Fastest Network? It's a Game of Nuances

Since tests by different entities produce different results, it is hard to say which of the leading four U.S. mobile service providers actually has the “fastest” network. Generally speaking, Verizon has lead most such surveys, but T-Mobile US has taken a slight edge in some surveys recently.

One might argue that, no matter which firm claims the top spot, performance often is a matter of nuances. In that regard, there has been some controversy about T-Mobile US claims that it has the fastest 4G network.

The controversy is unlikely to end in the near term, for one key reason. As Verizon and AT&T have moved to “unlimited” usage plans, usage arguably has climbed. That creates more potential for congestion, and therefore slower speeds, on the 4G networks. T-Mobile US has far fewer customers, and has offered unlimited service for quite some time, so its own network faces less danger of congrestion.

Though Verizon and AT&T are working to add more capacity, that will take some time. That almost guarantees a period of time when speed rankings could tilt towards T-Mobile US.

source: Rootmetrics

source: OpenSignal

Voice No Longer is a Key Building Block for Next Generation Networks.

According to Reza Arefi, Intel director of spectrum strategy, nobody is working on voice as part of 5G at any of the core standards bodies. That might come as a shock to many observers, but simply seems to point to the changing value of various revenue streams in the access business, and the fundamental way applications are created and delivered on modern networks.

The lack of focus on voice also is a reflection of changes in the core requirements for modern communications networks, where the growing range of capabilities come in the “connecting computing devices” area, not voice or messaging.

Also, the growing reality is that voice is a feature, less a key revenue driver. It is a key function, to be sure; just not the driver of revenue growth.

That, in part, explains the lack of work on voice as a core feature of 5G. That “neglect” is not new. You might recall that the 4G standard also did not originally support voice, either.

It might be reasonable to argue that 5G standards work does not include voice support because voice is seen as a service supported on 4G. Others might argue some extension of voice over Wi-Fi will be part of the solution.

Consider revenue drivers for the industry globally, which are predicted by STL Partners to continue declining significantly.

source: STL Partners

Vodafone Offer Most Complete; AT&T Has Most Connected Car Accounts

Vodafone Automotive offers the most complete set of features and solutions for OEMs, followed closely by AT&T, says Machina Research.

By 2025, the firm foresees the number of cellular IoT connections approaching two million, and vehicular connections will still be the largest category, with roughly 800,000 nodes.

Source: Intel

AT&T has more cellular IoT connections than any other carrier, and says cars are by far its biggest category, with 14 million of the company’s 34 million wireless IoT connections connecting vehicles.

The company is adding about 1.4 million connected cars per month, he said.

Troiano sees connected car as two markets: the connections that help automakers monitor the safety and performance of the car on the road, and those that keep the people inside the car connected to the internet.

Verizon owns two telematics businesses, Fleetmatics and Telogis, and is now working to combine fleet management with asset tracking.

Nobody is Working on Voice as Part of 5G Standards Effort

According to Reza Arefi, Intel director of spectrum strategy, nobody is working on voice as part of 5G at any of the core standards bodies. That might come as a shock to many observers, but simply seems to point to the changing value of various revenue streams in the access business, and the fundamental way applications are created and delivered on modern networks.

The lack of focus on voice also is a reflection of changes in the core requirements for modern communications networks, where the growing range of capabilities come in the “connecting computing devices” area, not voice or messaging.

Also, the growing reality is that voice is a feature, less a key revenue driver. It is a key function, to be sure; just not the driver of revenue growth.

That, in part, explains the lack of work on voice as a core feature of 5G. That “neglect” is not new. You might recall that the 4G standard also did not originally support voice, either.

It might be reasonable to argue that 5G standards work does not include voice support because voice is seen as a service supported on 4G. Others might argue some extension of voice over Wi-Fi will be part of the solution.

Spectrum Scarcity is Going to End

Some idea of how much capacity in the mobile business is about to change can be gleaned by comparing present allocations of spectrum for U.S. mobile services with coming allocations, shared spectrum, additional unlicensed spectrum and lots of licensed millimeter wave assets.

Consider that all U.S. mobile operators have about 195 MHz nationwide, weighted for population, and as much as 590 MHz to nearly 700 MHz of total spectrum.

source: FCC

source: Sprint

Consider that the new Consumer Broadband Radio Service (CBRS) adds as much as 100 MHz of new spectrum. The capacity available just in the 60-GHz unlicensed band

“The unlicensed band at 60 GHz contains more spectrum than has been used by every satellite, cellular, WiFi, AM Radio, FM Radio, and television station in the world,” some would say.

