Mobile Substitution: the Next Era

"Mobile substitution" for voice has been a global trend since the advent of 2G networks. In fact, mobile is the only sort of ubiquitous network in most parts of the world. But that now might become an issue for internet access as well.

“I will say over time three to five year time horizon unequivocally 5G will serve as a broadband, a fixed broadband replacement product,” says AT&T CEO Randall Stephenson. “I am very convinced that that will be the case.”

“You know, we back in the 90s everybody was saying wireless would never serve as a substitute for fixed line voice because there wasn't sufficient capacity,” Stephenson said. “Well it is a substitute for voice.”

Right now, AT&T says it has 11 million fiber to home locations and eight million business locations. AT&T also expects to reach 14 million consumer fiber-to-home locations soon. It probably is worth noting that AT&T’s fixed network passes--is able to sell services to--as many as 62 million U.S. homes.

In other words, AT&T might soon pass 22.5 percent of its consumer locations with optical fiber drops.

Even without quantifying the matter, if AT&T has managed to build optical fiber to less than a quarter of its U.S. homes, and also believes 5G will provide a workable substitute within three to five years, it is hard to see the logic of continuing to build consumer optical fiber connections, at a time when consumer fixed line accounts are shrinking overall.

Is Mobile Data Expensive? Will 5G be a Problem?

Some observers suggest (in advance of any concrete information) that 5G will be expensive. While that is a possible outcome in some developing nations, it is hard to envision how that could be the case in developed nations, where mobile data costs are low, measured as a percent of income.

Prices less than $5 per gigabyte are viewed by some as “too high.” In the U.S. market, it is easy to find a supplier selling such usage at perhaps $5 to $7 per gigabyte, for just a few gigabytes per month (3 GB to 5G, for example), and bigger packages at lower prices per gigabyte.

With the caveat that developing nation prices might be higher, expressed as a percentage of income to buy the rights to use a gigabyte of mobile data, in developed markets, communications costs are pretty low, as a percentage of income.

source: ITU

The point is that even if there is some price premium early on for 5G mobile data, the premium is likely to be slight, and diminishing over time.

Nor, given the new spectrum resources, including huge amounts of millimeter wave spectrum, small cell  architectures, modulation techniques and radios, plus use of unlicensed, shared and aggregated spectrum, are suppliers going to need to raise prices by three orders of magnitude.

No, 5G prices will not be “too high," at least in developed nations. Mobile data costs are not high; mobile costs are not high; fixed network voice and internet access are not high cost, either.

Lower Prices Drive Higher Data Consumption: Duh!

Some economic principles seem constant: lower prices for any product in demand will cause more buying of that product. Conversely, higher prices will reduce demand. And so it seems for mobile data prices and consumption.

“The key explanation to high mobile data usage is low effective revenue per gigabyte: Bigger data buckets lead to lower revenue per GB – which, on the other hand, increases usage,” say researchers at Tefficient.

source: Tefficient

One might note that most countries cluster in a range of usage around four gigabytes per user SIM per month, and prices around $5 per gigabyte per month. The countries with higher consumption per user also tend to have lower-than-average prices.

Conversely, the countries with much-lower than average usage also have much-higher prices per gigabyte.

Of course, mobile data is not the only revenue source for any mobile operator. And differing retail policies might explain why average revenue per user varies somewhat unpredictaby, compared to revenue per gigabyte.

source: Tefficient

Reliance Jio’s price attack, coupled with its 4G-only network, has propelled its much-higher-than-average data usage.

source: Tefficient

Is OS Loyalty Increasing?

Customer loyalty--understood as the tendency for an existing customer to continue buying from a specific supplier--always is tough in consumer markets.

So is loyalty in the iPhone and Android ecosystems growing? It might be easier to make the claim for Apple than for Android device suppliers, since, by definition, only one supplier uses iOS while virtually all other suppliers use Android.

source: Consumer Intelligence Research Partners

Or at least customers seem locked in to their respective ecosystems. “Loyalty hit the highest levels we’ve ever measured,” said Mike Levin, Partner and CoFounder of CIRP. “Both systems have seen loyalty trending upward for the past several quarters, as customers have become comfortable with the features and consistency of their operating system.

So in some sense, one presumed driver of loyalty--that consumers love some aspect of a supplier experience--is less important than unwillingness to learn to use a different operating system.

“Learning a new operating system takes effort, so fewer and fewer customers have found the need to switch,” said Levin.  

5G Builds on 4G

As was the case for 4G, leading service providers strive to “get there first,” so we hear different claims about who is “first to market” with “real 5G.” Most of that discussion is marketing hype.

For starters, 5G is going to be built on a number of fronts, and more incrementally than you might think, from radio interfaces to network cores, intentionally building on what is done to support advanced 4G. In other words, 5G builds on advanced 4G network elements and core networks.

