Thursday, August 31, 2017

5G Fixed Wireless Could Add $1.8 Billion in Consumer Segment Revenues

Even if service providers in most parts of the world will not see the opportunity in such terms, AT&T, Verizon and possibly other service providers see significant upside in fixed 5G deployments, for obvious reasons.

In the U.S. market, fiber to the home has remained a tough business case, given generally lower population densities across much of the United States, as well as the certainty that at least half the investment will be stranded, immediately. So 5G fixed wireless could allow AT&T and Verizon, for the first time, to supply gigabit per second internet access connections in many areas where the fiber-to-home business case has not worked.

Quantifying the potential upside is the issue. One way is to calculate the amount of account loss 5G fixed wireless could address.

In the second quarter of 2017,  U.S. telcos lost at least a net 233,260 internet access accounts, according to Leichtman Research Group. But most of those losses were from a few telcos other than AT&T and Verizon.

Between them, AT&T and Verizon lost only about 32,000 accounts in the second quarter of 2017. So a first-order impact of 5G fixed wireless would be a halt to those losses.  

If AT&T and Verizon merely halted 75 percent of those fixed network internet access account losses, that would represent annual gains of about 96,000 accounts.

Assuming those saved accounts represent monthly gigabit access revenue of $70, each such account represents $840 in annual revenue, or about $80.6 million in revenue.

If AT&T and Verizon were able to erase all the losses, that implies revenue upside of nearly $107 million, from avoided losses of 128,000 accounts.

If AT&T and Verizon did better, and actually gained 231,000 net new accounts (splitting those gains with cable TV operators), the annual revenue impact would be about 359,000 net new accounts.

That might represent $301 million in net new revenue, plus avoided losses of $80.6 million, for a total revenue swing of about $408 million, incrementally.

But that is not the biggest impact.

Considering only AT&T, which had in the second quarter about 15.7 million internet access accounts in service, what is the impact of being able to provide gigabit internet access using 5G fixed wireless?

Assume four million AT&T customers still are on all-copper access lines. Assume half those lines can be upgraded using 5G fixed access in the relatively near term, and that half those locations decide to upgrade to 5G fixed wireless.

That could mean two million additional passing, and perhaps a million additional accounts. At $70 a month, that implies additional upside of about $840 million for AT&T.

So internet access upside could amount to perhaps $1.24 billion annually.

For AT&T, which has a consumer internet access business generating a bit under $2 billion per quarter, $7.6 billion annually, those gains could amount to a boost of about 62 percent. That is huge.

But there is more. Once gigabit access is available, linear and on-demand TV services can be sold to the accounts. Assume a net gain of about 1.2 million accounts because of 5G fixed wireless, in the near term.

Assume half those customers buy a linear video service. That is an incremental 600,000 accounts. At $80 a month ($960 per year), that adds perhaps $576,000 in incremental video revenue.

That implies perhaps $1.8 billion in incremental new revenue generated by 5G fixed wireless, for AT&T alone.

AT&T Expands 5G Fixed Wireless Trials

AT&T expects standards-based deployment of fixed 5G as early as late 2018.

AT&T is expanding its fixed wireless 5G trials to business and residential customers in Waco, Texas; Kalamazoo, Michigan; and South Bend, Indiana by the end of 2017, after tests launched in Austin in June 2017.

In tests so far, AT&T has seen speeds up to 1 Gigabit per second and latency rates well under 10 milliseconds for the radio link at customer trial locations in Austin.

AT&T expects commercial equipment to be available within six months of the completion of the 5G Release 15 standard. In contrast, LTE equipment wasn’t available for a year to 18 months after the LTE standard was complete, says AT&T.

In 5G Evolution metros AT&T has upgraded cell towers with network upgrades that include LTE Advanced technologies like 256 QAM, 4x4 MIMO, and three-way carrier aggregation.

By the end of 2017, AT&T expects to deploy LTE-License Assisted Access and four-way carrier aggregation in certain areas of 5G Evolution metros.

AT&T recently tested LTE-LAA technology in San Francisco where peak speeds of more than 750 Mbps were obtained.

