Media Mergers with Distribution are the Future for IoT

If you believe the content and distribution businesses are merging because ecosystem participants are moving across the value chain or up and down the function stack, the coming wave of mergers, initially pioneered by Comcast, will make sense.

That is because business model disruption is forcing some participants to seek new roles, while strategic advantage accrues to others who can vertically integrate their core operations. Access providers struggling with maturation and decline of their core revenue streams is an example of the former; Google integrating devices, transport and access is an example of the latter.

And what happens in media is a precursor of what will happen in other areas, such as internet of things. Simply put, there will not be enough gross revenue or profit in providing access for IoT services and devices.

Perhaps 75 percent of those connections will use fixed or untethered connections that drive no incremental revenue, many would argue. Others believe mobile and low power wide area networks will have a larger role.

source: Visual Capitalist, Recode

94% of India Internet Access is by Mobile

Mobile is the way 94 percent of people using the internet in India get their access.

First 5G Phones Available in 2019

Mobile phones able to use 5G  networks will represent nine percent of devices sold in 2021,

said Roberta Cozza, research director at Gartner. The first 5G-capable units will be sold in 2019, when 5G networks will start commercial service in select countries, such as the United States, Japan and South Korea.

What that obviously tells you is that early 5G deployments will be based on internet access devices (PC cards or dongles), as was the case for the earliest 4G deployments.

Gartner forecasts that mobile phone shipments will increase by 2.6 percent in 2018, with the total amounting to 1.9 billion units.

In 2018, smartphone sales will grow by 6.2 percent, to represent 87 percent of mobile phone sales.

Worldwide shipments of devices overall--PCs, tablets and mobile phones--totaled 2.28 billion units in 2017, according to Gartner, Inc. Shipments are on course to reach 2.32 billion units in 2018, an increase of 2.1 percent.

Global Device Shipments by Device Type, 2016-2019 (Millions of Units)
Device	2016	2017	2018	2019
Computing Device Market	439	423	423	423
Mobile Phones	1,893	1,855	1,903	1,924
Total Device Market	2,332	2,278	2,326	2,347

source: Gartner

How Centralized Processing Improves Mobile Radio Network Total Cost of Ownership

It stands to reason that reducing active network elements in the field (at the edge) should, all other things being equal, reduce capital expense and operating expense. That is the logic behind virtualized networks of all sorts where control planes are separated from data planes.

Basically, the idea is to centralize command, control and processing, while highly distributing data-handling network elements, using less-costly commodity gear wherever possible, since all processing operations are conducted remotely.

In a mobile network radio network, that can mean moving active network element processing chores to a remote location (think of a central office), while in-the-field elements are “dumber” transmission and transport elements.

In one deployment, the remote radio units stay at the edge, but baseband signal processing is centralized.

source: Mavenir

source: Senza Fili

5G "Will Change Everything," Nokia Now Bets

Nokia now is calling its 5G platform"Future X," referring to the reference silicon design and the 5G network itself. That tells us quite a lot about where Nokia believes the business is going, what role 5G will play, and how big the transformations will be.

The phrase “Future X” actually comes out of Nokia Bell Labs, the research and development unit, and specifically from the title of the first book ever published by Nokia Bell Labs, The Future X Network, written by Bell Labs President Marcus Weldon.

There are several shocking assertions in the tome. First, the value proposition of the telecom industry cannot continue to be "connectivity," but will have to be recrafted to augment human intelligence and create time.

Think about that: Telecom service providers, in a decade, will be in the "augment human intelligence and creation of time" business. Can you operationalize that? Do you think industry executives and professionals will understand the message? Do you think we can package that value for customers?

In choosing the name, Nokia also suggests its strategy. The Future X Network will have to deliver different value, Weldon and the team of contributors argues.  Most fundamentally, the value of the network will not be “connectivity," but human values far higher in the protocol stack.

"Free" Wi-Fi illustrates the problem. At a recent industry conference, the audience saw a slide illustrating the telecom industry new value proposition, and laughter erupted. It erupted because at the base of the value chain was the phrase “free Wi-Fi.”

Acknowledging the mirth, Weldon suggested that was because the audience of telecom professionals understood very well what was happening.

Go to 08:30 minutes into the video if you just want to hear the discussion of where telecom sits in the perception of value. Or watch starting at about four minutes in if you want to hear the Bell Labs vision of how "value" will be created in the next era.

