Why Consolidation in Europe Mobile Seems Inevitable, Long Term

One reason many argue European mobile service providers are much less profitable than North American mobile service providers is fragmentation. European service providers do not have the scale of U.S. mobile operators, for example.

source: Bloomberg

Cable One Prospers at 38% Penetration

If you had told rural cable executives 20 years ago that they could be profitable at take rates of 38 percent, they wouldn’t have believed you, as the then-extant business model required take rates on the order of 70 percent.

That was at at time when the sole product was subscription television. Today, with high speed internet access, voice and video, Cable One, which serves rural and small markets, does well on 38 percent take rates (penetration).

Of 2.1 million locations passed, Cable One has 805,000 accounts out of 2.1 million passings. So 38 percent of locations able to buy service actually do so. That includes business locations and consumer homes.

Of those customers, 663,074 subscribed to data services, 326,423 subscribed to video services and 125,934 subscribed to voice services. That implies sales of about 1.12 million product units, which might be likened to penetration of perhaps 53 percent of locations buying one service.

Of the five primary products, residential data generates 46 percent of revenue, residential video (32 percent), business services (data, voice and video represent 14.5 percent), residential voice contributes 3.8 percent and advertising sales generate 2.3 percent of total revenue.

As always has been the case, subscription entertainment video is not very profitable. “In 2018, our adjusted EBITDA margins for residential data services and business services were approximately six and seven times greater, respectively, than for residential video,” the company says.

Just how much market share a viable contestant would need in an urban market remains a bigger question.

Many mobile exes believe 5G Will Shift Focus to Enterprise

Nearly 60 percent of survey respondents say that 5G will swing their organization’s focus to enterprise, a survey of service provider executives conducted by Heavy Reading, on behalf of Syniverse, has found.

Should that prove to be the case, it is among the biggest changes 5G will represent, compared to all prior mobile generations, which have been driven mostly by consumer services.

source: Syniverse

Did End of Phone Subsidies Produce Value for Users?

Many consumers might say they miss the days of two-year service contracts, accompanied by highly-discounted phones, plans abandoned by U.S. mobile service providers starting in 2013.

When phones were bundled with service, using a two-year contract, “customers could get a $800 phone for $200,” said George Ford, Phoenix Center chief economist. “You can’t do that, anymore.

Some might have heralded the end of bundled “phone plus service” contracts as a consumer win. Ford simply notes that consumers now pay full price for devices, and monthly costs for service have not come down. That suggests pretty clearly there was consumer benefit.

Service provider profits have increased to the extent they no longer are providing the phone subsidy. To the extent that consumers buy their devices on installment plans, they still are effectively locked into a device contract, even if they are not obligated to continue service with a specific carrier. “The policy solved nothing,” Ford notes.

That is an ironic outcome for policies designed to end tyranny and anti-competitive practices.

One can understand opposition to multi-year service contracts if there are no offsetting inducements, such as heavily discounting the purchase cost of a phone. But now people pay full price for service and full price for phones.

T-Mobile US attacked such contracts as inherently unfair to consumers, as they “locked in” customers to their service provider for the period of the contract. “No contracts. No Limits. No overages.” was the slogan at the time.  

Some objected to the ways such contracts obscured the cost of phones and lacked transparency. Some said the same about locked phones.

Such bundling of phone and service can lead to consumer overestimation of value, some have argued. But some studies argued that bundling phones with service provided consumer benefits, including lower phone purchase costs.

Anecdotally, if consumers no longer on subsidized device plans are paying the same for their service, and full price for phones, they have lost financial benefits.

To be sure, some will note that unlocked phones have some value. The freedom to end service with one carrier with about a month’s notice has some value. The ability to choose from most phones, not just the devices a service provider decides to carry, has some value.

But those advantages are harder to quantify than the savings consumers once reaped from subsidized phones.

5G is Necessary Even if Incremental Revenues are Slight, at First

5G will produce some incremental revenue. Just how much is not yet clear. It seems clear enough that 5G prices will be constrained by competitive pressures, no less than 4G was.  

Mike Sievert, T-Mobile US COO already has said that 5G pricing plans will not be set at higher rates than today’s 4G plans. “There are big enterprise opportunities, there are IoT opportunities, there more devices per users, there are new capabilities being developed, all of which we can monetize with revenue growth,” said Sievert. “But we don't have plans for the smartphone plans that you see today to charge differently for 5G enablement versus 4G LTE.”

And Sievert possibly hints that significant revenues will come from T-Mobile US taking internet access market share away from fixed network suppliers. “So the incremental revenues come from more and more users picking wireless technologies instead of other technologies for their conductivity,” said Sievert.

