Juniper Sees -3.3 % CAGR Rate for Mobile Legacy Revenue, More Upside from New Revenue Sources

Juniper Research believes mobile operators can earn as much as $120 billion by 2024 from new value-added services. That will be important if compound annual growth rates for mobile operators globally average about -3.3 percent. 

Juniper seems much more optimistic than I am about application-to-person messaging and other proposed new revenue sources. I still would argue that video entertainment and fixed wireless are the consumer sources with the biggest potential revenue impact, while IoT apps offer the biggest upside in the enterprise customer segment. Fixed wireless might also be key in the small business segment. 

source: Juniper Research

If total mobile operator revenue in 2018 was about $1.1 trillion, then a negative CAGR of 3.3 percent results in the need to generate about $106 billion in new revenue between 2019 and 2024, just to stay even, and without any inflation adjustments. 

So Juniper Research’s estimate is just about what will be needed to avoid negative top line results. 

source: Juniper Research

How Can Mobile Operators Deal with Declining Profit Margins?

It is by no no secret that connectivity service provider profit margins are dropping almost everywhere, perhaps most obviously in voice, text messaging, mobile data or long-haul data transport areas. 

A rational management response to declining profit margins, in the near term, is to increase scale, hopefully leading to declining unit costs, which helps counteract falling unit profits. “Make it up in volume,” in other words, is one strategy.

Supplier consolidation is normally part of that effort to bulk up and achieve scale. Regulators who want competition, lack of capital to make big acquisitions and rival investment choices tend to limit strategies based simply on gaining additional scale, however. 

source: TeleGeography

As difficult as it always seems to be, diversification--getting into other parts of the value chain--seems the only long-term solution, assuming greater scale opportunities cannot support growth. 

source: Sagheian 

A study by the Telergee Alliance conducted nearly a decade ago found rural and small telco profit margins dropping, part of a three-year trend that saw an overall five percent drop over the last year. That would not be a surprising trend today, for tier-one service providers, either. 

Profit margin on new or non-regulated services were up by about that amount, but margins on voice services dropped more than 15 percent.

Most--if not all--small telco video operations lose money, while mobile operations likewise face declining average revenue per user.  Average revenue per user was $35.51 a month, down from $37.12 in 2009 and $40.93 in 2008.

Internet access revenues and margins for out-of-territory business-focused operations rose significantly. The issue is how many small telcos can conduct such operations.

With the caveat that some firms are much-better positioned than others, the typical mobile service provider in Asia risks losing 40 percent of its present revenue over a roughly three-year period,  according to equity analysts at DBS Group Research. 

source: DBS Group Research 

A decline in voice and text messaging revenues, plus new competition, are the key challenges, DBS Group Research notes. 

That arguably also is true for U.S. service providers, with an added twist: the substitution of mobile services for fixed network voice alternatives. 

That has crucial and important business strategy implications. A possible loss of 40 percent of legacy revenue in three years would be catastrophic for almost any firm, in any industry. My own rule of thumb is less dire: a loss of 50 percent of legacy revenue every decade.

In the U.S. market, since 1994, you can see this process at work, as use of mobile services and internet climb, but at the expense of landline voice. That seems to be the case everywhere, these days. 

source: Bureau of Labor Statistics

It might be fair to note that rarely have we seen legacy revenues fall as fast as a loss of 40 percent in three years. But a loss of 50 percent over 10 years is to be expected. Some of us would say that from now on, it would be reasonable to expect such attrition of legacy revenues every coming decade, as well.

That, in a nutshell, is why some of us believe there is no alternative for connectivity service providers but to find new revenue sources. We have seen the diversification moves Singtel connectivity revenues has made. To be sure, connectivity revenues are key. But the range of revenue sources is much broader than mobile or fixed access services. 

These days, former cable TV provider Comcast gets as little as 20 percent of total revenue from subscription TV services. AT&T likewise has begun a diversification into content ownership, on the Comcast model. 

The big question is whether any surviving tier-one service provider (there will continue to be many niches) can lead if it continues to rely nearly exclusively on connectivity revenues. 

That is why one so often hears the argument that connectivity providers must “move up the stack” into content, applications, advertising, marketplaces or platforms.

Is "5G Leadership" Really about 5G?