The FCC, meanwhile has said it plans to release nearly 11 GHz of new spectrum (capacity), in the bands above the 24 GHz frequency range, for mobile use. The FCC also currently considering whether to open up even more spectrum in the millimeter wave bands for 5G and other uses, for perhaps a total of 29 GHz of new spectrum  (capacity).

source: Electronic Design

In other words, new spectrum representing 48 times the current allocations for mobile are coming. New unlicensed spectrum alone will amount to nearly 12 times the current total mobile allocation.

Replace 1/2 of Service Provider Revenue in 10 Years? Yes. Here's How

Mobility has been crucial for consumers and suppliers of communication services for decades. Mobility has allowed most humans to use communications, where fixed networks were unable to do so.

Mobility has allowed service providers to make a major revenue transition from long distance to mobility as the key revenue driver. Mobility has allowed the industry to survive the "death" of fixed network voice as the key revenue driver.

One fundamental rule I use when analyzing telecom service provider business models is to assume that half of current revenue has to be replaced every decade. One example is the change in composition of Verizon revenue between 1999 and 2013. In 1999, 82 percent of revenue was earned from the fixed network.

By 2013, 68 percent of revenue was earned by the mobile network. The same sort of change happened with cash flow (“earnings”). In 1999, the fixed network produced 82 percent of cash flow. By 2013, mobility was producing 89 percent of cash flow. The fixed network was creating only 11 percent of cash flow.

source: Deloitte

The picture at AT&T was similar. In 2000, AT&T earned 81 percent of revenue from fixed network services. By 2013, AT&T was earning 54 percent of total revenue from mobility services.

source: Deloitte

Also, consider CenturyLink. In 2017 (assuming the acquisition of Level 3 Communications is approved), CenturyLink will earn at least 76 percent of revenue from business customers. In the past, CenturyLink, like other rural carriers, earned most of its money from consumer accounts.

The point is that CenturyLink now is unusually positioned with respect to business revenue, earning a far greater percentage of total revenue from enterprise, small or mid-sized businesses and wholesale services, compared to other major providers.

After the combination with Level 3, CenturyLink will earn no more than 24 percent of total revenue from all consumer sources, and that contribution is likely to keep shrinking.

source: CenturyLink

Cable operators have done so as well. Where once video entertainment was 100 percent of revenue, Comcast now generates 63 percent of total revenue from other sources. You can see the same process at work in the mobile business. Where 100 percent of revenues essentially came from voice, today about 80 percent of total U.S. mobile operator revenues come from data services, according to Chetan Sharma. 

That trend has been building for some time. Early on, text messaging was the driver. But mobile internet access now drives growth. But saturation is coming. In the first quarter of 2017, mobile data revenues actually declined for the first time, ever.  


source: Infonetics

The big strategic issue is how revenue drivers will change over the next decade. As impossible as it seems, today’s mobility services are not likely to produce half of total revenues in a decade.

Some other big new revenue driver will have to be found. But the industry already has done it, and more than once. It simply now has to keep doing so, for the indefinite future.

IoT Connectivity: All the Above

As use of internet of things services grows, the value of connectivity services is a key concern for mobile and fixed network operators, as every sensor has to be connected, and billions of new sensors are expected to be deployed.

In the early going, no clear pattern other than “all the above” has emerged. Wi-Fi, mobile networks and fixed networks all are used, according to a Vodafone report. That could change as the business grows, but so far, there is no clear pattern.  

source: Vodafone

Going forward, enterprise executives say they are looking at both 5G and low power wide area networks as possible platforms.

Of the new LP-WAN platforms, NB-IoT, running on 4G and LTE Cat-1 and Cat M-1 are getting attention, as are the specialized LP-WAN networks. That raises an obvious question: will enterprises choose a 4G or 5G solution when looking at mobile networks for  IoT connectivity?

source: Vodafone

The proportion of companies using the internet of things has more than doubled, a new report by Vodafone says.  Adoption has risen from 12 percent in 2013 to 29 percent in 2017, Vodafone says.

Transport and logistics (19 percent to 27 percent) and retail ( 20 percent to 26 percent) have shown the largest year-on-year gains from 2016.

source: Vodafone

Value, Not Consumer Resistance, is Key to Full Mobile Substitution

The latest Federal Communications Commission report on the mobile industry in the United States, based on 2015 data that is several years old, shows how much the communications market has changed in recent years, increasing the number of use cases where mobile already is a full substitute for fixed network service.