For some, the inability to boost revenues by charging more for 5G connections is worrisome. Where is the immediate return from 5G capital investments. There are a couple rational answers to that question.

First, to the extent that 5G network investments are phased, and largely within existing capex budgets, 5G can be viewed as part of the normal upgrade of bandwidth that has been part of mobility since 2G.

It is a given that mobile and fixed network operators will have to continuously upgrade capacity supply to meet ever-growing data demand, so 5G is simply a lower-cost way of doing that, as 4G reaches the end of its ability to do so affordably.

In that sense, 5G is simply part of the continual bandwidth upgrade cycle, and not a sharp departure.

On the other hand, because 5G, using millimeter wave and aggregated, shared and unlicensed spectrum will feature far lower costs per delivered bit, some use cases now will be feasible that could not be attempted in prior mobile network generations. Fixed wireless is one such example.

Mobile-centric entertainment video services provide another example.

And latency performance creates other opportunities related to time-sensitive and delay-sensitive critical communications. Some of those might include autonomous vehicles, factory automation, health care applications and even such prosaic use cases as enabling smooth channel change operations when people are watching 8K TV shows.

The point is that 5G can be viewed, near term, as part of the normal capex to support more capacity. Longer term, it sets the stage for incremental revenue sources based either on latency performance or much-lower cost per bit.

The bottom line is that, even if 5G produces modest incremental revenue, it still serves the function of boosting network capacity to levels required to support growing end user bandwidth requirements.

Is the T-Mobile US Merger with Sprint Still Likely?

Some observers think the odds of T-Mobile US and Sprint winning antitrust approval for their proposed merger at 50-50. Others think  merger approval is likely, at 70 percent chances of succeeding. Others believe antitrust approval is virtually certain, at about 90 percent chance of approval.

In early 2019 there appears to be less optimism. But some of us have argued that all talk about spurring 5G aside, the traditional numerical test of antitrust concern, the Herfindahl-Hirschman Index (HHI), suggests opposition based on market concentration will be a big concern.   

The Justice Department will generally investigate any merger of firms in a market where the Herfindahl-Hirschman Index (HHI), a test of market concentration, exceeds 1000 and will very likely challenge any merger if the HHI is greater than 1800.

The U.S. market has an HHI of about 2500.

Three years ago, the very same proposed transaction would have occurred where the U.S. market had an HHI score of about  2,766. But following a merger of Sprint and T-Mobile, the score would be 3,252.

The last time Sprint and T-Mobile US tried to merge, three years ago, Craig Moffett of MoffettNathanson calculated that the wireless industry currently had an HHI score of 2,766.

But following a merger of Sprint and T-Mobile, the score would be 3,252. That suggests an increase in concentration of about 486 points. So it did come as a surprise that regulators signaled opposition to the merger.

The firms say they will be better able to compete with AT&T and Verizon, if the merger is approved. That is undoubtedly true. They also say they will continue with price attacks. But no equity analysts I know of actually believe that will be the outcome. Instead, the analysts expect an easing of pricing pressure in the mobile market, if the merger is approved.

Some of us do not believe it will be easy for regulators to ignore the increase in market concentration, even if, as many correctly note, Sprint might be in too weak a position to compete effectively, absent a merger.

But some of us have believed for some decades that Sprint would not survive as a stand-alone company in any case. The issue is who the buyer might be. From a competitive standpoint, it can be argued that Sprint ownership by one of the two leading U.S. cable companies already in the mobile services market would make more sense.

Some might say the logic for owning Sprint applies even to a few of the hyperscale application providers, though present worries in some quarters about “bigness” might make that less likely, for the moment.

Strategically, there also is the likelihood that a mobile-only approach will now win in the U.S. market, over the long term, given the amount of competition in the market. One of the reasons T-Moible US now talks about fixed wireless is that this is a way to enter the fixed network market using its mobile assets.

And, to be sure, there are regional firms of many types that are fixed-only or mobile-only, including most mobile virtual network operators, local telcos and independent internet service providers. Still, long term, it appears an integrated strategy--based on both fixed and mobile assets--will be required.

If so, then the T-Mobile US merger with Sprint only is the first of two steps. A second combination of some sort will still be required to add the fixed network element.

Asia Will Drive Half of Mobile Net Additions to 2025

This story has not changed much over the last several years: mobile account growth has slowed, and a few countries account for a disproportionate share of the growth. The Asia Pacific region will account for about half of the net additions. India is the huge driver, with China the other big factor, according to the GSMA.

source: GSMA

Common Networks Uses Terragraph Radios, Unlicensed Spectrum for Internet Access in Bay Area

Common Networks, using unlicensed spectrum, pre-5G mesh networks based on small cells as well as open source platforms developed as part of the Terragraph initiative, are an early example of disruptive approaches to internet access using the latest generation of tools.

