Is There Really an Enterprise "Middle Mile?"

Terminology changes in the connectivity business, over time. Consider the term “middle mile,” which has come into use over the past decade. The term refers to the part of the network segment between the core network backbone (the wide area network) and the local access network. 

Think of this as what we used to refer to as the trunking network, or perhaps the distribution network. If the core network terminates at a class 4 switch or a colocation facility, then the “middle mile” is the transport network connecting the colo to the local access network (a central office or headent, for example).

 

Some illustrations tend to distort the network architecture, even when subject matter experts correctly understand the concept. In this illustration, which shows the way an enterprise user might see matters, the entire WAN is considered “middle mile,” not simply the connections between a colo site and the WAN. 

source: Telegeography

That is understandable if we conceive of the network the way an enterprise might: that “everything not part of my own network” (“my local area network”) is “in the cloud,” an abstraction. 

Even viewed that way, the middle mile is an abstraction. It is part of the network “cloud,” in the sense network architects have depicted it: all the network that is not owned by the enterprise. 

The point is that there is a difference between network terms such as “middle mile” as a description of network facilities and the use of the term (perhaps even incorrectly) as a matter of networking architecture. 

“WAN transport” is not “middle mile,” in terms of network function. But everything other than the enterprise LAN is “cloud” or “not owned by me” in terms of data architecture. But in that sense the term middle mile is unnecessary.

 

How Do Network Effects Underpin Business Models?

How Big a Problem are "As Built" Maps?

If you know anything about outside plant operations, you know that lots of maps--especially “as built” maps--are not fully and accurately updated. They should be, but they perhaps are not. That can result in discrepancies between the way a service provider believes specific network locations are configured, and the way they actually exist. 

That is not to say malfeasance is never possible, but it is much more likely that maps are incorrect simply because, over time, not all the changes are reflected in official maps. To use a simple mobile analogy, coverage maps indicating data speeds will show one set of numbers in the winter, and a different set in the summer, where there are lots of deciduous trees. 

It also is possible fixed network data speeds will show one set of numbers at the hottest point of the summer and the coldest part of winter, or even different performance based on thermal effects across a day or a week.

Temperature affects both processor and cable performance, for example. 

Measurements for parts of the network that are newer might diverge from parts of the network that are older, even in the same neighborhoods. 

The point is that there are lots of reasons why end user data speeds are not as the maps suggest they should be operating.

Spain Connectivity Markets Remain Contestable

Spain’s communications regulator, the National Markets and Competition Commission, says consumer spending on bundled connectivity dipped slightly in the first two quarters of 2021. The report notes annualized 2.5 euro declines in quadruple-play and 2.8 euro declines in spending on quintuple-play packages. 

source: CNMC 

As always, any number of reasons could explain such trends. Economic weakness exacerbated by the Covid endemic could cause consumer spending to drop, though not directly explaining price declines for these packages. 

Competition might have led to price declines for existing products. Though three top firms have about 75 percent market share, the market structure does not seem to have the stable “rule of four” structure that inhibits price wars.

In fact, neither Spain’s fixed network broadband nor mobile markets have yet to reach the “rule of four” structure. That suggests the markets still remain unstable in terms of market share. Competitive share gains and losses  remain possible. 

source: CNMC, Financial Times 

Edge Computing Partnerships Reveal Strategic Choices

Partnership is a funny word in the computing and connectivity industries. It typically is spun as a source of competitive advantage, and that arguably is true when a firm tries to add features and functionality outside its historic core business that are complementary to its core. 

Partnerships are often said to be advantageous when a firm wants to move out of its core and into an adjacency where it does not already have domain competence. The strategy often is to build volume and domain expertise to the point where a firm can source product features internally, rather than relying on a partner. 

When a firm partners in any area related to its core business, that is probably an indication of weakness, often the result of  financial limitations that prevent a firm from developing its own resources. 

That arguably is the case for cable operators looking at edge computing. A survey of cable operators by Heavy Reading found 16 percent of respondents planned to build at least some of their own infrastructure. But most respondents indicated their present thinking was to partner with one or more hyperscale computing as a service suppliers to create edge computing businesses.  

source: Light Reading 

At this point, as is true for many telcos as well, edge computing as a service is largely viewed as the domain of the hyperscalers, with some exceptions in regions where hyperscaler presence is undeveloped. The reliance on partnerships seems a realistic recognition that the actual computing as a service is outside the connectivity domain, and that hyperscalers have too many advantages to beat. 

Instead, in most cases, edge computing is seen as a product that can leverage connectivity provider real estate and connectivity assets, providing incremental revenue growth. There seems little belief that edge computing offers hope of a new role for connectivity providers as branded suppliers of computing as a service.

Anti-Trust Rarely Succeeds Permanently

Most mature markets feature a rule of three or a rule of four. “A stable competitive market never has more than three significant competitors,” BCG founder Bruce Henderson said in 1976. That often means the top-three providers have market share in the 70 percent to 90 percent range. 

The rule of four refers to the expected market share in a stable market, where leader market share is twice that of provider number two, and where the number-two supplier has double the share of the number-three provider. 

That creates a stable market share structure of 4:2:1. It arguably is stable because there is little incentive for either number one or number two to disrupt the market by attacking to gain share.

All of that explains the periodic waves of anti-trust action we see in many markets. Though there seems to be non-existent interest in anti-trust in the cloud computing “as a service” markets, some speculate it could eventually happen. 

The issue is that such regulatory action never lasts. Competitive markets will revert to the rule of three or rule of four structure again. Look at U.S. telecommunications, where a former monopoly by AT&T was ended in 1982, creating eight new contestants instead of one AT&T. 

What do we see some 40 years later? Essentially the rule of three. The rule of four is not yet in place, though. 

There also generally is a direct relationship between market share and profitability.  Some note there is a similar return on sales and market share relationship.

source: Marketing Science Institute

The point is that it is reasonable to expect that profits are directly related to market share, with a pattern where the leading three firms have something like a 40-20-10 share pattern, or perhaps 35-17-8 pattern.

Source: Reperio Capital

That pattern is--contrary to often-made claims--not a result of lack of competition, but instead evidence that competition exists. Competition means buyers gravitate to the perceived better products. That, in turn, leads to market share gains. 

At some point, it is in the self interest of contestants not to wage ruinous price wars. Such wars depress earnings and profit margins for all contestants, but rarely change the relative standings. The more-profitable leader can absorb the losses more easily than the less-profitable attackers in second or third place. 

Anti-trust action rarely, if ever, results in permanent change.

Will Mobile Operators Get 10% of MEC Revenue?

Security services, IoT and edge computing combined will amount to about $50 billion in annual service provider revenues by 2024, according to the IN Forum.  If cumulative growth rate for those services is 17.9 percent, then 2026 revenue might be about $70 billion globally. 

source: IN Forum 

To be sure, much-larger “total market” forecasts are possible if one adds to service revenue the contributions of hardware, software and other infrastructure, application licenses, system integration revenues and private enterprise investments and operations spending on edge computing, IoT, security. 

Looking only at edge computing, and all revenue segments, as much as $250 billion in annual revenue might be possible in 2025. It is possible service provider revenues from edge computing in that year might amount only to $20 billion.