Simply, the thesis is that value will be created by the network to the extent that it “creates time” for people and augments human intelligence. That might sound ethereal, but the point is that to survive, much less thrive, the global telecom industry will have to find a way to create an entirely new value proposition, one not based on connectivity.

It is challenging in the extreme. So what is noteworthy is that Nokia has chosen to name its entire 5G platform the “the Future X platform,” encompasses eight major technologies, including Nokia 5G New Radio, AirScale Radio Access, 5G AirScale Active Antennas, 5G Small Cells, 5G Anyhaul, 5G Core, Massive Scale Access and 5G Acceleration Services.

Congratulations to Bell Labs professionals who have been able to take a big idea and get it into commercial use at a high level. Best wishes to Nokia in its effort to make the platform concrete.

Nationalized 5G Networks for U.S.?

A memo produced for the National Security Council apparently argues for a centralized, secure 5G network that inevitably would require centralized control of a single facilities platform, instead of the separate physical networks now built and operated by AT&T, Verizon, Sprint and T-Mobile US.

Keep in mind, it is a memo, not yet even a concrete proposal. It is not yet a recommendation. And if the goal is to build such a network within three years, something far simpler than centralizing all mobile network infrastructure would likely be necessary.

It is not clear whether a physically-distinct secure 5G network at mid-band frequencies could the starting point, with possible carrier adherence to the security standard for their low-band (below 3.7 GHz) or high-band (millimeter wave) operations.

It is not clear whether such a radical revision of industry operating models could be so drastically revised within three years. It is not even immediately clear why some virtual private network would not do the job just as well.

Ignore for the moment the larger issues about whether some sort of nationalization of all facilities-based mobile networks is even possible, whether a single wholesale 5G infrastructure could be built within three years or even whether some consortium of carriers could rapidly create a secure 5G network of the sort a national security report envisions.

A discussion memo produced for the National Security Council apparently argues that the government could build such a network itself, and then rent wholesale access to the service providers, or could be built by the carriers collectively.

If those sounds fanciful, it probably is. It is not clear how the entire industry could move--within three years--to some sort of “single infrastructure” model without disrupting the whole industry’s business models, its equity valuation, operating models and practices.

The memo also considers whether such a move would help U.S. manufacturers re-establish a foothold in the telecom infrastructure business.

Will Mobile Industry Eventually Resemble the Airline Business?

Eventually, the mobile business might resemble the airline industry, where not every nation has its own “branded” air carrier. Eventually, and perhaps within a decade, the global telecom industry will have consolidated so much that only about half of countries have their own fully-domestically-owned communications providers.

If “winner take all” increasingly is the shape of markets with network effects (where each incremental node or user makes the whole network more valuable), then scale economics also matter. That is clear in the mobile business, but also in many other industries and markets.

“Winner take all” seems to be the case for mobile phones, e-commerce networks, search, social networking, ride-sharing, lodging sharing, video entertainment services, the “telecom” business and arguably many other industries selling intangible products.

Basically, “winner take all” means markets become oligopolistic (two or just a few market share leaders).

That is one of the reasons some of us believe massive consolidation of service provider networks and assets will happen, in the mobile space perhaps especially. Bell Labs, for example, forecasts a reduction of about 810 tier-one service providers to about 105, within a decade.

If there are 195 countries globally, that means some countries will have communications services provided by firms from outside the home nation. That might mean as many as 54 percent of nations might not have a single domestically-owned provider of communications services.

The internet applications and devices market has shown clear “winner take all” patterns for some time. As that has meant it is hard to be “number three or four” in any market, so it likely will prove difficult for new competitors to challenge Amazon or Alibaba in shopping; Google or Facebook in advertising; Apple or Samsung in mobile phones (at the high end, at least until the leading Chinese suppliers make moves at the high end).

Communications service providers also are aware of other major trends, especially the shift in “value” within the internet ecosystem.

While the internet has almost uniformly been positive for consumers--generating new value--while allowing some firms to ride new value propositions to huge business success, the internet has generally been difficult, financially, for nearly all incumbent firms.

“Digital is confounding the best-laid plans to capture surplus by creating—on average—more value for customers than for firms,” McKinsey consultants say.

Telecom service providers know the process well. A shift to over-the-top,  internet-based applications allows consumers to use product substitutes (WhatsApp, Skype, Netflix) instead of buying service provider products.

That both makes telco markets smaller, and reduces revenue and profit potential for the amount of consumer demand that remains. At least where it comes to intangible or software products (voice, messaging, content, apps and features), the cost of incremental usage is close to zero.

