How Much Upside from 5G Fixed Wireless?

AT&T expects standards-based deployment of fixed 5G as early as late 2018. That is going to be important for one key reason: in the early going, the most-tangible new revenue upside from 5G will come from 5G fixed wireless. That largely will come in cases where fixed wireless allows gigabit per second internet access without a full fiber-to-home upgrade, dramatically lowering the cost per premises connected.

The very first standardized deployments of 5G-based FWA are expected to be commercialized as early as 2019, according to researchers at SNS Telecom.

Driven by early commercial rollouts by Verizon Communications and AT&T in the United States, 5G-based FWA subscriptions are expected to account for $1 Billion in service revenue  by the end of 2019 alone.

The market is further expected to grow at a compound annual growth rate  of approximately 84 percent between 2019 and 2025, eventually accounting for more than $40 Billion.

The best way to envision and dimension the size of the revenue opportunity is to look at the fixed internet access business, which 5G-based fixed wireless will attack.

source: Analysys Mason

In the second quarter of 2017, for example, U.S. telcos lost at least a net 233,260 such accounts, according to Leichtman Research Group. Between them, AT&T and Verizon lost about 32,000 accounts.

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 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 $$382 million.

But there is more. Once gigabit access is available, linear and on-demand TV services can be sold to the accounts. Assume gains of 231,000 net new accounts per year, with linear video take rates of 50 percent. That might mean 115,500 net new video accounts. Assume average revenue per account of $80 per month. That implies annual incremental revenue of about $111 million.

That implies total revenue upside of perhaps $493 million per year.

For AT&T, which has a consumer internet access business generating a bit under $2 billion per quarter, $7.6 billion annually, and assuming 68 percent of all the net gains are reaped by AT&T, that firm’s gains would be perhaps $335 million. Granted, that only boosts AT&T consumer segment revenues a bit over four percent per year.

But positive revenue growth matters, in a product segment that has been going in reverse. Also, if one considers internet access the strategic product in the consumer fixed network segment, reversing share losses, and gaining perhaps half of net new additions matters just as much.

One might argue that the number of mobile phone accounts using 5G is the single-biggest bucket of 5G network, and that likely will be the case. But 5G accounts largely are a substitute for 4G, so there is little--if any--incremental new revenue.

In most cases, 5G-based fixed wireless will represent new accounts and incremental revenue. And even if internet of things eventually grows, as a new services contributor, that might take a decade or more.

That business case will especially be strong in North America, where lower population densities have proven a challenge for the fiber to home business case.

source: ABI Research

By 2021 or so, according to Ericsson, there might be 1.5 billion internet of things connections on mobile networks, with low per-connection revenue.

source: Ericsson

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.

LIke it or Not, Mobile ISPs Have to Compete on "Speed"

Competing in consumer internet access markets is a challenge for internet service providers in several senses, but among them is the difficulty of sustaining a clear long-term advantage based mostly on the “top speed” a network can provide.

There are several reasons for the difficulty. First, every other major competitor has the ability to match--or exceed--any particular claimed speed advantage. So any advantage in speed is momentary.

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.

Another problem is that consumers largely evaluate ISPs on such speeds. In fact, according to a recent survey conducted by Business Insider Intelligence. That survey found 84 percent of respondents agreeing 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.”

The problem there is that consumers evaluate suppliers on a metric that necessarily involves ever-higher capital investment, none of which provides a permanent advantage. That puts stress on business models.

This conundrum calls to mind the similar problem faced by personal computer manufacturers who historically competed on "speeds and feeds," only to find that this approach makes differentiation difficult to impossible.

For mobile ISPs, the stated consumer value placed on speed means suppliers will continue to seek advantages in that area, and will not be able to maintain such advantages permanently. That means ISPs are on a treadmill.