The FCC data suggests we are adding to the number of use cases where mobility is going to become a full substitute for fixed networks, especially where the business case is hardest (rural markets, lower income markets).

Some policy advocates seem opposed to retirement of legacy copper facilities and the use of mobility as the replacement platform. There were in the past good reasons for such views, as mobile networks might not have been able to match the value of fixed connections, in terms of speed, quality or price. All that is changing, though.

So as supply possibilities change, consumer acceptance is a key issue.

One question is whether consumers actually are comfortable with a mobile-only solution to their internet, voice and messaging needs. At a high level, the number of mobile accounts in service is equivalent to the U.S. population, so the notion of full mobile substitution for fixed access seems feasible, if pricing, quality of service and other typical terms of service are equivalent.

Looking only at “human” users, the number of accounts in service is about 324 million, or nearly the population of people older than perhaps 13.

The U.S. population is about 326 million. Retail accounts used by people (not including wholesale lines or connected devices) number about 322 million.

source: FCC

source: FCC

source: FCC

The key point is that consumers broadly have embraced mobility as a preferred solution for their communication requirements. A growing percentage also seem to prefer mobile to such a degree that 58 percent of U.S. children 18 and under live in homes that are mobile-only.

So the notion that mobile can be accepted as a full substitute for fixed network services seems reasonable enough. The political and regulatory issue is whether service providers should be free to use more-affordable, rather than less-affordable platforms, as use of the fixed networks continues to drop.

At the moment, it appears that a typical tier-one service provider--cable or telco--gets about 40 percent to 50 percent take rates (locations that buy service from the provider). By definition, that means stranded assets--facilities that generate no income--range as high as 50 percent to 60 percent. One might argue that is inherently unsustainable.

One possible objection to viewing mobile networks as a potential full substitute for fixed networks is mobile network coverage. That does not seem to be a bigger issue than for fixed network coverage. Also, the mobility market features multiple providers (just how many are sustainable long term is an issue).

The FCC report suggests coverage by three or more competitors is 97.9 percent. Yes, there still are rural areas where coverage might be provided by only a single provider. But we have solutions for such instances. High cost support or universal service funding are the traditional remedies.

One might conclude that mobile platforms actually cannot provide fixed network equivalent service in some two percent of instances. In other cases it might still be possible, given the relative cost of fixed or mobile solutions in rural areas.

source: FCC

One historic problem has been that mobile network internet access speeds have lagged fixed networks.

The FCC report--based on 2015 data--suggests that median downstream speeds per device range from about 10 Mbps to 14 Mbps, on average, enough to support video streaming. Keep in mind that mobile bandwidth is supplied per device, not per location. There is no inherent requirement for sharing that bandwidth across multiple devices.

Also, speeds have increased significantly since 2015, according to Ookla. In the U.S. market, downstream speeds now top 22 Mbps. In fact, speed grew 33 percent, from 2015 to 2016, and another 19 percent from 2016 to 2017, according to Ookla.

In the 5G era, median speeds will climb perhaps an order of magnitude on a median, per-device basis, and as high as a couple orders of magnitude in some locations.

source: Ookla

source: FCC

The FCC’s own tests suggest that the the main supplier 4G brands--measured on a “mean” basis--operate even faster than the median speeds, from about 14 Mbps to 19.5 Mbps.

source: FCC

One big issue might concern availability of multiple competitors in low-income areas. That might be a bigger issue in rural areas, compared to urban areas, simply because the cost of mobile infrastructure in urban areas is much lower than in rural areas. According to the FCC data, the number of providers of 4G service, across all income ranges, is at least four in each area.

Such data does not speak directly to the issue of affordability, but one point is that multiple providers operate in areas inhabited by people of all income brackets. In fact, availability to people in the lowest income bracket is higher than in any other income bracket.

source: FCC

So one possible conclusion from the latest FCC report is that the fundamental regulatory policies governing fixed and mobile communications solutions might be in need of a fresh review. “How” service is supplied might need to be reviewed, as it might not make such a difference whether hybrid fiber coax, fiber or copper access platforms, mobile or fixed wireless platforms are used.

Beyond that, there now are strong arguments to be made that former incumbents have lost the ability to shape demand, prices, terms of service and value in communications markets. In some instances, cable TV operators are the leaders. In all cases, mobile now represents a growing and preferred way to use communications.

That suggests the growing possibility that old rules which made sense when there was a true dominant carrier might need to be revisited.

Uberization of Mobile?