Wednesday, August 30, 2017

U.S. Mobile IoT Connections Up 11% Year over Year

AT&T is the leader among U.S. carriers when it comes to internet of things connections, according to Compass Intelligence. The carrier ended the second quarter with 33.7 million IoT/machine-to-machine connections, a four percent increase from the first quarter, and more than twice the number of connections reported by Verizon and Sprint combined.

Verizon ended the second quarter with 18.2 million connections and Sprint has 13.2 million. T-Mobile US had an estimated 4.6 million IoT connections, down 22 percent from the first quarter, according to Compass Intelligence.

As a group, the four nationwide U.S. mobile service providers have added an estimated 7.5 million IoT connections within the last year, an increase of almost 11 percent.

AT&T’s IoT  connections are up 16 percent, Verizon’s connections higher by eight percent and Sprint’s IoT accounts up 20 percent. T-Mobile’s number of IoT connections appears to be down 11 percent over the last year, based on the Compass Intelligence estimates.

Unlimited Offers Simply Push Competition Elsewhere

Mobile service providers generally detest competing on the value of their internet access packages, the reason being that offering bigger--and unlimited usage allowances--typically means consumers will use more, creating more demands for capital investment to support the higher usage.

At the same time, revenue per unit sold drops. That tends to hit profit margins, if not revenue.

Also, major competitors simply match any popular new offers, so no particular retail package offers sustainable advantage. For example, in any markets where all the leading providers offer “unlimited usage,” that feature recedes as a source of advantage, since all the suppliers offer the feature.  

Ironically, when all the key suppliers move to any single lead offer--unlimited usage, for example--competition necessarily shifts to other aspects of the offers.

Not only does the adoption of any key feature nullify chances for business advantage, it also shifts combat to other realms.

In the U.S. mobile market, that now possibly means competitive advantage shifts to features such as headline speed. And that, you guessed it, is an area where sustainable advantage will not exist, as all the suppliers eventually will match any offers that threaten to give another competitor sustainable advantage.

The other problem is that there are diminishing returns to a strategy based on “ever-faster” speeds, given the higher capital investment and the certainty that competitors will match--or exceed--those speeds. Higher investment, in other words, does not lead to sustainable advantage.

If all the four leading U.S. mobile operators offer “unlimited usage” as a lead offer, that means consumers will make decisions on other elements of the offer: price, headline speed, device discounts or other aspects of the experience.

In fact, according to a recent survey conducted by Business Insider Intelligence, 84 percent of respondents agreeed that a high-speed mobile network is the most important offering to consider when selecting a mobile provider.

Just 68 percent reported that unlimited data was “extremely important.” In other words, you might argue, the shift to unlimited offers by all four leading operators, whatever that means for capital investment and usage, has simply shifted consumer buying criteria elsewhere.

And that “elsewhere” includes “lower price” and “higher speed.” The former hits profits, but so does the latter, as it requires higher capex.



Video Content Ecosystem is Being Rearranged

Winners and losers are inevitable in the internet era, and the content business has for some time been a prime example. Consumption patterns have been transformed, and with it, the economic fortunes of contending channels.





The linear video business now is approaching its own transformation, as have other media and retailing businesses in the internet era. How the business changes is the issue, beyond the simple observation that on-demand streaming is going to displace large portions of the linear delivery business.

For distributors, the big new trend is that content bundlers (networks) can become their own distributors (think Netflix). For content producers, the big change is that bundlers/distributors become content creators (again, think Netflix). The big theme is “going direct to consumers.”

That has potential positive implications for networks, negative implications for facilities-based distributors and already positive implications for OTT distributors.

Looking only at the implications for the content creation part of the ecosystem, Netflix has shown that streaming can be viable for an OTT distributor. To this point, Netflix has operated more on the HBO model (prerecorded content) and less on the “live TV” model. But many networks are trying their hand at OTT live TV as well.

As consumers switch to streaming and away from linear services, they (so far) spend less monthly. That means, ultimately, less investment in content. That is not necessarily better or worse, but different, for consumers and content bundlers (networks).

Less investment in content might mean less revenue earned by some content creators, and more revenue earned by others. The general thinking is that niche content will have a harder time getting funded.