More Uncertainty in the 5G Era

It is not as clear, now, as it will eventually be, that the telecom business is entering a period of uncertainty as great as any it has faced in the past, principally because the industry business model is becoming increasingly uncertain. That is not to say the issues are insurmountable; only to note that uncertainty arguably is growing, not decreasing.

Fundamentally, the issues can be summed up in the phrase “dumb pipe,” which more accurately should be phrased “low value, low profit margin dumb pipe,” which is the business consequence of value shifting elsewhere in the communications, app and content ecosystems.

And 5G is not going to be an exception. Indeed, some mobile executives believe 5G really will be different from prior mobile generations, in terms of business model.

Most significantly, the business case is more speculative. “No customers will need 5G for current services,” said Telenor CEO Sigve Brekke. Note the phrase: “No customers will need 5G,” at least in terms of current services.

So the clear implication is that new use cases will have to be created, as they do not already exist. Some will say that was substantially the case for 3G and 4G as well, and that also is substantially true.

The difference is that 5G will face 4G networks that offer hundreds of megabits per second to gigabit levels of internet access bandwidth, plus voice and messaging. So it is hard to see what big new unmet need exists to be filled by 5G.

That, in a nutshell, is why many believe 5G will succeed or fail as it is able to create huge new use cases and revenue streams based on services purchased by enterprises to support internet of things apps. In other words, 5G will be the first mobile generation whose success and value hinges on services for “non-human users.”

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.

The reason: dense networks of small cells, with extraordinary requirements for backhaul, will increase the cost of backhaul services in the mobile business model. At the same time, one clear new use case for 5G--its use as a consumer gigabit-speed internet access platform--requires such dense small cell networks.

Some idea of how dense can be grasped in the phrase fiber to the light pole. What is really different about dense small cell networks is that, for the first time, the total cost of the infrastructure might be dominated by the cost of the trunking network, not the radio access network.

It remains to be seen if the actual cost of a fixed wireless connection using 28 GHz and 39 GHz assets will actually be “miniscule,” as Verizon executives have suggested. But Verizon already believes it can deliver gigabit speeds at distances of perhaps 1,000 feet or so, using such frequencies.  

That is important since street lights are spaced at distances from 100 feet (30.5 meters) to 400 feet (122 meters) on local roads. In principle, putting radios on every other light pole could mean a radio radius of about 200 feet to 800 feet, well within tested propagation ranges. Putting radios on every light pole would shrink the radius to 100 feet to 400 feet, and allow for more path diversity, in case of obstructions.

If, as some others expect, millimeter wave small cells have a transmission radius of about 50 meters (165 feet) to 200 meters (perhaps a tenth of a mile), it is easy to predict that an unusually-dense backhaul network easily can support radio drops from small cell networks that could number as many as 100,000 in an area such as Manhattan.

Put simply, 5G might represent a new era where “mobile networks” are not viable, absent ownership of ubiquitous fixed network assets. That would be the ultimate “revenge of the fixed network operators.”

Essentially, the long-term structure of the telecom and mobile business possibly is dictated by ownership of the backhaul networks supporting dense small cell deployments. In most countries, that is a far-smaller number of service providers than has been the case in the earlier mobile eras.

Perception Really is "Reality:" Consumers on Unlimited Plans Think Other Elements of Experience are Better

“Perception is reality,” an old adage suggests. And that appears to be true for mobile customers using unlimited plans offered by all the four biggest national U.S. mobile services providers.

A J.D. Power study finds that customers with unlimited data plans believe they experience a lower incidence of overall network problems, data problems, messaging problems, and calling problems than those with data allowances, even if J.D. Power suggests the type of plan actually should not make any difference.

Customers with unlimited data plans report an average of 11 overall network quality problems per 100 (PP100) connections, compared to an average of 13 PP100 among customers with data plans that are not “unlimited.”

Users also report lower incidences of data problems (15 PP100 compared to  16PP100), as well as fewer  messaging problems (5 PP100 vs. 6 PP100). Customers on unlimited plans also believe they have fewer calling problems (12 PP100 vs. 15 PP100).

