Desire to "Lead" in 5G Will Meet Obstacles

Not so long ago, India’s mobile executives might have expressed exasperation that mobile platforms were evolving so quickly. After all, until very recently, 3G seemed to be the next wave of network investment in India. That was, until Reliance Jio entered the market with a “nothing but 4G” platform that forced the other leading mobile operators to respond.

Now the Telecom Regulatory Authority of India (TRAI) chairman R.S. Sharma says new technologies such as Internet of Things and 5G need a push. It is hard to argue with the need to plan for those developments, as they are inevitable.

But some might say what is needed is less “push” and more “pull,” meaning less effort by TRAI and other government bodies to shape new technology platforms, and more incentives for suppliers to do so, and for consumers to use new services. Free voice and data usage plans offered by Reliance Jio, for example, have raised objections, and free access to some apps (Internet Basics including Facebook) have been barred.  

Some might argue that recent government actions (taxes, fees, spectrum prices, network neutrality rules) actually have hindered investment and innovation. Even efforts to make more spectrum available have been hampered by high prices, especially when more unlicensed spectrum, made available to networks at no charge, are a reasonable way to enable new Internet of Things sensor networks.

In any event, the horizon for 5G, coming so soon after a massive move to 4G, is going to stress mobile operator balance sheets. Despite the desire to “lead in 5G,” that is going to be very difficult, given the amount of capital just now going into 4G platforms.

Mobile "Naturally" Will Become a Quadruple Play

It is possible, perhaps highly possible, that the “preferred consumer service bundle” of the future includes internet access and entertainment video, on both fixed and mobile platforms. If you think about it, that also implies that the mobile bundle “naturally” will be a quadruple play.

When consumers buy service, voice and messaging generally are included, and the big issue is how big a data allotment to buy. So the “foundation” for virtually every mobile subscription is “voice, messaging and data.” Add entertainment video and the consumer has a quadruple play.

That inevitably is going to require a change in the way data usage is rated on mobile platforms. On fixed networks, a linear video subscription is zero rated. Consumers do not pay extra for use of bandwidth. Over the top video data consumption is rated.

Up to this point, all data usage on a mobile network has been rated, though voice and increasingly messaging, are zero rated, for domestic use. As we move towards standard expectations that entertainment video services are available, and widely used, by mobile customers, video will have to be zero rated, or consumers will not watch very much video.

In fact, so much of the future development of the consumer mobile and fixed networks business now hinges on video entertainment that it drives internet access developments as well. That consumers buy bundles is obvious.

Most U.K. consumers, for example,  now buy at least parts of a bundle of services (internet access, voice, video, mobile), EY study found. Some 93 percent of U.K. broadband households now have some form of bundle, EY found.

That same study also found that TV and mobile bundles score best in terms of satisfaction and loyalty.

That is an indicator of why Verizon, focusing more on becoming a mobile advertising platform for video services and app, and AT&T, which is more intent on becoming a force in mobile content delivery, are working on mobile content delivery systems. If the U.K. preferences wind up being seen in the U.S. market, then the “best possible” bundle will be video entertainment plus mobile service.

At the moment, the most-popular U.S. bundle likely is “internet access plus TV.” That is a preference parallel to “mobile plus TV,” with one twist. Where the most-popular fixed network bundle arguably is TV-and-internet, the most-popular mobile package could naturally become “mobile voice, mobile internet, mobile video,” for the simple reason that buying mobile internet access always comes with voice and messaging included.

Source: STL Partners

In that sense, the “natural” mobile bundle is going to be “bigger” than the natural fixed line bundle, simply because purchasing mobile video will assume the presence of mobile internet access, which in turn presumes the customer also gets voice and messaging (the services are stacked upon each other).

The other study finding that reinforces all thinking about bundles is that 55 percent of consumers would buy a bundle “only” if it also represents a price discount. That is logical. Consumers and suppliers are used to the notion of volume discounts.

source: EY

Today's Telecom Companies are Like Sharks

Sometimes telecom companies are akin to sharks: they need to keep swimming, staying in constant motion. That often is quite true for small startups, who rely on financing to supply cash flow as they build their businesses. These days, it also is true for tier-one service providers.