That is akin to the funding strategies used by major studios to finance movies: they tend to rely on a few hot franchises and sequels. That is great when it works; but disastrous when it fails, as arguably has been the case so far in 2017.

Movie ticket sales in the U.S. market have been in a downtrend since about 2002.  The sales softness continued in 2016 and revenue appears to be lower, at least in the U.S. market, again in 2017.  

Networks and cable operators have argued for years that the streaming business model simply will not work as well--for consumers--as the current linear packaging system. Skeptics argue what they really are saying is that streaming will not work as well for content creators and some distributors.

But the linear model only works at scale. Smaller cable operators and small telcos have complained for years that linear video entertainment already is not profitable for them. On the other hand, there is Netflix, which is investing heavily in original content creation and acting as a distributor in its own right, albeit on an “over the top” basis.

Simply put, streaming will disrupt both content creators, bundlers and delivery business models. But the changes will be structurally different from what has happened in legacy communication markets. There, markets essentially were destroyed, not rearranged.

Netflix, for example, increasingly is reshaping the way content creation happens in the video business.

So streaming is likely to rearrange, rather than destroy the content ecosystem. Netflix provides the best example, as the firm has a goal of having original content represent as much as half of its catalog.

Tuesday, August 29, 2017

Movie Ticket Purchases Peaked in 2000; So Did Voice

It might only be a coincidence, but it looks like purchases of movie tickets peaked right around the time voice minutes of use did, in the U.S. market, and the same year voice accounts globally seemed to reverse trend, as well.

According to Federal Communications Commission data, U.S. long distance usage peaked in 2000. U.S. voice subscriptions (landline) seem to peaked in 2000 as well.  

In other markets, use of fixed lines seem to have peaked between 2003 and 2012. Even U.S. fixed network internet access seems to have peaked, measured in terms of number of subscriptions. The sales softness continued in 2016 and revenue appears to be lower, at least in the U.S. market, again in 2017.  

Culprits could include viewing alternatives such as streaming, bad choices by content producers, a perception of lower value compared to other alternatives. Whatever the cause, it might ultimately be the case that the communications and video entertainment  businesses reached a historic point around the turn of the century.


source: Investopedia

U.S. Internet Access Prices are Not as High as Some Believe

Though it remains common to hear complaints about “how slow” internet access is in the U.S. market, or how “far behind” U.S. internet access is, compared to other nations, what always seems missed is how inexpensive internet access is, on a “cost per gigabyte consumed” basis.


But some new studies also suggest that absolute retail cost in the United States is not as high as originally was said to be the case.


Also, on a “purchasing power parity” basis, U.S. internet access cost is among the lowest in the world.


Prices not adjusted for purchasing power parity suggest one set of cost rankings, globally.  On that score, U.S. prices per megabit of speed are high, compared to many other nations.


mobile1
Source: Boston Consulting Group

Adjusting for purchasing power parity or general levels of income are key. For example, measured as a percent of gross national income per person, the monthly cost of owning a mobile phone in the U.S. market is less than one percent. In developing countries the cost can represent double digits percent of GNI per person. 

Image result for US internet access cost percent of GNI
source: Statista

5G Really Will Be Different From All Prior Mobile Networks, Says Telenor CEO

There is more evidence that mobile executives believe 5G really will be different from prior mobile generations. Most significantly, the business case is more speculative. “No customers will need 5G for current services,” said Telenor CEO Sigve Brekke. “Deployment likely will be more gradual and more driven by the business case.”

Also significantly, Brekke believes 5G will be quite different from prior generations in another sense: where mobile-only deployments were possible in the past, 5G will require ownership of fixed network assets.

Brekke’s comments also illustrate another novel element of 5G: it is the first mobile network where the business case will rest on new services driven by enterprise customers deploying internet of things networks, not “human users.”

Alternative access technologies also complicate the business case, as it is not yet clear how extensive the mobile network access role will be.

“We foresee 6.4 billion internet of things connections using fixed, mobile and low-power wide-area (LPWA) networks in the world by 2025,” say Sherrie Huang, Analysys Mason is lead analyst,  Asia-Pacific, and Michele Mackenzie, Analysys Mason is lead analyst for IoT and M2M.

