as effective” as in-person sales, the percentage of respondents who believe they are “very likely” to  be doing so a year after the end of the pandemic restrictions would not be half, or less than half, of those same respondents. 

B2B Executive Views on Remote Selling
source: McKinsey
Country	% Remote	% "Just as Effective"	% Very Likely to Keep 1 Yr. Afer	% Somewhat Likely to Keep 1 Yr. After
Asia Pacific	96	70	35	48
Japan	93	68	18	45
United States	96	65	32	47
China	98	70	30	61
Europe	97	60	28	50
Global	96	64	32	48

source: McKinsey

Keep in mind that intentions in such surveys often do not match actual behavior, no matter how sincerely opinions might be held. 

At least in part, even respondents reporting they are “very likely” to continue with “remote” go to market strategies after the pandemic is over might be thinking of e-commerce and online support activities, not direct sales. 

I might very well be wrong, but a “new normal” where B2B sales activities are not conducted face to face seems highly unlikely. 

In other realms, such as after sales customer support, online delivery does make sense, and likely will continue at a higher level than before.

In other areas, internal meetings, training and routine support operations are likely to continue using newer forms of remote communication, if not always significantly higher levels of remote communication. 

That scenario likely hinges on a permanent shift to remote work at significant scale, and that is likely not to be as robust a trend as many expect.

Fixed Networks Bore Most of the Stay-at-Home Traffic Increase, Says Ericsson

Most of the 20 percent to 100 percent increase in network traffic caused by lock down policies was handled by the fixed networks, says Ericsson. Mobile network traffic increased 10 percent to 20 percent. 

source: Ericsson

As you might expect, given the stay-at-home orders, use of some apps related to mobility saw less usage. Travel and booking app activity was down about 33 percent, while ride hailing app usage dipped a bit more than 20 percent, Ericsson says. 

Use of location apps dipped about 22 percent. Use of parking apps declined about 13 percent.

As you might also guess, use of some apps related to people staying at home grew. Remote working app usage increased about 30 percent, for example. Use of instant messaging grew about 53 percent; use of social media about 50 percent. Use of news and video apps also grew more than 40 percent. 

source: Ericsson

Rural Internet Program Politics

The U.S. Federal Communications Commission’s rural broadband funding program, the 

Rural Digital Opportunity Fund, is pretty much technology neutral. What it arguably is not so much is supplier neutral, even if such programs have become more neutral over time. 

Even if the regulations do not specify it, all rural support programs historically have favored rural fixed network telcos who are carriers of last resort. 

The assumptions for the subsidies are sound enough. Since there actually is no sustainable business case for fixed network communications in many rural areas, the only way service will be provided is by use of subsidies. 

But the need for subsidies does not, in and of itself, explain why most of the funding has traditionally gone to rural fixed network telcos, even if the obvious answer was that, in the monopoly era, there was only one firm to which such funds might have been given.

That has changed over time, as other platforms have emerged. 

When voice was the issue, mobile networks arguably would have been capable. In the broadband era, cable TV companies are obvious suppliers, and many fixed wireless or new alternatives such as low earth orbit satellite firms will eventually emerge as potential suppliers as well.

You can assume the funding decisions will not--as a political matter--be based strictly on which platforms can deliver suitable broadband access. There is a requirement to supply voice services, which many internet service providers might prefer not to do. There are some regulatory oversight conditions cable TV or other smaller independent companies might shy away from. 

And then there are the non-network issues. Most rural telcos are “significant” providers of local jobs and have significant political support in states. Nor is it clear those businesses are sustainable without direct subsidies, where others might well survive without the funds. Mobile operators, wireless ISPs and cable TV operators might have a business case without subsidies. 

Some argue the past programs have not worked, or might not actually be needed as much as often is claimed. Perhaps 60 percent of high-cost funds support corporate overhead, not the expansion of networks. And since funding is based on “high costs,” applicants have incentives to keep their costs high. 

The need for subsidies and societal value is clear enough. The politics of funding arguably are also clear. Carriers of last resort arguably will carry some political weight that is not reflected in funding criteria in a direct sense. 

Publisher or Platform? Or Both?

Some issues--including network neutrality and regulation of publishers and platforms--are nettlesome and complicated, as much as we might prefer absolute simplicity. In part, that is because new platforms and industries do not conform neatly to our prior models. 

Platforms might be likened to common carrier products: all users are treated the same way, at standard prices, terms and conditions. The platform makes publishing possible, as formal common carrier networks simply “transport” products, but do not exercise editorial control, as do publishers of newspapers, for example. 

But big content platforms no longer operate as pure platforms. They also exercise content moderation and make choices about what gets published, under the guise of community moderation. That makes them publishers more akin to newspapers or magazines. 

That is why the debate over Section 230 of the Communications Decency Act is important.  Title V of the Telecommunications Act of 1996 was intended to protect platforms from content posted by platform users, exempting the platforms from laws pertaining to other publishers. On the other hand, platforms claim the right to censor and remove content under the rubric of community standards. 

But there arguably is a crucial difference between “offensive” speech and “political” speech. Most people might agree that bans on obscenity or violence are one thing, but restrictions on clearly political speech are questionable. 

Nor is it easy to apply First Amendment protected speech rules, which classically protect speakers from government restrictions, not listeners and readers from private company restrictions. 

On the other hand, “while the First Amendment generally does not apply to private companies, the Supreme Court has held it ‘does not disable the government from taking steps to ensure that private interests not restrict’ . . . the free flow of information and ideas,”  say Adam Candeub, law professor at Michigan State University, and Mark Epstein, antitrust attorney. 

We do not yet have good models for regulating such hybrid industries. But that is likely to change, as regulation changed with the emergence of over the air broadcasting and then cable TV, with a hybrid model not fully in the realm of either common carrier nor unregulated publishing. 

As platforms become a mix of content delivery (platform) and curated and created speech (publisher), some new hybrid form of regulation is likely to emerge and evolve, given a government interest in fostering open and fair debate where it comes to political speech. That was the approach taken with broadcasting, for example.