Consider only the shift that has to be made in describing “profit.” According to Ericsson, global revenue will climb about 2.4 percent each year to 2018, with growth of earnings “before interest, taxes, depreciation and amortization” of one percent to 2018.

That shift from “generally accepted accounting principles” to EBITDA tells the story: the global telecom industry no longer is “profitable” in the GAAP sense. So now tier-one service providers are like smaller startups: they have to keep cash flow high, even if some other traditional “profit” metrics no longer make sense (or even can be obtained).

Companies that operate in capital intensive, such as telecom, “do not give investors accurate depictions of performance through the EBITDA margin,” says Investopedia. In other words, in capital-intensive telecom, EBITDA is inaccurate as a measure of operator performance.

That is why “generally accepted accounting principles, or GAAP, do not include EBITDA as a profitability measure, and EBITDA loses explanatory value by omitting important expenses,” the site says.

Revenue is important, but the more-telling shift is the use of “EBITDA” rather than “profit.” EBITDA is a measure of cash flow, or operating efficiency. That is important, but it is not the same thing as “profit,” commonly understood.

“Earnings can be a tricky issue when analyzing telecom companies,” says Investopedia. “Many companies have little or no earnings to speak of.” Conversely, reported earnings also can mask a decline in cash flow. So cash flow matters. But it is not the same thing as “profit.”

All that noted, would a telecom executive prefer high EBITDA and low “profit?” Yes, if that means it can invest and upgrade networks, make acquisitions and pay dividends.  

To be sure, there are reasons for using EBITDA: it isolates operating performance, without the potential distortions of financing activities. At the same time, positive cash flow does not necessarily mean a firm is “profitable.”

That is not always a long-term problem. The entire U.S. cable TV industry, in its major urban growth phase, always had high cash flow (EBITDA), but zero profits, as all available cash was plowed back into growth. Eventually, when the construction phase ended, cable operators shifted to actual GAAP “profits.” So cash flow matters. A lot.

The problem for the global telecom industry is that while there is growth, that growth is heavily to be found in Asia and Africa. In most other regions, the business is quite mature or getting that way. Where there is not high growth, use of EBITDA arguably masks some structural issues.

Mergers, acquisitions, new products and operating cost reductions are reflections of the underlying trends. In one clear sense, telecom clearly is a declining industry: all its legacy products are in a mature mode, while some have been declining for more than 15 years (international long distance, voice).

To survive, much less prosper, completely new products, at massive scale, will be needed. That is why “internet of things” and “connected cars” are so important: they hold the promise of supplying those big new revenue sources.

But we have to recognize that the shift to “EBITDA” instead of GAAP “profit” tells you something very fundamental about the business.

source: Ericsson

Mobile M2M Accounts Grow 30% in 2016

Global mobile “machine-to-machine” accounts increased by 30 percent during 2016 to reach 398.1 million, about five percent of all mobile accounts, according to Berg Insight estimates.

A compound annual growth rate  (CAGR) of 26.2 percent will drive accounts to to 1.3 million by about 2021.

mobile M2M revenues will grow at a 26 percent CAGR from €6.7 billion (US$7 billion) in 2015 to approximately €21.4 billion (US$24 billion) in 2021. Berg Insight estimates.

Monthly average revenue per “user” (ARPU) is expected to remain stable at around € 1.40 (US$1.50).

Europe and North America are the most advanced regions in terms of adoption. China, Brazil, Russia, South Africa and Turkey are leading adopters of mobile M2M among the world’s major emerging economies.

While China already has the largest installed base of an estimated 118 million M2M devices in the second quarter of 2016, the relative adoption rate is still half of Europe and North America (about 200 connections per 1,000 people) at 86 connections per 1,000 people. Brazil and Russia had around 55 connections per 1,000 people each, corresponding to 11.6 million and 7.8 million M2M subscribers respectively.

South Africa and Turkey are the most advanced markets in the Middle East and Africa region with 5.3 million and 3.5 million M2M subscribers respectively at the end of the second quarter of 2016.

The South African market is highly advanced with a relative penetration rate of 96 per 1,000 people, which is higher than China and South Korea and almost equal to Japan.