This trend holds true among both power users (100 or more network connections in the previous 48 hours) and lighter users (fewer than 100 network connections in the previous 48 hours), J.D. Powers says.

In many ways, the findings show the importance of perception. “Whether a customer has unlimited data or a data allowance on their wireless plan should not really affect their overall network quality, but our data shows that—consistently—wireless customers who are not worried about data overages have a much more positive perception of their network’s quality,” said Peter Cunningham, J.D. Power technology, media, and telecommunications practice lead.

Customers with unlimited data “are impressed with data speeds, which likely contributes to their perception of fewer problems,” J.D. Power says.

Unless mobile operators have come up with some new, unheralded way of prioritizing services for their “unlimited” customers, the perceptions of “fewer problems” could be among the actual business benefits for mobile service providers, as such plans apparently convince users other elements of service actually are better than when they used usage-based plans.

While Telcos Move Up the Stack, App Providers Move Down

Vanishing boundaries between content network and distributor functions are the best examples of how access providers can “move up the stack” to create value, but also now illustrates how the distribution function--essentially “moving down the stack”--have become important strategic realities in the communications business.

For decades, access providers have worked to add more value by moving into the applications or platform segments of the ecosystem. Essentially, those efforts are a reprise of the original state of affairs, when telcos created and owned the only applications that mattered on such networks.

In other words, voice and messaging were apps fully created and owned by the service providers. In the internet era, all that changes, as application creation and ownership is logically separated from the “network access” that allows people to use those apps.

In a real sense, shifts in the video entertainment business offer a successful example of how access providers can move up the stack.

In the past, some companies or people developed and created content; others bundled it (networks) while other firms distributed the content (TV stations, cable TV companies). In other words, the content business separated delivery from content creation and ownership.

The big distinctions, maintained in law, were that entities involved in one part of the ecosystem could not also be owners of assets in other parts of the ecosystem. So movie studios were barred from being theater owners and big networks could not own large shares of the distribution market (networks owning local broadcast outlets).

Over time, some of those restrictions have been eased. And though ecosystem includes both retail subscriptions, advertising, on-demand content purchases (including movie theater tickets, home video). For the most part, advertising and subscriptions drive distributor revenues, while content licenses and advertising drive bundler revenues. Content creator revenue is generated primarily by sales of intellectual property.

source: navigationpartners

The continuing debate within the ecosystem is the relative balance of value and therefore power between content bundlers (networks) and distributors (primarily video subscription providers, both linear and on-demand).

That debate is becoming less relevant as strategy now pushes each of the formerly-separate industries to integrate the functions. In other words, content networks become distributors, while distributors become content networks.

Traditionally, the issue was whether the content bundlers (networks) or the distributors (cable TV, other providers) had more power within the ecosystem.

The new change is that “distribution” itself has changed, from those with actual physical networks, and those distributing “over the top” (Netflix, Hulu, Amazon Prime). These days, some distributors own and operate physical access networks, while others do not.

In fact, the line between “networks” and “distributors” is blurring. Netflix aims  to increase the percentage of “owned” versus “licensed” content to 50 percent. In other words, Netflix plans to become as much a network, with original programming, as a distributor.

Disney, on the other hand, owns 75 percent of BAMTech, a platform for streaming video distribution. That, plus its announced intention to create its own streaming service means Disney also will become a distributor.

In fact, market share within the “distribution” segment itself is changing, as fewer customers buy “big bundle” subscriptions, while more embrace streaming services of various types. As Netflix shows, the emerging model might well be networks that also are distributors, bypassing or augmenting many other existing distribution vehicles.

source: Strategy&

The larger point is that the drive to move “up the stack” or “down the stack” will continue.

Google, Facebook and Amazon have moved “down the stack” into access services of various types, and are working on other initiatives to support such moves. Comcast and AT&T have moved up the stack into network ownership.