“By 2025, more than half of the total IoT connections globally will be LPWA,” they also argue. That implies that just a bit less than half of all IoT connections will use either mobile or fixed networks for connectivity.

In other words, it is not clear how extensive the mobile access role eventually will be. In addition, most of the new revenue upside is going to come from ownership of the IoT platforms, services and apps, not the access services as such.

It is not at all yet clear how big a deal 5G will be as a platform to support internet of things applications, including industrial IoT.

It is clear that executives from Asia, Europe, the Americas believe that is a possibility, as there is significant thinking about investments in mobile, location tracking, wearables and voice recognition as key technologies that will transform the plant floor.


One of the biggest debates that has not yet happened surrounds the internet of things revenue potential for mobile and other service providers.

While most observers seem to believe IoT will be the key new revenue source for 5G networks, others think the upside is going to be “bleak.” That matters for two major reasons. If the IoT revenue streams do not emerge, the payback from 5G networks might be minimal to negative.

Also, if IoT does not emerge as a major new revenue stream, mobile operator business models are going to be quite stressed, as IoT revenue is needed to balance lost voice and messaging revenues.

IoT services can contribute up to 15 percent to 20 percent of total revenue for Indian mobile operators, according to Rishi Mohan Bhatnagar, President, Aeris Communications.

Siddharth Thakkar, Analysys Mason consultant, believes IoT could contribute as little as five percent of revenues, up to perhaps 10 percent for a very successful operator. “Currently, most telecoms operators earn less than one percent of revenues from IoT.  Vodafone is an exception in that it earns around 1.4 percent of revenues from IoT,” he said.

Which forecast proves correct will be crucial. At about five percent new revenues from IoT, most mobile operators will find the 5G business case quite challenging. At 20 percent, 5G will likely have proven to be a successful gamble.

In two distinct large markets--India and the United States--competition is “not helping,” in terms of service provider profitability. Not that profits have been robust.


But market entry by Reliance Jio, with a disruptive pricing attack--is destroying industry profitability.

The U.S. market is in what some have called a “race to the bottom” as well. Except for T-Mobile US, which is largely responsible for the latest price war, revenues are flat or dropping for the other three major service providers.


That is why internet of things revenues and 5G fixed wireless are likely to matter so much. Absent creation of big new revenue streams, mobile service providers are going to face severe stress in their core access businesses.

5G Really Will Be Different From All Prior Mobile Networks, Says Telenor CEO

There is more evidence that mobile executives believe 5G really will be different from prior mobile generations. Most significantly, the business case is more speculative. “No customers will need 5G for current services,” said Telenor CEO Sigve Brekke. “Deployment likely will be more gradual and more driven by the business case.”

Also significantly, Brekke believes 5G will be quite different from prior generations in another sense: where mobile-only deployments were possible in the past, 5G will require ownership of fixed network assets.

Brekke’s comments also illustrate another novel element of 5G: it is the first mobile network where the business case will rest on new services driven by enterprise customers deploying internet of things networks, not “human users.”

Alternative access technologies also complicate the business case, as it is not yet clear how extensive the mobile network access role will be.

“We foresee 6.4 billion internet of things connections using fixed, mobile and low-power wide-area (LPWA) networks in the world by 2025,” say Sherrie Huang, Analysys Mason is lead analyst,  Asia-Pacific, and Michele Mackenzie, Analysys Mason is lead analyst for IoT and M2M.

“By 2025, more than half of the total IoT connections globally will be LPWA,” they also argue. That implies that just a bit less than half of all IoT connections will use either mobile or fixed networks for connectivity.

In other words, it is not clear how extensive the mobile access role eventually will be. In addition, most of the new revenue upside is going to come from ownership of the IoT platforms, services and apps, not the access services as such.

It is not at all yet clear how big a deal 5G will be as a platform to support internet of things applications, including industrial IoT.

It is clear that executives from Asia, Europe, the Americas believe that is a possibility, as there is significant thinking about investments in mobile, location tracking, wearables and voice recognition as key technologies that will transform the plant floor.