India TRAI Proposes 100 MB Per Month Free Data Services for Rural Users

India’s Telecommunications Regulatory Authority of India is creating rules allowing “free mobile data” offers in rural India, after having already ruled that zero rating of some content and sites is impermissible for such purposes, and with an eye to preventing mobile internet access providers from acting as “gatekeepers” when free data is supplied.

TRAI seems to suggest that one way of doing so is to separate the ability to offer free data plans (prepaid, for the most part) to third parties, effectively eliminating any ability of the leading mobile ISPs to gain direct benefit from doing so.

As part of its policy research, TRAI asked specifically for stakeholder opinions on three different business models. A reward model would reward consumers by offering a recharge for data usage or for voice usage.

Alternatively, a “toll free” approach might be taken, allowing free access to certain websites.

Finally, a direct money transfer model would allow for the payment of a usage subsidy by the ISP directly into the mobile account.

Perhaps predictabiy, service providers argued that they should be allowed to offer free data, and that standard business deals should be allowed between content and access providers to do so.

ISPs also argued that the market will function, and that no ex-ante regulations are required. TRAI has the ability to regulate if needed if distortions develop.

After hearing those arguments, TRAI believes a new third party aggregator role is the best way to prevent potential business abuses (larger ISPs being able to benefit from free data to the detriment of smaller providers).

TRAI recommends 100 MB “free data” packages would be sufficient for rural users.

Globalstar Gets FCC Permission to Build New Terrestrial Network

The Federal Communication Commission has approved Globalstar use of its 2.4-GHz spectrum  to create a terrestrial mobile communications network, after Globalstar revised its original plan that would have used a guard band separating its own spectrum from that used by Wi-Fi.

The new plan allows Globalstar to deploy its 11.5-Mhz of spectrum commercially without risk of interference with Bluetooth or Wi-Fi services using channel 14 or channel 11.

In 2012, the company asked for permission to combine its own spectrum with the “guard band” set aside in 2.4 GHz to protect Wi-Fi users of channel 14.

Now the issue is whether a business case can be created for the network Globalstar wants to build. Up to this point, Globalstar has talked about using its spectrum and network to create public hotspots in large venues.

The issue is whether that application, using a specialized network, can gain traction in a market that is rapidly evolving towards use of other public Wi-Fi and small cell networks with a lot more bandwidth, on platforms with other existing revenue streams, and with lots of other unlicensed and licensed spectrum to be made available that also are best suited to small cell and high-density applications.

IoT Could Generate 5% of Mobile Revenues by 2025, Analysys Mason Thinks

As crucial as many believe Internet of Things (Iot) to be for future communications service provider revenues (the successor to growth driven by mobility, or mobile data), present revenue contributions are quite modest, as you would expect from a new set of industries at an early stage.

Currently, revenue from IoT accounts for less than one percent of most operators’ total revenue, according to Analysys Mason. It will take until 2025 for IoT to exceed five percent of operators’ total revenue, if 20 percent annual increases continue.

At least for the moment, a significant number of rival IoT communications platforms will be pushed, ranging from narrowband IoT (NB-IoT) to unlicensed LPWA and LTE-M, depending on geography. NB-IoT will be used outside North America, while LTE-M is likely to be the contender in North America.

LoRa will be introduced across many geographies, including the United States, as Comcast supports LoRa. The advantage there is that LoRa networks can be built using unlicensed spectrum, so has business model advantages for fixed network operators.

Low power wide area (LPWA) networks are expected to generate $23 Billion in service revenue by 2020, according to ReportsnReports.

By 2020, low power wide area IoT networks will represent about 65 percent of all IoT device connections, with roughly 35 percent of all LPWA profile IoT devices will be served by NB-IoT, LTE Cat-M1 and EC-GSM-IoT networks, according to ReportsnReports.

With the recent completion of the NB-IoT, LTE Cat-M1 and EC-GSM-IoT standards by the 3GPP, mobile operators are aggressively investing in software upgrades to build their own carrier-grade LPWA networks.

In the fourth quarter of 2016,, ReportsnReports estimates the cost of a typical LPWA module to be $4-18. As Low Power Wide Area network deployments mature, the researchers expect the cost per module could drop as low as $1 to $2 in volume quantities.