That will be the model for internet of things services and apps as well.

How Big a Revenue Driver Will IoT be for 5G?

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.

Growing Use of Google Station Wi-Fi as "Access Substitute"

After launching its “Google Station” program in India, supplying Wi-Fi to train stations, Google is doing the same in  Indonesia. Google is partnering with internet service providers, venue owners, and system integrators in Indonesia to provide consumers with free access to Wi-Fi at railway stations, universities, and other public areas.

In one sense, Google Station is simply a way Google can increase the potential number of its users in India and Indonesia, the same reason Facebook is sponsoring Wi-Fi access efforts in a number of countries. Without internet access and smartphones or other devices, people cannot use Facebook, Google or other apps.

In 2016, on average, consumers in India used 15 times more data each day on Google’s Wi-Fi network than they did on their mobile networks.

Offering high-speed data for free could mean new users associate Google with fast internet. Each day, around 15,000 people use one of these stations in India to connect to the internet for the first time, Google says.

That trend also points to another change, though, namely the emergence of Wi-Fi as the physical layer “access” method, where historically it has been telco or other networks that have provided that function. That is not to say the access and core networks are unimportant; they remain essential.

But the end user experience now often substitutes Wi-Fi (classically an in-building distribution network, not the means of network access) for a traditional fixed or mobile internet connection. In principle, that changes the value proposition for access suppliers, changes the end user relationship and the potential business models for access services.

For the most part, Wi-Fi is a function, not a direct revenue stream. That is why one rarely sees, or cares (with the exception of Wi-Fi hotspot service providers), what “Wi-Fi service revenue” happens to be. Usage matters, but “direct revenue” is nil. Wi-Fi is an amenity or an indoor distribution network, not a direct revenue stream.

source: ecomputernotes.com

source: Orm-Chimera

That raises one thorny issue. To the extent that Wi-Fi “gives away for free” what some service providers sell (that is a fraction of use cases), it puts pressure on the “value” of internet access services.

And that is the long-term strategic problem, irrespective of the immediate potential revenue losses. Consumers might start to expect “no extra charge” Wi-Fi to be a nearly-ubiquitous access method, when out of their homes.

While they might expect to buy at-home internet access (fixed or mobile), consumers increasingly understand that when “out and about,” Wi-Fi at no extra charge is going to be available. That “relegates” mobile network access to the truly-mobile use cases, as Wi-Fi is presumed to be the default access when users are stationary or indoors.

Though complicated, growing use of Wi-Fi might complement access provider revenues or compete. Comcast uses its extensive homespot network to drive perceived value for its fixed network internet access service. In other cases, use of Wi-Fi allows consumers to spend less on their mobile data plans, and so arguably reduces service provider revenue.

In other cases, Wi-Fi is simply the in-building distribution network, and does not directly affect access provider revenues at all.

In yet other cases, Wi-Fi supplied by third parties allows other access providers to operate with lower capital investment, as demand is shifted to the Wi-Fi network.

On the other hand, use of Wi-Fi as a primary form of mobile device access also destroys some portion of the potential access provider market, namely the ability to monetize usage.

Strategically, that is the greatest danger Wi-Fi poses to access providers: it strikes at the ability to earn money for access services; reduces revenue per account and perceived value of such access connections.   

source: Business Insider

Mobile Apps are "Winner Take All"

“Winner take all” is a frequent feature of application markets. In the U.S. market, that most certainly is the case, as Facebook and Google own eight of the top-10 mobile apps. Mobile apps also represent 50 percent of all digital media time, with desktops claiming 34 percent, according to comScore.

source: comScore

T-Mobile US Loyalty Above Average; AT&T, Verizon Average; Sprint Below Average

According to one survey, T-Mobile US has the most loyal customers, AT&T and Verizon are about average and Sprint lags, where “loyalty” is defined as a consumer’s refusal to switch providers.