Also, most consumers are going to rely on 4G--including early 5G users--to a really great extent. That will be true for some time, as 4G will continue to improve for a while, adding latency performance and bandwidth advantages now touted for 5G.

source: Dell'Oro Group

Consider the matter of indoor coverage and small cells. As Ericsson points out, the same small cells deployed for 4G indoor coverage can be used to support 5G indoor cells. At least initially, 5G NR uses the 4G command and control network to support the 5G air interface.

source: Ericsson

The principle of reuse was foundational for the design of the Ericsson Radio Dot, for example, especially when using the 3 GHz to 6 GHz frequency bands expected to anchor much 5G indoor coverage globally.

source: Ericsson

C Spire Launches Millimeter Wave Fixed Wireless

C spire has launched fixed wireless using millimeter wave spectrum in a housing development in Mississippi, using Phazr gear. The Harrison County subdivision is near the city of Gulfport, Miss.

The 5G millimeter wave fixed wireless service, launched in early December, is being offered in the 84-home Landon Place subdivision and served by a nearby C Spire cell site using 28 GHz equipment from the company’s partner and 5G millimeter wave innovator, Phazr, a JMA Wireless company.

Residents connected to the service have been getting download speeds of up to 750 Mbps, upload speeds of up to 600 Mbps with latency as low as 8 milliseconds, according to C Spire President Stephen Bye.

Bye said the company plans to deploy fixed wireless internet service to thousands of consumers and businesses across the state over the next several years.

source: C spire

Are Consumers Happy or Unhappy with 4G? And What of 5G?

Are consumers generally unhappy with 4G, or generally happy? And to the extent there are issues, are they mostly coverage or mostly speed or mostly something else? Those are hard questions to answer.

Among the “something else” factors are crucial underpinnings such as recurring fees or device prices or customer service or other attributes of experience that have nothing to do with the network in a direct sense.

Also, key changes in how consumer offers are packaged have occurred, including the general end of device subsidies and contracts, nearly universal use of Wi-Fi offload and a new shift back to unlimited usage. Any or all of those trends could affect satisfaction more than anything to do with the network and its performance.

Perhaps the biggest “something else” is simply the fact that U.S. consumers have in recent decades always ranked communications services (mobile, fixed, linear video, internet access) at the bottom of all industries. In fact, internet access and subscription TV rank at the very bottom of all industries studied by the American Consumer Satisfaction Index.

Still, mobile service always ranks higher than the other services, and has been climbing, in terms of satisfaction scores, since 2004, though some firms have moved higher than others.

source: ACSI

Some surveys might show a flattish to lower satisfaction level between 2010 and 2016, in the U.S. market. It might said that the percentage of “very satisfied” customers has dipped since 2010, with Verizon and Sprint falling towards the mean and AT&T and T-Mobile US rising.

It is not clear how much such ratings are attributable to firm actions, consumer preferences, device attributes or something else. Still, that time period covers the 4G era, and one can argue that overall consumer satisfaction has dipped over that period.

source: 451 Research

That noted, T-Mobile US clearly has outperformed, Sprint underperformed. So satisfaction is supplier specific. So is dissatisfaction, in all likelihood.

A survey conducted of 4,000 U.K. and U.S. smartphone users suggests that the biggest problem users have with 4G is coverage, followed by speed. Still, the overwhelming number of complaints are over coverage, one way or the other.

And coverage might actually be worse in the early years of the 5G era, compared to 4G. The results appear to show (I have not seen the full results, or the way questions were asked, nor the results separated by country) that coverage is a problem for perhaps 35 percent of users. But note that coverage issues such as “not reliable in high traffic areas” and “can’t find a signal” both are coverage issues.

That might suggest the possibility that consumer satisfaction with 5G will not materially increase on the coverage front, and could get worse.

source: MATRIXX Software

None of the findings on satisfaction should be too surprising.

If you work with statistics long enough, you are certain to find instances where the meaning is found in what is growing or shrinking; where volume is high or low. The meaning simply depends on the context.

Likewise, if you follow consumer survey results long enough, you are bound to conclude that people often say they will or will not take some specific action; often claim they are quite unhappy with a product only to keep buying it at high levels; or claim they will spend significant amounts on new products, but then fail to do so, choosing other less-expensive alternatives.

In other cases, willingness to spend is robust, and almost certainly correct in the long term, simply because, in the long term, there will be strong incentive to do so. One might point to consumer appetite for 3G devices and services as 3G replaced 2G, or as 4G displaced 3G.

That might be the case for a new survey of U.K. and U.S. consumer satisfaction with 4G, and willingness to spend more on 5G devices and services. The obvious caveat is that the actual price increases for 5G devices and services are not tested.