LPWA Networks Will Generate $23 Billion in Connection Revenues in 2020, Researchers Say

Low power wide area (LPWA) networks are expected to generate $23 Billion in service revenue by 2020, according to ReportsnReports.

By 2020, low power wide area IoT networks will represent about 65 percent of all IoT device connections, with roughly 35 percent of all LPWA profile IoT devices will be served by NB-IoT, LTE Cat-M1 and EC-GSM-IoT networks, according to ReportsnReports.

With the recent completion of the NB-IoT, LTE Cat-M1 and EC-GSM-IoT standards by the 3GPP, mobile operators are aggressively investing in software upgrades to build their own carrier-grade LPWA networks.

In the fourth quarter of 2016,, ReportsnReports estimates the cost of a typical LPWA module to be $4-18. As Low Power Wide Area network deployments mature, the researchers expect the cost per module could drop as low as $1 to $2 in volume quantities.

U.S. Cellular Sees 1.5 Gbps 5G Fixed Wireless Performance at 1-Mile Distance

United States Cellular Corp., a subsidiary of Telephone & Data Systems , recently conducted joint 5G trials with Ericsson ERIC in Madison, Wisc., achieving throughput of 1.5 Gbps at distances of a mile, and 9 Gbps at a distance of 787 feet.

Ericsson installed 5G radios on a tower that is currently being used for commercial service by U.S. Cellular,  using 15 GHz spectrum.

Federated Wireless, Alphabet Demonstrate Spectrum Access System Interoperability

Federated Wireless and Alphabet have demonstrated interoperability between their respective spectrum access systems (SAS). The SAS is the key enabler of shared spectrum allocation at the heart of the Citizens Broadband Radio Service (CBRS).

The 3.5 GHz CBRS is a revolutionary approach to increasing the supply of communications spectrum, protecting the rights of licensed spectrum owners while also enabling use of such spectrum by sub-licensees, or on a best-effort basis in other cases.

The CBRS will mean an additional 150 MHz of spectrum can be made available to new communications users and applications without the costly relocation of existing users to allow shared use by new commercial entities.

In principle, spectrum sharing will make possible a wider use of existing communications spectrum, allowing present licensees priority access, while also allowing secondary licensees access to unused or lightly-used spectrum, as well as supporting unlicensed, best effort access when primary or secondary users do not require use of the assets.

Such dynamic spectrum allocation mechanisms are quite new, as traditional allocation mechanisms were highly static, giving exclusive use to some licensees, whether that spectrum was used, or not, and often specifying what applications could be run, and just as often what platforms could be employed.

As spectrum in the low and mid-bands remains relatively scarce, dynamic allocation will improve the efficiency and intensiveness of use of those assets.

Asia is Home to More than Half of All Mobile Internet Customers

Asia was in 2015 home to more than half of all mobile internet access subscribers, some 1.7 billion in total, out of a total of about 3.7 billion mobile subscriptions. Overall, mobile adoption in Asia stands at a minimum of 92 percent.

The biggest changes will come as consumers across South Asia become mobile broadband users, especially in India, the largest single market across the region.

source: We are Social

source: A.T. Kearney, Cisco

source: Pyramid Research  

Mobile Generates 64% of Telecom Operator Revenue, Ofcom Finds

Mobile voice and mobile data services represent 64 percent of total telecom operator revenue in developed and developing countries studied by Ofcom, the United Kingdom communications regulator.

source: Ofcom

One interesting fact in the Ofcom communications report is the number of countries in East Asia, Europe and North America where cable TV operators have emerged as key platforms for fixed network internet access.

Bharti Airtel Quadruples Data Allowances, Slashes Prices

Disruption of mobile data pricing continues in the Indian market, as incumbent service providers continue to react to market entry by Reliance Jio, which aside from taking account share is disrupting the mobile data market, now expected to represent virtually all the industry revenue growth.

Reliance Jio attracted about 50 million accounts in three months after launch (albeit with generous “free” data usage), putting pressure on existing data tariffs.

In reaction, Vodafone doubled its data usage buckets, while Bharti Airtel launched new prepaid plans offering up to four times as much data, as well as dropping prices.

The new packs are priced at Rs 253 and Rs 494, offering data benefits for as low as Rs 50 per GB.