Prices become much more transparent, while new alternative suppliers emerge to provide lower-cost or free substitutes.

In other words, as with most other industries, use of direct internet distribution reduces the need for, and value of, intermediaries and distributors.

To the extent that the marginal cost of supplying the next unit of any product is nearly zero, retail prices will trend toward zero. But the problem is not exclusively faced by telcos.

Internet-based competition has “siphoned off 40 percent of incumbents’ revenue growth and 25 percent of their growth in earnings before interest and taxes (EBIT), as they cut prices to defend what they still have or redouble their innovation investment in a scramble to catch up,” McKinsey argues.

source: McKinsey

The point is that telcos and other internet service providers necessarily must replace legacy businesses and products with new business models and products.

That is why some of us believe retail service providers (business-to-consumer) must move up the stack. The incumbent business models are breaking down.

Suppliers in the business-to-business segments of the market might have other constraints or opportunities. It is hard to see how most capacity suppliers, for example, actually can move “up the stack,” though all such firms now have moved from a “voice capacity” to “data capacity” revenue model.

The arguably more-important growth has mostly been “new geographies” or “new and redundant capacity in existing geographies.”

Confused About 5G? Most Are.

There seems to be growing confusion about “5G” and other next-generation networks. I’ve heard commentary at recent conferences about how this or that platform is relevant for, or part of, 5G. It has seemed forced.

Some of the assertions seem to be reflexive. No existing platform or industry segment wants to be seen as “left out” in the “5G” ecosystem (no matter how one defines the “5G” market).

So one hears a growing amount of criticism of 5G in general (we do not need it; there is no business case) as well as “we also are part of 5G” statements.

It likely does not help that different early movers are talking about different lead use cases, each reflecting firm assets and perceived opportunities. In South Korea, Japan and China, there is more of a focus on ubiquitous mobile 5G.

T-Mobile US also seems to be taking that approach, though also focusing on narrowband use cases for internet of things. AT&T might be leaning more towards automotive apps requiring more bandwidth and active edge communications.

Verizon, with a limited fixed network footprint, is emphasizing fixed 5G applications, since it sees the key upside as the ability to compete with other fixed network service providers out of region.

Charter Communications, like other fixed network service providers, now see advantages, in some use cases, for fixed wireless, even if the traditional platforms have been based on use of cabled access.

“Charter believes fixed wireless access technologies at lower frequencies could be suitable for rural broadband, providing wireline-like broadband connectivity and speeds, and is conducting trials in the 3.5 GHz band,” the company says.

“To deliver ubiquitous connectivity to our customers, we will rely increasingly on next generation wireless technologies like 5G,” says Charter.

In other parts of the ecosystem, many now emphasize in-building communications, private mobile networks and enterprise networking applications. In the U.S. market, there is lots of perceived opportunity in the 3.5-GHz Citizens Broadband Radio Service, which might allow use of unlicensed or licensed approaches to use of the bandwidth, especially to support in-building mobile access.

Others are focusing on the use of 5-GHz spectrum to run 4G Long Term Evolution apps, or aggregation of 4G and unlicensed 5-GHz spectrum.

One way to look at matters is that the multiple developments--sometimes collectively referred to as “5G,” actually reflect a number of next-generation network deployments that are heterogeneous: there will be many platforms and protocols, including but not limited to 5G.

In that sense, 5G, properly understood, is a “mobile next generation network.” But that is nested within a broader universe of next-generation network use cases--some wide area; some local; soem licensed; some unlicensed; some using both--that use diverse platforms and spectrum.

What is common to all the networks are the business cases, which are tangible “take market share from existing suppliers” to more-speculative “new use cases will emerge” scenarios.

In other words, monetizing the platforms and networks is the issue, and that is why so many different approaches are talked about. Various providers see different monetization models.

Impact of 5G in One Picture

Getting ready to do a briefing on 5G at the PTC18 conference, I wanted one single graphic to explain how 5G can be used by enterprises connecting many remote locations, including sites in developing nations, as a full alternative to fixed network access. This is it:

source: Economist

Where latency, bandwidth, cost per Mbps and Mbyte, coverage and availability have been barriers in the past, 5G (in principle) will be something different by orders of magnitude.

I think this fundamental change is underestimated by observers of the fixed network segment of the industry. There are, to be sure, many arguments why it might take some time for 5G to become a widespread alternative to fixed networks.