It often appears that all discussions about the value or role of 5G really about 5G. That seems most obvious when 5G is positioned as a race, especially to deploy the access networks. 

To be sure, one can look at suppliers of 5G handsets, radio infrastructure, intellectual property, access and transport infrastructure, chipsets or mobile service providers and try to assess “leadership.”

source: A.D. Little

But recall just a couple of examples. The United States has not had what some would call a “national champion” in communications infrastructure since Lucent Technologies was sold to Alcatel. Canada has not had a national champion since Nortel went bankrupt. Would anybody argue that the lack of such a domestic supplier materially affected U.S. 4G? 

Did Nokia leadership in 3G devices, or Ericsson’s leadership in radio infrastructure, propel alternate versions of Google, Facebook, Amazon or Netflix? Conversely, did relative U.S. slowness in adoption of 2G or 3G seem to affect the rise of global innovators and leaders in applications?

Some imply that the rise of Huawei as a global supplier of communications networking infrastructure (access infrastructure, perhaps the most-often mentioned example) somehow means leadership in other areas (applications, platforms). 

And that, it seems to me, is where the confusion begins. 

Many seem to conflate 5G, as a mobile access platform, with the business value, new applications or advances in computing that 5G will be part of. And those are the things that matter, not 5G per se; not “leadership” or market share in the supply of radio infrastructure, as often seems to be the way the challenge is stated. 

That is a little like conflating the business of computing hardware with the separate business of software; network access (connectivity) as compared to applications. 

What many seem to be saying is that “leadership” in 5G mobile access availability is the same thing as leadership in markets, applications, platforms, applied computing, internet of things or artificial intelligence. 

That seems to be one further iteration of the notion that “broadband access causes economic growth,” in the sense of causation, the one leading to the other. Of course, many would say they realize what is necessary is not sufficient. And yet there is a persistent suggestion that “something has to be done” to spur faster 5G mobile network deployment, as the other innovations hinge on 5G. 

That is probably a mistaken notion. 

Consider just one example, where 5G is said to be “integral to realizing the potential of the Internet of Things and promising applications of artificial intelligence.” No doubt, 5G will often play a contributing role in new IoT and edge computing use cases. 

But what always matters with any new information technology is not the deployment itself (people and businesses using computers) but the ability to wring business, social and economic value out of computing. 

So mainframes, minicomputers, personal computers, cloud computing, edge computing and mobile computing are important as they allow new business models, use cases, processes, revenue streams, industries and firms to arise.

It simply does not seem to me that 5G mobile platforms, in themselves, are any sort of race. The ability to wring business value out of artificial intelligence is another matter. If the notion of a race is valid, that is the sort of place where the idea has merit. 

Are U.S. Mobile Data Prices High?

One often hears that mobile data or fixed internet access prices in the U.S. market are “too high,” often in relationship to prices elsewhere in the world. It never is an easy task to sort out. 

By some measures, often those comparing 1-GB plans, U.S. mobile data prices are on the high side, globally. Of course, U.S. consumers also consume more data than most mobile customers, and tend to buy plans featuring higher usage allowances that cost more. That alone would skew price comparisons. 

source: Statista

But adjusting prices for local purchasing power (purchasing power parity), prices for equivalent mobile data plans across countries are consistent. In the years between 2013 and 2016, for example, looking at plans offering 500 MB or 1 GB of usage, retail prices were in increasingly-close ranges, according to the International Telecommunications Union. 

source: ITU

And prices continue to fall in virtually all markets. In the U.S. market, it is increasingly 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. 

Still, prices less than $5 per gigabyte are viewed by some as “too high.” 

Whether a product is affordable or not often depends on one’s assumptions. The average price of a broadband internet access connection--globally--is $72..92, down $0.12 from 2017 levels, according to comparison site Cable. Other comparisons say the average global price for a fixed connection is $67 a month. 

Looking at 95 countries globally with internet access speeds of at least 60 Mbps, U.S. prices were $62.74 a month, with the highest price being $100.42 in the United Arab Emirates and the lowest price being $4.88 in the Ukraine. 

According to comparethemarket.com, the United States is not the most affordable of 50 countries analyzed. On the other hand, the United States ranks fifth among 50 for downspeeds. 