As Steve Jobs often quipped, consumers cannot assess the value of something they never have seen. The corollary is that they cannot accurately predict what value is there and what price they might pay to gain satisfaction.

Consumers often indicate--in surveys--willingness to spend more than they seem to do in practice. Of course, if one believes 5G will fix present coverage issues, consumer enthusiasm is logical.

Among respondents to a recent survey of U.K. and U.S. consumers, 87 percent of respondents who believe 5G will be the answer to their connectivity issues plan to upgrade their phones to a 5G-enabled device.

Those respondents also indicate they are willing to pay more for 5G service and devices. Such consumers perhaps are going to be disappointed, initially. Coverage is not likely to be an area where 5G is better than 4G, at first.  

After 40 Years, Back to Monopoly?

The global telecom industry began to move from monopoly to competition in the late 1980s and early 1990s. So in some cases we now are 40 years into that process, and most countries have telecom markets that are competitive in most respects.

But we might be on the cusp of something maybe we did not expect: a move back to monopoly as a result of market forces. And that raises big questions about how innovation and investment can remain robust, as that is what competition was intended to do, and has done.

The big problem is the profitability of the business. In simple terms, retail prices for virtually every telecom product have dropped steadily. That is a major success for an industry that had wanted to connect the unconnected for simple reasons: it is better to have everyone as a potential customer, than only some.

But sustainability now is an issue, something we can see very clearly in the India mobile market, where arguably none of the firms are profitable on their own (tax breaks play a part for Reliance Jio, for example, which can take losses in telecom that offset profits in other of its businesses).

This is going to be a developing story for the next decade: can we sustain competition, and if so, how, and at what level?

Enterprise 5G Use Cases?

Most observers think at least some new use cases, revenue sources and business models will emerge in the 5G era, especially in the enterprise space, where most of the internet of things and ultra-low latency processes are likely will occur.

Still, the early-stage enterprise apps are probably going to be much more prosaic: more mobile substitution of fixed network services.

In the business segment of the market, the executives believe 5G will be used to replace existing fixed-line connections.

Some will scoff.

Many thought U.S. cable TV operators would not succeed in consumer or small business voice. They did. Some thought, even if cable operators could sell internet access to small businesses, they could not sell in the mid-market or enterprise. They do so.

Perhaps many believed cable would not succeed in mobility services, after a few decades of poking around. Cable now is on the way.

In other areas, some observers strongly doubted SD-WAN would become a substitute for MPLS. Now most agree that actually is feasible more than once believed.

In the same way, though it might seem improbable that 5G services will be a significant alternative to existing fixed network data connections, that is likely to prove a surprise as well.

There now is a long history of new, imperfect substitutes becoming full replacements for the “better, more robust” legacy services. Mobile 5G and fixed 5G is likely to surprise as well, and not simply in consumer settings.

The IDC survey also shows that nearly 80 percent of polled executives expect 5G to expand revenue opportunities with enterprise customers, with 35 percent predicting they would be able to grow their revenue by 5 percent to 10 percent within the first two years.

Furthermore, operators in Europe are optimistic that they will be able to leverage early 5G deployments to enhance existing enterprise services, such as unified communications as a service (UCaaS) and software-defined wide area network (SD-WAN).

Operators in Europe have identified healthcare as the sector that offers the most revenue potential for 5G, closely followed by government and public sector use cases. Automotive and manufacturing are about tied for third place.

About 33 percent of European mobile operators plan to offer enterprise 5G services in 2019 and that will increase to 84 percent of them in 2020.

More than 65 percent of respondents say enterprise customers already have expressed interest in 5G services.

Mobile Digital Declaration is Serendipity

Serendipity--when things happen by chance in a happy or beneficial way--does happen, the way the opposite adage--sh** happens--also appears sometimes true.

PTC, the non-profit global membership group I work with, has as its mission advancing the ethical development and use of information and communication technologies. Serendipitously, leading global mobile firms also recently issued a statement of vision called the Digital Declaration.

The declaration  emphasizes themes such as participation by everyone in the digital economy, bringing benefits to people and society, privacy protection and responsible conduct that--without using the same word--seeks ethical behavior.

“Those that embrace the principles of the Digital Declaration will strive for business success in ways that seek a better future for their consumers and societies,” said  Mats Granryd, Director General GSMA.

Itr is easy enough to dismiss such declarations and mission statements as noble but ineffectual; lofty but mere window dressing; platitudes rather than real guides to behavior. Fair enough.

Still, the serendipity is that the world’s largest advocate for the mobile industry and a relatively small non-profit membership organization promoting communications and computing across the Pacific basin now both have made new declarations of ethical inclusion as they both seek to advance computing and communications across the globe in the 5G and internet of things era.
The companies and organizations believe better communications and computing helps people.  

