Unlimited Data Changes Verizon Customer Addition Trajectory

Verizon’s launch of unlimited mobile data plans definitely showed that when the price of a desired commodity is lowered, demand goes up.

“The launch of Verizon Unlimited positively changed the trajectory of customer additions in the quarter,” Verizon says. The new plan lead to a net decline of 307,000 retail postpaid connections in first-quarter 2017 included 289,000 phone losses. You might wonder why that was a positive change.

Consider that, prior to the launch of unlimited plans in mid-February, Verizon had a retail postpaid phone net loss of 398,000. After the launch, Verizon added 109,000 retail postpaid phone connections. In other words, the new plans accounted for a positive net swing of about 90,000 accounts.

For the entire first quarter of 2017, Verizon added a net of 49,000 smartphones to its retail postpaid phone base.

Verizon's retail postpaid connections base grew 1.2 percent year over year to 108.5 million, and retail prepaid connections grew 0.5 percent to 5.4 million.

Retail postpaid churn was 1.15 percent in first-quarter 2017.

Total revenues were $20.9 billion in first-quarter 2017, a decline of 5.1 percent compared with first-quarter 2016, due to decreased overage revenue, lower postpaid customers in the quarter and continued promotional activity, Verizon said.

Trends in the fixed network segment were unsurprising. Total fixed network revenues declined 0.6 percent, to $7.9 billion, comparing first-quarter 2017 with first-quarter 2016.

On a comparable basis (excluding XO Communications results), the decline was 3.2 percent.

Total Fios revenues grew 4.7 percent, to $2.9 billion, quarter over quarter. Revenue growth of 0.7 percent in consumer markets and 2.3 percent in business markets was part of the increase.

In first-quarter 2017, Verizon added a net of 35,000 Fios Internet connections and lost a net of 13,000 Fios Video connections. At the end of first-quarter 2017, Verizon had 5.7 million Fios Internet connections and 4.7 million Fios Video connections, year-over-year increases of 3.3 percent and 0.1 percent, respectively.

Spectrum Barriers are Going to Fall

In a business where barriers to entry matter, spectrum policy is evolving in a direction that will dramatically lower such barriers. So, as competitive as the mobile industry tends to be, it is likely to get more competitive.

Spectrum costs for virtually all providers will fall as new access methods, and huge amounts of new spectrum, are brought to market.

On one hand, the lower spectrum costs will help traditional operators in both the capital investment and operating cost areas.

On the other hand, those new ways of using spectrum will enable new entrants, as barriers to entry will fall.

Though Wi-Fi offload will continue to be a key method for using unlicensed spectrum and networks as a support for mobile data access, 31 network operator executives surveyed by Tolaga Research finds executives executives also believe they will be using a number of new techniques.

The TIA study found executives believe their firms will be using techniques that essentially bond unlicensed spectrum with mobile licensed spectrum, including License Assisted Access, LTE-WLAN aggregation (LWA), LTE Wi-Fi integration or MulteFire.

Other techniques, including licensed shared access (LSA, the idea behind the Citizens Broadband Radio Service) also might be used, but respondents were not asked about every other option that might be used.

Though the role of Wi-Fi offload continues, the newer techniques go further in making access across owned and third-party assets more seamless, as well as enabling more-effective use of unlicensed spectrum to support services traditionally offered only on networks using licensed spectrum.

About 55 percent of respondents plan to deploy Licensed Assisted Access (LAA) and prefer the notion of operating LTE in unlicensed spectrum. Wi-Fi offload solutions, such as LTE + Wi-Fi Link Aggregation (LWA) and LTE Wi-Fi Integration, (a forerunner to the LWA), were both favored by 41 percent of respondents, the TIA report says.

A possible wrinkle is that the survey seems to be weighted towards “mobile” industry executives, not executives from other industries that might eventually wind up competing with the traditional mobile providers. Some of those potential competitors--especially those with large hotspot assets--might well favor use of MulteFire at levels most traditional mobile operators would not do.

source: TIA

5G Fixed Wireless Works for Internet Access Business Case, Nokia Argues

Using 5G (and millimeter wave spectrum) for consumer internet access, a service provider might well have a business case for using fixed wireless for internet access, Nokia has found.

In a study of one European service provider, the business model for using 5G for internet access in a fixed mode works at 30 customers served per cell site, though obviously the model is sensitive to capital investment and average revenue per account.

But the model appears most sensitive to take rate, as you would expect. The business model requires a 30-percent take rate. That is a lower threshold than generally required for a facilities-based fiber-to-home network.

Average revenue per account probably needs to be at least 40€ (US$43) per month, a target most consumer service providers should be able to hit with one service.

In its analysis for one European service provider, a Nokia 5G solution using millimeter wave spectrum allows each base station to serve tens of households.

The 5G short-range fixed wireless access is expected to sustain one Gbps per household. To achieve such a high speed and longer ranges for 5G fixed wireless service in suburban and rural markets requires MIMO antenna and beam-forming, plus use of lower-frequency spectrum.

In other work, Nokia has found that 5G is much more cost effective than earlier generations of mobile networks to support entertainment video, an advantage directly related to consumer internet access demand.

source: Nokia

The business model also will be influenced by ARPU, which for some suppliers might be $130 a month, meaning the breakeven is lower than modeled by Nokia. Also, other benefits, especially the ability to share cost with the mobile 5G infrastructure, might have some impact on the business model, further lowering the payback threshold.

That appears to be Verizon’s thinking, as it envisions using one optical transport infrastructure to support both mobile and fixed access operations.