Using a combination of microwave and millimeter wave technology (at 5-GHZ, 24-GHz and 60-GHZ frequencies, Common Networks expects to compete with AT&T and Comcast using fixed wireless access in the San Francisco Bay Area.

So far, delivered speeds have ranged from about 75 Mbps to 120 Mbps, at a recurring monthly cost of $50, and no installation fees. The company is working on ways to boost speed to 500 Mbps.

source: Common Networks

Other firms, including Starry and NetBlazr in Boston have used the mesh network and fixed wireless approach. PhillyWisper has begun operations in Philadelphia.

Though fixed wireless, use of unlicensed spectrum and mesh networks are not new, the use of gear developed as part of the open source Terragraph initiative is a new twist.

source: Common Networks

So despite fears that competition in the internet access business is moribund, new competitors seem to keep popping up, from Google Fiber and other fiber-to-home internet service providers to municipal networks to new fixed wireless challengers.

We will see what is sustainable, as it is the business model that always has proven most challenging for overbuilders.

New Samsung Galaxy "Fold" Smartphone

Here's a glimpse of the New Samsung foldable phone. And yes, there is no audio track. It seems as though the showing at Mobile World Congress was a bit rushed. Seemed to lack a bit of polish. Or, that was a strategy to keep details veiled. 

The launch is two months away. 

Nokia Unveils FastMile 5G Gateway for Fixed Wireless Using 4G or 5G

Nokia is introducing a new FastMile 5G Gateway, an indoor customer premises device that allows mobile operators upgrading their 4G LTE network to capture new fixed wireless access revenue while accelerating 5G rollouts, Nokia says.

source: Nokia

It is worth noting that the fastidious insistence on 4G and 5G being completely distinct networks does not square with the overlap between the two platforms.  As John Strand notes, they share standards and technologies.  

FastMile 5G Gateway uses the same sub-6-GHz 5G that operators will use to upgrade their LTE grid, providing broader coverage of FWA and enhanced mobile broadband (eMBB) services.

The gateway brings gigabit speeds to homes using 3GPP-compliant 5G New Radio (NR).

With carrier aggregation, the gateway improves performance and reliability by using the best 4G and 5G signals available.

4G and 5G Overlap: Aren't as Different as a Mercedes and a BMW

“One cannot distinguish between 4G and 5G in the same way as one can  between a Mercedes and a BMW or between petrol and diesel,” says John Strand, Strand Consult principal. “The two technologies are similar and have overlapping standards (IMTS-2000, IMT-Advanced og IMT-2020 etc.).”

“In practical terms, customers who use things connected to the Internet in the future will use both 4G, 5G and NB-IOT as well as Wi-Fi,” Strand notes.

Sprint Merger with T-Mobile US Might Show Limits of Antitrust Policy

As we await a government decision on whether T-Mobile US or Sprint can merge, we also are hearing new arguments that antitrust decisions should not be made on the basis of harm to consumer welfare (high prices), but on the basis of "market structure."

In other words, even if no consumer harm is demonstrated (prices are zero or low, prices are dropping, consumers are getting lots of new products), antitrust should concern itself with supplier diversity (market structure), not prices or innovation. 

Monopoly, generally speaking, is not the issue. Monopoly is defined as “a market structure characterized by a single seller, selling a unique product in the market, and that is no longer characteristic of the U.S. market--mobile or fixed.

In a , the seller faces no competition, as he is the sole seller of goods with no close substitute.”

Most markets are oligopolies, though. Oligopoly is “a market structure with a small number of firms, none of which can keep the others from having significant influence.”

Some capital-intensive markets inherently are oligopolistic, though, and caused by limits on the number of suppliers who can stay in business, not by exercise of unfair market power, as argued by Phoenix Center Chief Economist George Ford.

So there are important potential implications if definitions are changed. Some markets might not be able to support more than a few players, no matter our preferences. In such cases, every effort to produce more competitors, and break up big companies, fails in the end, as scale is required at a significant level.

Put simply, only a few big companies can actually survive. In which case, efforts to break up big firms are bound to fail.

Consider the classic case of antitrust action against Standard Oil, which at one point might have had 90 percent market share.

“Between 1870 and 1885 the  price of refined kerosene dropped from 26 cents to 8 cents per gallon. In the same period, the Standard Oil Company reduced the [refining] costs per gallon from almost 3 cents in 1870 to 0.452 cents in 1885,” observers have noted.

In other words, consumers clearly benefited. But antitrust action was taken despite evidence of consumer harm, to help other competitors, not to protect consumers from high prices.

In essence, many argue for a return to such policies of helping suppliers, not consumers, since consumer harm cannot be clearly demonstrated.