In the early years of the 5G era, we might well see the beginnings of a new trend, the uberization of telecom. In some ways, mobile services or devices that dynamically assign particular mobile access connections (Google Fi, Republic Wireless and others) already do so.

So far, that is essentially “Uber light,” as the core of “uberization” is “to modify a market or economic model by the introduction of a cheap and efficient alternative,” according to Wiktionary.

Others would say uberization is “the utilization of computing platforms such as, but not limited to, mobile applications or websites, in order to facilitate peer-to-peer transactions between clients and providers of a service, often bypassing the role of centrally planned corporations,” says Wiktionary.

In that sense, handsets able to pick a network connection dynamically arguably represents a weak form of uberization. A strong form (true peer-to-peer relationships between end users and other end users, or between end users and all access providers, might or might not develop.

Uberization, some argue, could happen in the telecom industry once device suppliers are able to create, with scale, the ability of their handsets to cherrypick network access platforms on the fly, essentially freeing end users from dependence on single supplier access relationships.

In other words, the handset itself will choose which access network to use, at any given moment, based on quality, price and perhaps other criteria.  

Much could depend on which part of “uberization” winds up applying most: surge pricing, demand shifting or supply shifting. Surge pricing--with its impact on demand shaping--might be most benign for suppliers, as it is simply an efficient way of rationing assets at times of high demand, or encouraging network use off peak.

Some might argue that the ability of a handset (directed its user) to flip between Wi-Fi and the mobile network is another weak form of Uberization.

The analogy to Uber is not quite exact, of course. Another way to characterize Uber is to say it mobilizes resources that are under-used and latent (cars that sit idle most of each day) by making them available to riders who pay to use those assets.

It is not so clear that that analogy actually applies so well to dynamic use of multiple access networks, but there is some element of similarity. The best fit might be a scenario where mobile users themselves have a trading platform to share access resources directly between themselves. That might resemble a dynamic form of today’s multi-user plans, with the key difference that a permanent “business relationship” between users on an account would not exist.

Mobile and Telecom Have a Leaking Bucket Problem

Telecom now is a leaky bucket: new revenues are filling the bucket, but the bucket has holes. Those holes are declining voice and messaging revenues. In some markets, entertainment video and even internet access revenues also are mature, and face declines.

So one clear strategic issue is how to maintain the revenue fill rate into the top of the bucket at a level that more than compensates for what is leaking out the bottom of the bucket.

The big problem is that there is little present evidence that the fill rate is going to match the leak rate globally, despite continued growth in Asia and Africa.

Most observers of global telecom revenue will note that, with a couple of possible exceptions, industry revenue has grown continuously, for as long as we have kept records.

On the other hand, one has to wonder whether telecom revenue will reach a peak at some point in the relatively-near future, as mobile adoption reaches saturation in every country and as every customer buys as much internet access as they prefer.

Looking only at the country of Malaysia, the trends are clear enough: Mobile growth is reaching an absolute peak, as is mobile broadband. Fixed line voice is declining, and has been dropping since about 2000, while fixed network internet access has grown to replace the lost fixed network revenue, but itself is nearly saturated.

source: Researchgate.net/

source: FCC

That does not mean service providers will stop innovating--or trying to do so--or seeking to add big new revenue sources. But that new revenue will mostly balance lost revenues in the core business, as voice, messaging and eventually, even internet access revenues fall.

Indeed, replacing lost revenue now is a major industry challenge. The global telecom industry is about a $1.5 trillion annual revenues industry. To move the needle, any new sources have to be large, simply to replace lost revenues from legacy sources.

http://slideplayer.com/slide/11399351/

Roughly speaking, to sustain three percent annual revenue growth, and assuming zero losses in all legacy sources, some $45 billion has to be added every year. But that is not realistic. With actual declines in voice and messaging revenue, and coming shrinkage and margin compression in newer sources such as internet access or video entertainment, service providers might have to replace as much as half of all current revenue in about a decade.

Revenue erosion big enough to remove half of revenue within a decade is roughly equivalent to a seven percent a year decline. So even if new sources grow three percent a year, losses still will happen.

To sustain revenues at their current level might therefore require annual growth of seven percent. That is not going to happen, in most markets. As James Sullivan, J.P. Morgan head of Asia equity research (all of Asia except Japan) telecom revenue growth is now less than GDP growth.

68 major telecoms groups – aggregate revenue, 2009-2016

source: Telco 2.0 Research  

Other analysts make the same argument, namely that revenue growth, at a global level, now is less than one percent.

Peak telecom is coming.