New Bharti Airtel Prepaid Data Plans
Data	Old Rate	Current Offer
4 GB	Rs 748	Rs 253
10 GB	Rs 1248	Rs 494
source: Telecom Talk

The new mobile data packaging is crucial since mobile data is expected to drive virtually all the revenue growth in the Indian mobile market. That, in fact, is the foundation of the Reliance Jio assault, based on supplying 4G-only service, and ample spectrum, compared to most of the other suppliers.

In fact, Reliance Jio lags only Bharti Airtel in terms of total available spectrum.

As the disruption unfolds, with a new strategic focus on faster data and lower prices, providers with less spectrum, less 4G spectrum, less scale and financial support will be unable to keep up. The market is going to consolidate.

source: S. Saravanan

source: Citi Research

Sprint 2.5-GHz Coverage Will Nearly Match 1.9-GHz Coverage, Using HPUE

A new standard--High Performance User Equipment (HPUE)--certified by the 3GPP organization will allow Sprint to extend 2.5 GHz coverage by up to 30 percent. Sprint expects HPUE to allow coverage of 2.5-GHz signals to match coverage of to nearly match 1.9 GHz spectrum performance, including indoors.

Certified by 3GPP on December 6, 2016, HPUE is a new power class (Power Class 2) for end-user devices such as smartphones, and is designed to improve the performance of TDD-LTE Band 41 networks operated by Sprint and other mobile operators.

FCC 600-MHz Auction: Much Less Demand Than Expected

The fourth stage of the Federal Communications Commission’s incentive auction to repurpose former 600-MHz TV broadcast spectrum has begun. Three earlier efforts to match buyer and seller expectations failed to “clear,” and each time a smaller amount of spectrum and lower minimum prices have been set.

At stake in the present auction is 84 MHz of spectrum. The FCC originally hoped to auction off about 126 MHz worth of spectrum. Some observers predict the auction ultimately will sell for only about $20 billion. Originally, many believed the auction would raise $88 billion.

In addition to other ways to secure required spectrum, the auction design, which generally limits AT&T and Verizon from bidding on about 30 MHz of spectrum, also means those firms have some incentive not to trigger the set-aside spectrum, which kicks in once 70 MHz of total spectrum are sold.

Because the two biggest potential bidders cannot acquire that 30-MHz of set-aside spectrum, other bidders, such as T-Mobile US, Comcast or others, stand to get their spectrum at lower prices than will AT&T and Verizon.

As much as either AT&T or Verizon might like to pick up some 600-MHz spectrum, their interests also are served by the auction process not reaching the 70-MHz of “cleared” spectrum.

80/20 Rules Telecom Profits, Accounts, Cost

Most underlying trends in any business follow a Pareto distribution, commonly known as the “80/20” rule, where 80 percent of results flow from some 20 percent of the instances. That applies for consumer manufacturer warranty claims, for example.

In the telecom and most other businesses, as much as 80 percent of the profit is generated by serving 20 percent of the customers.

source: CRMNext

source: Telco Strategies

That is clear in the distribution of customer accounts, ranked by revenue potential.

source: B2B International

Most workers make tradeoffs between housing costs and commuting time and hassle. In a common tradeoff, workers choose to pay higher rents or mortgages to cut commute times. But as with all such tradeoffs, most of the value of shorter commutes seems to follow a Pareto distribution. A Pareto distribution suggests that as much as 80 percent of the value comes from 20 percent of the decisions.

For workers in New York city who commute by subways, longer commutes lead to lower housing costs in less than 40 percent of instances, with the bulk of the “higher housing cost, less than 20-minute commute” value occurring for housing with a 20-minute or shorter commute by subway.

It is likely that similar Pareto distributions exist for all forms of internet access and communications infrastructure, where 80 percent of the value comes from 20 percent of the decisions or instances.

In 2010, for example, the most-desirable areas of U.S. cities (highest density, most internet service providers) represented about four percent of census tracts. Those areas had, in 2010, three ISPs in the market. Some 78 percent of census tracts had two providers; 13 percent of tracts a single provider and five percent of tracts had no fixed network provider.

Similarly, the overwhelming portion of the cost of ubiquitous fixed network infrastructure comes from a relative handful of locations in the most-rural areas.

source: Streeteasy

source: Streeteasy