Spectrum Scarcity Won't Exist Too Much Longer

It would not be incorrect to argue that, at least in some markets, spectrum sharing, new spectrum allocations and more-intense use of unlicensed spectrum are going to dramatically affect the “scarcity” assumptions that long have driven mobile and fixed network business models.

In many countries there is between 500 MHz and 700 MHz of licensed spectrum available to mobile operators, plus Wi-Fi assets of perhaps another 800 MHz. In the U.S. market, mobile operator spectrum assets might increase by 80 MHz to 100 MHz after the 600-MHz auctions are concluded.

But much spectrum is unused, so methods of sharing licensed spectrum on a dynamic basis will dramatically affect the amount of assets that can be productively employed.  

In the U.S. market, where the Federal Communications Commission plans to release 29 GHz of additional spectrum, relative spectrum abundance should replace spectrum scarcity as a fundamental assumption.

It is not clear how much longer the divergence in network use (fixed versus mobile) will continue, where the volume of consumed bits is on the fixed network, even if the number of mobile users vastly outstrips the number of fixed users.

As 4G is deployed and used more widely, and when 5G networks become widely used, it is conceivable that the volume of data transferred over mobile and fixed networks will narrow substantially.

For some participants in the internet ecosystem, “volume of data” in fact does not matter. Only time of engagement really matters, and on that score, mobile clearly is the most-important form of access.

It already is clear that end users are shifting “time spent with the internet” from PCs or desktop devices to mobile devices, though, depending on how one measures (what we count), the shift to mobile is happening faster or slower.

source: Cisco

Since 2009, there have been more mobile users of the internet than fixed users, according to Nokia. About 2013, U.S. users reached parity in terms of the minutes of use on mobile devices and fixed devices. Since then, mobile has been gaining steadily, in terms of “time of use.”

source: Business Insider

No matter how one counts, though, there is a massive disconnect between revenue and cost drivers in the mobile content ecosystem, and that disconnect now has to drive strategy for some of the providers in the ecosystem.

Consider only the key difference in metrics used in the advertising, content and commerce industries and the networks business where it comes to “usage.”

For advertisers, marketers, content providers and commerce businesses, what matters is user engagement (where they spend their time).

source: Nokia

For advertisers, content providers or e-commerce providers, minutes of use (engagement) matters, since the markets move to where the users are, and where they spend their time.

For network facilities operators, capital investment comes first, where it comes to looking at usage, since usage primarily is a matter of capacity.

For “pipe providers,” it is the volume of bits consumed that matters. In other words, how much traffic, and where it flow, matter first. Only secondarily does “revenue” enter the discussion. Capacity must be deployed where there is need for it, and only secondarily because that correlates, more or less, with revenue.

For content providers, advertisers and e-commerce firms, usage means direct revenue opportunity; the chance to reach large audiences.

Desktop visits, by other measures, remain higher than mobile visits to many websites, but the percentage of desktop or PC visits is dropping, across the board, according to Adobe.

source: Adobe

For transport and access providers, time of engagement matters only scarcely. What really matters is the volume of usage, since there is a weak relationship between “volume of usage” and “volume of revenue.”

So there is a big business model disconnect. For advertisers, content providers and commerce providers, usage creates direct business opportunity.

For transport and access providers, usage first creates need for capital investment, only secondarily revenue opportunity.

source: KCPB

In other words, for app layer or “business layer” entities, “time invested” drives several business models, ranging from advertising to e-commerce. As the generalization suggests, “money follows attention.” So the attention itself creates revenue potential.

For physical layer facilities providers, “time” hardly matters, while “volume” is everything, primarily because volume dictates investment. But volume only indirectly creates business opportunity.

That provides one more bit of evidence that business models--and revenue--increasingly lie in the applications and services people want to consume over the internet, and not the pipes that connect people to their content.

It also suggests why “moving up the stack” or “moving up the value chain” is so important for tier-one service providers. For small providers of access, even that option is mostly unreachable. For providers without scale, only cost control and marketing prowess will matter.