Fiber Reaches Less Than Half of U.S. Commercial Locations

U.S. business locations with 20 or more employees reached by an optical fiber connection  reached 49.6 percent in 2016, according to Vertical Systems Group. In 2004, optical connections reached only about 10 percent of such locations.

One reason so many business locations, even those with at least 20 workers, are not connected directly by optical fiber is that so many are small locations that do not provide a business case. Roughly half of all commercial buildings represent about 10 percent of total floor space, showing how small most sites are.

The vast majority of commercial buildings are relatively small. About half of buildings are 5,000 square feet in size or smaller, and nearly three-fourths are 10,000 square feet or smaller. The median building size is 5,000 square feet (i.e., half the buildings are larger than this and half are smaller), while the average size is 15,700 square feet.

Buildings over 100,000 square feet (from large high schools to hospitals to sprawling distribution centers to skyscrapers, for example) make up only about two percent of the building count but about 35 percent of the total floorspace.

Many of those smaller locations are markets for consumer-grade connections or non-fiber moderate-speed access connections, and may never be amenable to optical fiber access.

 

source: U.S. Energy Information Administration

Offices represent the single biggest category of locations, followed by warehouse and storage locations; service businesses and retail.

source: U.S. Energy Information Administration

Where Will Artificial Intelligence Appear First in Telecom?

Billing systems, self-optimizing networks, customer service and network functions virtualization are some of the areas in which artificial intelligence is likely to appear first in the core telecom business. AI also already is used by content and media firms to personalize content feeds, and some access providers who also own such assets will be using AI that way.

Over time, almost any function or process with big data characteristics will be augmented by AI, as that is a way to wring insights from masses of unstructured data.

Global revenues for cognitive and artificial intelligence (AI) systems will reach $12.5 billion in 2017, an increase of 59 percent over 2016, according to researchers at IDC.

Global spending by enterprises on cognitive and AI solutions will grow at a 54 percent compound annual growth rate (CAGR) through 2020, when revenues will be more than $46 billion.

The largest area of spending in 2017 ($4.5 billion) will be cognitive applications, which includes cognitively-enabled process and industry applications that automatically learn, discover, and make recommendations or predictions.

Spending on cognitive-related IT and business services will be more than $3.5 billion while dedicated server and storage purchase will total $1.9 billion. Each of these areas will experience strong growth throughout the forecast, led by cognitive applications with a five-year CAGR of 69.6 percent, IDC predicts.

On a geographic basis, the United States is the largest market for cognitive/AI spending with 2017 revenues totaling nearly $9.7 billion. Europe, the Middle East and Africa (EMEA) is currently the second largest region, but strong spending growth from Asia/Pacific (including a 107% CAGR in Japan) will move it ahead of EMEA by 2020.

The Cure for High Prices is High Prices

Some observers worry that the growing cable operator market share in consumer internet access means higher prices are coming, as telcos increasingly are relegated to almost-marginal roles.

In a new research note, New Street Research analyst Jonathan Chaplin says cable providers controlled 65 percent of the overall consumer internet access market at the end of 2016, possibly growing to as much as 72 percent by 2020.

Of course, the concern about higher prices assumes new challengers, or new methods of competing, cannot arise. That is likely an unwise assumption. In virtually all markets that are open to competition, high prices and high market share are invitations for competitors to attack.

“The cure for high prices is high prices,” a commodities industry adage suggests. In other words, high prices encourage more production, which leads to lower prices.

To be sure, many observers of the communications might deny that can happen with the commodity known as internet access, but history suggests the internet access commodity will respond to competitive forces in the future, as it has in the past, bringing additional supply to a market that concentrated, and also featuring “higher prices.”

In principle, several conceivable lines of attack exist. New platforms and new providers both are coming. Though some might doubt the amount of share that can be taken by new challengers on new platforms, several new platforms are coming, ranging from fleets of low earth orbit satellites, possible use of balloon fleets, unmanned aerial vehicles, fixed wireless and 5G mobile substitution.

Some of those platforms will come to market because new providers (Facebook, Google, OneWeb) are sponsors of the new platforms. In other cases, existing providers (mobile operators) will compete with fixed network providers.

What seems clear is that the era when telco fixed internet access networks based on digital subscriber line were competitive with the cable TV platform has largely past. Fiber to the home will be a choice in some cases, but the business case has gotten harder as cable has gained more share (stranded investment risks are far higher as the addressable market shrinks).

That likely means the future competition will come from new platforms and providers (mobile substitution as well as new competitors).

That might seem unlikely with the pause in Google Fiber deployments. Longer term, a big and attractive consumer market with rising prices, where one contestant has 70 percent share, will be attacked. The only issue is “by whom?”

Verizon to Deploy 8,000 to 10,000 Small Cells in Boston

Verizon CEO Lowell McAdam says it will deploy 8,000 to 10,000 small cells in Boston, as part of its One Fiber optical infrastructure in Boston, investing  $300 million over six years. That massive deployment of new cell sites explains why the One Fiber deployment of transport fiber is so important.

Those 8,000 to 10,000 cell sites all will need gigabit per second backhaul.

Separately, he says Verizon will purchase up to 12.4 million miles of optical fiber from Corning each year beginning in 2018 through 2020. The minimum purchase commitment is $1.05 billion, Verizon said.

To put those Boston small cells into perspective, there were about 300,000 cell sites total, in the U.S. market, in 2016, and about 150,000 towers.

source: SNL Kagan