Another study by Deutsche Bank, looking at cities in a number of countries, with a modest 8 Mbps rate, found  prices ranging between $50 to $52 a month. That still places prices for major U.S. cities such as New York, San Francisco and Boston at the top of the price range for cities studied, but do not seem to be adjusted for purchasing power parity, which attempts to adjust prices based on how much a particular unit of currency buys in each country. 

The other normalization technique used by the International Telecommunications Union is to attempt to normalize by comparing prices to gross national income per person. There are methodological issues when doing so, one can argue. Gross national income is not household income, and per-capita measures might not always be the best way to compare prices, income or other metrics. But at a high level, measuring prices as a percentage of income provides some relative measure of affordability. 

Looking at internet access prices using the PPP method, developed nation prices are around $35 to $40 a month. In absolute terms, developed nation prices are less than $30 a month. 

source: ITU

That is worth keeping in mind as some argue affordability of U.S. fixed network internet access is a big issue. According to BroadbandNow, less than half of U.S. households have access to fixed network internet access at prices of $60 or less per month. The implication is that this is a problem. 

Maybe it is not a problem, if the average global price of a fixed network internet access connection is $73 a month. 

With global broadband speeds growing by 23 percent on average between 2017 and 2018, one might expect similar shifts in pricing. However, the average price of a broadband access plan globally remains stable, decreasing by 1.64 percent between 2017 and 2018, for example, according to comparison site Cable.

source: BroadbandNow

The point, some might argue, is that U.S. fixed network internet access prices actually are not too expensive, when compared with prices in other developed nations.

Comparing mobile service plans across countries always involves judgement calls. One has to find plans that are comparable (GB per month), determine which service provider plans to compare, then assess whether such plans are the “most often purchased” plans in any country, then adjust for price differences between countries. 

Buying in larger or lesser volume also makes a difference. 

Looking a few service plans offering use of 10 GB to 40 GB (and with the caveat that prices can vary quite a bit between plans offering 10 GB or 40 GB), such plans cost between 1.3 percent of income to 18 percent of income, in various countries, and offered by various service providers within countries. 

source: company reports

Assumptions therefore matter. Also, posted retail prices are one thing; actual usage quite another. Customers in Finland and Austria consume quite a lot of mobile data, compared to users in other countries. When that is the case, retail price per GB and actual consumed price per GB tend to correlate better. When usage is low--less than 2 GB per device, per month--then the actual price is quite high. 

source: Quora

source: PCmag

source: PCmag

By 2026, Mobile Operators Could have 63 percent of all IoT Connections

By 2026, mobile machine-to-machine (internet of things) connections will represent about 62 percent of such connections, while non-cellular connections are about 38 percent of total connections, according to ABI Research. 

source: ABI Research, IHS Markit

Millimeter Wave Does Provide Higher 5G Speed, Tests Show

Frequency, channel width and bandwidth are directly related, as early tests of millimeter wave 5G show. Firms launching using mid-band and low-band spectrum will achieve better coverage, but at the cost of lower bandwidth. That is just the way the physics works. 

source: Business Insider, CNet

Verizon Launches new 5G Hotspot Service

Though some will complain, Verizon’s new service plan for hotspot-only access, providing 50 GB of data per month for $85 a month (plus taxes and fees), might not seem like a great deal, compared to fixed network internet access. The plan does come at a $10 monthly increase over a 4G plan with the same usage allowance. 

But that might be a quite-reasonable price for one of the likely use cases: backup for a business fixed network data connection. For many businesses, it might offer enough usage to replace a fixed network connection. Another obvious use case is temporary networks. 

The Inseego 5G MiFi M1000 hotspot device costs $27.08 a month for 24 months ($649.99 retail), on a device payment or $499.99 with a two-year contract. 

Verizon consumer customers with an active unlimited smartphone plan can add a 5G MiFi M1000 to their account and get 50 GB of 5G Ultra Wideband data and 15GB of 4G LTE data for $30 a month (plus taxes and fees), an increase of only $10 over 4G LTE service rates, Verizon says. 

This new plan runs on the mobile network, not a fixed wireless connection, in areas where Verizon has its 5G network using millimeter wave frequencies.

Spectrum Supply is Changing Dramatically; So Should Spectrum Prices and Business Models

Supply and demand always affects the value of spectrum. So if supply and demand change radically, so should prices. And prices matter.