It is debatable whether policies aimed at protecting suppliers work long term. Still, to the extent new antitrust action might be taken, it will be using non-direct and non-quantifiable measures of harm. Privacy protection seems the most-obvious new culprit.

The Antitrust Case Against Facebook by Dina Srinivasan links Facebook’s privacy policies with monopoly abuses, in keeping with a trend by some to revise traditional tests of market power, as it is difficult, under the existing framework, to find consumer harm when no actual price is charged for use of a product.

So the new tack is to enshrine new tests--privacy protection, mostly--of monopoly power that have no historic justification.

Many call this the New Brandeis school of antitrust, which argues that what matters is market structure, not consumer harm, since Internet era firms including Google, Facebook and Amazon provide consumer benefits at zero prices, or have demonstrably contributed to lower prices.

The subject of antitrust then becomes market structure itself, not consumer harm in the form of higher prices, for example. Some call this a shift to antimonopoly, rather than antitrust, with benefits that are more social and political than economic.

The enemy is “bigness,” not consumer welfare, though some might argue “bigness” is not the problem as much as the ability to exploit bigness. As a practical matter, the real-world test will be bigness itself. How well that will work, if at all, remains to be seen.

Historically, one might note that prior efforts to break up industry power have always resulted in re-accumulation of market share. Market structures do not remain fragmented, but re-concentrate. That is what happens when any competitor creates products that buyers consider superior.

One might note the European telecom regulatory community essentially moved in that direction in mandating wholesale policies for producers in the connectivity business, allowing multiple retailers to use a monopoly network.

That clearly produced more retail competition. It also has reduced profit margins in the industry that limit investment and innovation. It is not clear how much consumers have benefited. It seems fairly clear that investment has suffered.

Traditional antitrust violations that cause identifiable or potential “consumer harm.” The key concept here is “consumer harm,” not “producer harm.” That notion underlies consumer protection policies of all sorts, including actions to break up companies to promote more competition.

And that is where the emergence of “free to use” services and applications raises new questions for some, especially a shift of focus from protecting consumers to protecting producers. In other words, regulatory intervention is justified not because consumers are harmed in the old sense of high prices possible because of monopoly power, but despite the ability to quantify such harm.  

The idea that policy is organized around protecting producers, rather than consumers, is not new. But it is a shift back to acting even when consumer harm, in the form of higher prices, cannot be alleged.

Parenthetically, one might also ask what becomes of contestants in global markets, where scale matters, if “bigness” itself becomes grounds for antitrust or anti-monopoly action.

Sometimes, scale is necessary to compete. That is the argument, generally speaking, for the T-Mobile merger with Sprint. Only the merged firm can compete with AT&T and Verizon, many argue.

In that case, the New Brandeis focus on market structure will fail, as well. Oligopoly is an economic requirement, in the capital-intensive retail connectivity business.

5G is Both Capacity Tool and Platform for Growth

The value of 5G is more clear, the danger less real if two somewhat contradictory sets of values are kept in mind. As a practical matter, 4G capacity--even with a massive shift to small cells--runs out of ability to support ever-growing demand. In that vein, 5G is simply the next necessary tool for keeping pace with growing data usage.

And, at the same time, 5G performance characteristics--based on millimeter wave;dense, small cell architectures; edge computing and power consumption--will enable new use cases over time that produce incremental roles and revenues.

All of that will happen gradually, as we have yet to reach the point where 5G becomes the mainstay network. In fact, 4G will dominate for some time to come. But 5G builds on advanced 4G network elements and core networks.

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

And the same dense backhaul network that supports 4G small cells can be leveraged for 5G as well, in many cases. Many observers note that the existence of dense 4G networks featuring using small cells connected using optical fiber reduces the cost of 5G infrastructure.

Even Network Function Virtualization (NFV) and Software Defined Networking (SDN) in the core--already underway-- will help by enabling virtual network slices for different vertical markets in the 5G era.

Massive Multiple Input Multiple Output radios and advanced antenna systems likewise can be part of the transition from 4G to 5G. At first, the existing evolved packet core will support 5G NR radios. So the 4G core supports the 5G radio edge.

Then the 5G core will support both 4G and 5G.   

source: TRAI

That evolution is built right into the standards. According to 3GPP specifications, 5G will be deployed in two different modes, Non-Standalone (NSA) and Standalone (SA).

In NSA, (5G) NR and (4G) LTE are tightly integrated and connect to either the existing evolved packet core or the 5G NG core. In standalone mode, either 5G NR or 4G LTE radios connect to 5G NG Core.

The point, says India’s TRAI, is that “in order to have speedy deployment of the 5G, initially it is going to be deployed in coexistence with LTE.”