“Loyalty” is tough, for most consumer products, in part because price always matters, and there are likely few consumers who would not make a switch for a significant price savings, all other things being roughly equal, no matter what they might indicate on surveys.

That is likely even more an issue for “intangible” products, compared to a few physical products with relatively high personal involvement (some smartphones, some vehicles, some clothing, most cosmetics).

Still, loyalty rates for mobile service providers do not seem too different, in most cases, from consumer loyalty rates for most products, which tends to range from 12 percent to 15 percent, and where 80 percent of customers say they would switch providers “within a week” in the case of poor customer service.

source: Business Insider

5G Fixed Wireless Will Generate $1 Billion in Service Revenues in 2019

Fixed wireless using  5G networks will generate $1 billion in service revenue by the end of 2019, mostly in the United States, according to researchers at SNS Research.

The market is further expected to grow at a compound annual growth rate of 84 percent between 2019 and 2025, eventually accounting for more than $40 billion in revenues globally.

The reason for the optimism is the 40 percent lower costs, compared to fiber-to-the-home solutions.

In addition, 5G can significantly accelerate rollout times by eliminating the need to lay cables as required for FTTP rollouts, SNS Research argues.

While many industry analysts believe that 5G-based fixed wireless is only suitable for densely populated urban areas, a number of rural carriers, including C Spire and U.S. Cellular, are beginning to view 5G as a means to deliver last-mile broadband connectivity to underserved rural communities as well.

5G Is Not "Just Another Mobile Platform"

For most people, 5G is just the next generation of mobile platforms. In fact, 5G arguably is the most-important gamble in telecom history, a test of whether big new markets can be created for services primarily purchased by enterprises and businesses, not human users.

That is a huge shift, as all prior generations were supported by services provided to humans. So

5G will be unlike any other generation of mobile service, as it will be the first mobile or telecom network generation whose new revenue upside primarily comes from new use cases where machines are the key “users.”

To the extent that one believes revenues to be generated by services sold to humans will flatten, 5G therefore will determine whether industry revenue grows or not.

That is because sources of value are changing. There is only so much value any internet access connection can provide, and therefore only so much a buyer will pay for that value. That is, in large part, why average revenue per unit of access capability keeps dropping.

source: DrPeering

source: ITU

At the same time, the profitability of providing telecom services is dropping. And revenue growth rates are near zero.

So 5G comes at a crucial juncture, testing whether big new revenue sources can be discovered or created, beyond what can be sold to human users. Also, 5G comes at a time when massive industry consolidation is likely, over the next decade, the period when 5G will rise to dominance.  

So 5G will at least occur during a period of massive industry change, and might well be the driver of new winners and losers on a global scale.

Asia Drives 2Q Smartphone Sales Growth

Greater China and a few emerging Asian markets drove sales of smartphones in the second quarter of 2017, say analysts at Gartner. That trend also speaks to the growing adoption of mobile internet access services.

source: Ericsson

India, Indonesia and Southeast Asian countries drove a year-over-year rise in smartphone sales in the emerging Asia/Pacific group.

Smartphone sales in Greater China declined, year over year, primarily due to longer replacement cycles and as users prefer to buy better smartphones.

Top-Five Regions for Smartphone Sales to End Users in 2Q17 (Thousands of Units)
Region	2Q17 Units	2Q17 Market Share (%)	2Q16 Units	2Q16 Market Share (%)
Greater China	101,524.5	27.7	114,170.9	33.3
Emerging Asia/Pacific	78,243.1	21.4	59,429.7	17.3
North America	40,438.0	11.0	38,121.5	11.1
Western Europe	35,790.5	9.8	31,523.6	9.2
Latin America	32,867.2	9.0	33,050.3	9.6
Others	77,371.1	21.1	67,056.5	19.5
Total	366,234.4	100.0	343,352.5	100.0

source: Gartner