It will be easiest to prove in the orders of magnitude changes in urban areas. Rural areas will be a bigger challenge, as always. Use of small cells, requiring dense optical backhaul, is a requirement.

That will take lots of new capital, at a time when the fundamental business model will have to be reshaped in major ways. Orders of magnitude better performance is one thing. Consumer ability to pay is quite another matter.

Networks will improve by orders of magnitude. Consumer willingness to pay more will change by fractions of a percent.

Millimeter wave propagation will be an issue in many locales. And the highest performance will require use of millimeter waves.

Still, the 5G era will be a watershed. As mobile substitution has become a reality first for voice, other substitutions have happened as well. Over-the-top messaging has displaced first email and then carrier text messaging.

IP voice is making that function a “feature,” not a “revenue driver.” Now video entertainment and content are shifting to “mobile-first” modes.

Beyond those shifts, “value” now is shifting away from “access” to towards “applications.” That is going to reshape not only what gets done, and how, but also revenue and profit dimensions of “access.”

The 5G era will be the first where retail communications actually shifts from “humans communicating” to “machines, sensors and servers communicating” as the driver of revenue growth and activity.

That’s the key takeaway.

Sprint Signs Backhaul Deal with Cox

Sprint and Cox Communications have a new deal that gives Sprint access to Cox’s network to support Sprint’s small cell deployments. That deal follows a decade after cable operators began upgrading their networks to support such applications, among others.

Among the foreseen advantages of DOCSIS cable modem networks was the ability to support retail and wholesale wireless backhaul (small cells, especially) opportunities.

The thinking has been that cable’s ubiquitous broadband network, while primarily designed to support retail internet access services, also would provide the foundation for internal wireless and mobile efforts (public hotspots and indoor Wi-Fi).

At the same time, cable industry executives have believed their networks also would be valuable for small cell backhaul. While it has been less likely that Verizon or AT&T would be buyers of wholesale backhaul, Sprint and T-Mobile US--lacking their own fixed networks--have been likely customers.

That now is happening. Sprint has a backhaul deal with Altice as well.

Usage Does Not Equal Revenue, in Mobile Internet Access Business

How much data U.S. mobile phone users consume is one question. How much money they spend to use that data is quite another matter. One study by Strategy Analytics of U.S. Android device users shows that most of consumer data consumption occurs over Wi-Fi networks.

Users on “unlimited usage” plans consume about 2.5 times as much data using Wi-Fi as using mobile networks. Other users on usage-based plans use seven to eight times as much Wi-Fi data as mobile network data.

source: Strategy Analytics

That pattern of behavior shows the powerful impact tariffs have on user behavior. Lower prices for any desired product motivate higher consumption. In the communications business, retail price reductions for voice, mobile services, messaging, video entertainment or internet access always have driven vastly-higher usage. 

And, as we have seen elsewhere, "free" is an attractive price point, driving consumers to use new and cheaper products in favor of older alternatives that cost more.

That process is part of the broader pattern of product substitution affecting the communications industry overall.

source: Strategy Analytics

Consumer Mobile Data Costs Per GByte Fell Two Orders of Magnitude Between 2009 and 2017

From 2009 to 2017--a period of eight years--consumer costs for mobile bandwidth fell two orders of magnitude (100 times). Over that period, their consumption also grew by about two orders of magnitude, as well.

Those trends largely explain why mobile data revenues now are flattish. Prices per unit are down 1oo times, but consumption per account has grown by about 100 times as well.

Sources: GSMA Intelligence and Ericsson Mobility Reports

Those twin trends--orders of magnitude higher consumption and orders of magnitude lower revenue per unit consumed--explain why capacity costs must fall. In that regard, use of unlicensed spectrum has been key.

Wi-Fi now represents as much as 90 percent of end user data consumption. So it is not hard to predict that new methods for aggregating licensed and unlicensed spectrum (Licensed Assisted Access) are also going to be important capacity tools.

At the same time, huge amounts of new licensed spectrum are coming--in millimeter wave bands--also are coming, to support 5G. But all that spectrum will have to cost far less than licensed spectrum has cost in earlier eras.

At the same time, physical infrastructure and operating costs likewise will have to be reduced as well, to improve the business model as capacity requirements balloon.  

source: Nielsen

source: Ericsson

In tests, Qualcomm found use of LAA enabled faster downloads, ranging from double-digit to triple-digit percentage increases.

source: Qualcomm