As this graph illustrates, a broad range of sustainable development goals including education, health, economy, gender equality, clean water and equality are correlated with mobile adoption.

source: GSMA

Serendipity, indeed. “Doing well by doing good” is one of the ways PTC describes the relationship.

Between 2019 and 2028, Video Business Will Grow by More than $200 Billion Globally

If, between 2019 and 2028 the video business adds more than $200 billion in new revenues, it is hard to imagine how 5G will not be an enabler, if mobile advertising and over-the-top mobile video continue to grow.

Perhaps the bigger question is how much of the overall revenue growth might be earned by mobile service providers in a direct sense.

Mobile connectivity providers might benefit indirectly, as the amount of mobile video consumption continues to increase. The upside is more demand for bandwidth; the downside is the ability to monetize that consumption.

The average monthly traffic per 5G subscriber will grow from 11.7 GB in 2019 to 84.4 GB per month in 2028, at which point video will account for 90 percent of all 5G traffic, according to a study by Ovum, sponsored by Intel.

Some, including Intel, believe, even if new revenues will be spread across the video ecosystem. Much of that growth comes from revenue generated by new virtual reality and augmented reality features, services and applications, as well as advertising.

The issue for service providers, as always, is how much of that growth will accrue to the “connectivity provider” part of the ecosystem.

Ovum researchers estimate 5G-enabled augmented and virtual reality applications will create more than $140 billion in cumulative revenues between 2021 and 2028 ($32bn in the United States market).

Also, mobile display advertising will generate $178 billion worldwide by 2028 ($66.6 billion in the United States, as advertising shifts to 5G-enabled social and media immersive experiences, Ovum researchers say.

source: Ovum, Intel

AR games will make up more than 90 percent of 5G AR revenues by 2028 ($35.7 billion globally).

Overall 5G mobile games revenues, including AR and cloud gaming, will exceed $100bn annually in 2028 ($20 billion in the United States).

Mobile video revenues enabled by 5G will grow at an 85 percent compound annual growth rate between 2021 to 2028.

Precisely where 5G media revenues might be earned is fairly clear; which entities and industry segments gain that revenue is much less clear.

Enhanced mobile media (video, music, and games) delivered on 5G networks, for example, will undoubtedly be one of the top revenue drivers. The share earned by mobile service providers will hinge on their ownership of the actual services or any partner revenues that are earned indirectly.

That same question can be asked of the enhanced mobile advertising opportunity (mobile display advertising such as videos, banners, in-game placement over 5G, and other visual advertising formats that may appear in VR and AR environments).

Home broadband and TV might be a revenue contributor for mobile operators to the extent that 5G becomes the primary home internet connection bundled with a TV package.

Some also believe new applications such as self-driving car entertainment, 3D holographic displays, and connected haptic suits could produce revenues. Again, which ecosystem participants benefit directly, is the issue.

source: Intel

5G Era Might Create Opportunities in Indoor Mobile Infrastructure

Smartphone and IoT device coverage Indoors is possibly a qualitative change in the U.S. mobile market, not just a qualitatively more challenging development. That is exemplified most clearly by the characteristics of millimeter wave spectrum, which does not readily pass through building walls.

That means a greater percentage of transmission infrastructure has to shift to specialized indoor modes. And that, in turn, means the opportunity for new business arrangements to supply that capacity. Some believe that means a new segment of the market could emerge for providers of neutral host indoor facilities.

Indoor coverage has been a growing issue since the advent of the 3G era, as more capacity has been supplied by mid-band spectrum in the 2-GHz region.

The rule of thumb for capacity, as embedded in the 3GPP channel models is that 80 percent of traffic originates indoors and 20 percent outdoors, notes Michael Murphy, Nokia Networks CTO, North America.

During the cold winter months in the north, and warm months in the south, there is even less traffic outdoors. Still, in the 4G era, service providers have continued to rely on outdoor macrocells to serve users indoors, despite the growth of specialized indoor solutions (distributed antenna systems, Wi-Fi offload, smaller cells).

Millimeter wave frequencies in the 24-GHz, 28-GHz and 39-GHz regions are going to part of the U.S. 5G platform. Signals in those regions will not easily pass through walls.

source: Nokia Networks

There are a couple of logical solutions for indoor coverage. Service providers might opt to use  low- or mid-band spectrum outdoors, and millimeter wave indoors.

Another approach is to use new mid-band spectrum, particularly the 3.7 GHz to 4.2 GHz band.

Yet another approach is to deploy millimeter wave indoors, possibly with a neutral host platform based on small cells.

And, of course, some will favor connectivity based on Wi-Fi offload.

Inevitably, because of divergent mobile service provider spectrum assets, cable TV operator perception of their assets, differences in network load based on customer volume, ownership of fixed network assets and spectrum strategies, different suppliers are going to use different combinations of those approaches.