One of the biggest debates that has not yet happened surrounds the internet of things revenue potential for mobile and other service providers.

While most observers seem to believe IoT will be the key new revenue source for 5G networks, others think the upside is going to be “bleak.” That matters for two major reasons. If the IoT revenue streams do not emerge, the payback from 5G networks might be minimal to negative.

Also, if IoT does not emerge as a major new revenue stream, mobile operator business models are going to be quite stressed, as IoT revenue is needed to balance lost voice and messaging revenues.

IoT services can contribute up to 15 percent to 20 percent of total revenue for Indian mobile operators, according to Rishi Mohan Bhatnagar, President, Aeris Communications.

Siddharth Thakkar, Analysys Mason consultant, believes IoT could contribute as little as five percent of revenues, up to perhaps 10 percent for a very successful operator. “Currently, most telecoms operators earn less than one percent of revenues from IoT.  Vodafone is an exception in that it earns around 1.4 percent of revenues from IoT,” he said.

Which forecast proves correct will be crucial. At about five percent new revenues from IoT, most mobile operators will find the 5G business case quite challenging. At 20 percent, 5G will likely have proven to be a successful gamble.

In two distinct large markets--India and the United States--competition is “not helping,” in terms of service provider profitability. Not that profits have been robust.


But market entry by Reliance Jio, with a disruptive pricing attack--is destroying industry profitability.

The U.S. market is in what some have called a “race to the bottom” as well. Except for T-Mobile US, which is largely responsible for the latest price war, revenues are flat or dropping for the other three major service providers.


That is why internet of things revenues and 5G fixed wireless are likely to matter so much. Absent creation of big new revenue streams, mobile service providers are going to face severe stress in their core access businesses.

You Wouldn't Buy a Car Because it Has Tires

Very few of us would buy an automobile without tires, or a mobile phone that could not make calls. On the other hand, we do not buy cars because they have tires or mobile phones because they make calls or mobile phone service because it supports voice, text and internet access.

In large part, that is the business model problem faced by mobile and fixed access service providers in mature markets. The former key revenue drivers now arguably are valuable features--but just that, valuable features--and not dominant revenue drivers, not the reason people decide to buy a communications service.

That conversion of “revenue-generating services” to “useful features” can be seen clearly in OTT voice and messaging. Despite much hope in some quarters that service providers could create their own VoIP services that generated revenue comparable to legacy voice, that has been hard to achieve.

In the U.S. market, only cable operators generally were able to do so, and then only because their legacy revenue from voice was “zero.” Generally speaking, VoIP has shown a pattern of disrupting and then largely destroying the legacy markets.

Eventually, that is going to work out in a predictable manner: mobile internet access will be an essential feature of a smartphone service, but perhaps not a growing driver of revenue. Shockingly, for some, mobile internet access might actually become a declining revenue source.

Although 51 percent of U.S. households are mobile-only for voice, and about 70 percent of Millennials (25 to 34) are mobile-only for voice, voice does not get used much.

About 53 percent of respondents to a Gallup survey reported they use a home landline “not at all,” while 44 percent reported using a mobile phone for calling “a little,” and 38 percent said they used mobile voice “a lot.”



Fully 68 percent of 18- to 29-year-olds who were part of a Gallup study in 2014 said  that they texted “a lot” the previous day; compared to 47 percent among 30- to 49-year-olds and 26 percent among 50- to 64-year-olds.

Average monthly voice minutes used by 18-year-olds to 34-year-olds plummeted from about 1,200 in 2008 to 900 in 2010. Texting among 18- to 24-year-olds more than doubled over this period, soaring from 600 to over 1,400 texts a month.

A mobile phone must support voice, texting and internet access. A mobile phone service must support those features as well. But mobile service revenue in many markets largely is dictated by the cost of internet access, not voice or messaging costs, which are relatively minimal. In fact, for most service plans, voice and messaging are included in a basic "you can use the network" price.

For the most part, revenue is driven by internet access and video entertainment services.

"Tokens" are the New "FLOPS," "MIPS" or "Gbps"

Modern computing has some virtually-universal reference metrics. For Gemini 1.5 and other large language models, tokens are a basic measure...