Spectrum licenses make up a major portion of mobile operator assets: an average 35 percent of the assets of U.S. mobile operators, for example. In other parts of the world spectrum assets are close to 20 percent of assets, according to consultants at Deloitte. 

    

source: Deloitte

But the valuation of spectrum assets is changing, in large part because supply is increasing so much; in part because demand is growing. But as more reliance is placed on  unlicensed spectrum and shared spectrum, valuation metrics will likely change. The former “costs nothing,” the latter costs “less,” for priority licenses, or “nothing,” when used in unlicensed form. 

Scarcity always has been the cardinal rule for mobile and other communications networks. Without licensed spectrum, of which there is a limited physical supply, no entity has been able to become a service provider (on a facilities basis). But it is scarcity itself which now will be challenged. 

So spectrum costs should fall, as effective supply increases dramatically. The reasons are many. Small cell architectures, multiple-input-multiple-output radios, beamforming, dynamic spectrum sharing and millimeter wave assets, plus spectrum aggregation and spectrum sharing vastly change the supply side of the market.

Among the important innovations that will change spectrum usage is that devices will no longer be limited to communication with just one cell tower at a time. Instead, devices will be able to communicate simultaneously with several towers, over different frequencies and using different radio protocols.

That is radically new, and will allow 4G spectrum, for example, to fully support 5G devices, even before 5G radio resources are fully deployed.

But in addition to vast increases in capacity, other important changes, such as channel width, are important. Basically, channel width determines throughput. The wider the channel, the more throughput is possible. Where first generation mobile channels were only 25 kHz to 30 kHz wide, 2G brought channels of 200 kHz or 1.25 MHz. 

By the 3G era, channels had grown to 1.6 MHz or 5 MHz. In the 4G era, channels widened to 10 MHz. Channels in the 5G era will be 20 MHz to 100 MHz wide, depending on which frequencies (low band, mid-band, high-band) are used. 

In physical terms, the amount of total new spectrum (licensed and unlicensed) for mobile and other networks will increase by an order of magnitude to two orders of magnitude (10 times to 100 times). Consider that all mobile spectrum available to U.S. mobile operators is in the neighborhood of 600 MHz to 700 MHz. 

Nor is that actually unusual. Every next-generation mobile network has increased data rates by an order of magnitude, for example. 

source: Deloitte, Cisco

But the Federal Communications Commission already is moving to commercialize an order of magnitude of new spectrum for mobile and other communications purposes. 

source: Electronic Design

It never is too easy to categorize new unlicensed spectrum that can be aggregated and used by licensed spectrum networks, but that is an important continuing trend. 

The precedent is Wi-Fi, which represents a majority of smartphone connection time and transferred data, by all accounts. 

source: Cisco

The big point is that service provider ability to use spectrum, plus its supply, are growing by orders of magnitude. Spectrum rights still are vital. But the cost of obtaining spectrum should fall. New business models will be possible as that happens.

The best current example is the ability to sell wireless or mobile internet access at prices that are close to those of fixed internet access, something that never has been conceivable before.

5G and All Future Mobile Networks Will Use Millimeter Wave

U.S. Consumers Step up 5G Phone Purchases

When a next-generation mobile network launches, it is time to buy a new smartphone, it often will make sense to buy a future-proof model. And that appears to be what U.S. consumers are doing. 

During the month of May 2019, when 5G service was only available in a relatively few cities, U.S. consumers were buying 5G devices. Verizon, for example, had service available in May only in Chicago and Minneapolis. Service now is available in Denver and Providence, R.I. as well. 

AT&T had by the end of June expanded 5G to 20 cities, including Las Vegas; Atlanta; Charlotte, N.C.; Dallas; Houston; Indianapolis; Jacksonville, Florida; Louisville, Kentucky; Oklahoma City; New Orleans; Raleigh, N.C.; San Antonio; Waco; Austin; Nashville; Orlando; Los Angeles; San Diego; San Francisco; and San Jose.

source: Counterpoint

Sprint launched 5G at the end of June 2019 in Chicago, Atlanta, Dallas-Fort Worth, Houston, and Kansas City, Missouri.

T-Mobile US launched at the end of June in Atlanta, Cleveland, Dallas, Las Vegas, Los Angeles and New York. 

So the May data came at a time when launches by all four national carriers were quite close.