LPWA Connectivity Market Remains Nascent

The GSMA today announced that its Mobile IoT Initiative has lead to the launch of multiple commercial rollouts of Low Power, Wide Area (LPWA) solutions using licensed mobile spectrum, by several of the world’s leading mobile operators including AT&T, China Mobile, China Unicom, China Telecom, Deutsche Telekom (DT), Verizon and Vodafone.

It is likely such efforts produce relatively little revenue yet, as LPWA networks are not so prevalent, yet, and traditional mobile connections (on the standard mobile networks)  likely drive nearly all the present revenue.

At present, U.S. mobile service providers likely earn only a couple of billion dollars a year from IoT connections. By some estimates, IoT accounts already represent existing connectivity revenue of about $3 billion in China.

The larger point is that it still is much too early to say very much about how big the IoT connectivity market might eventually become.

“IoT connectivity revenue will only reach US$28 billion by 2025, representing just three percent  of worldwide mobile telecoms revenue,” according to Analysys Mason.

source: Analysys Mason

“If IoT is to become a new growth area within the telecoms industry, it will need to contribute significantly more revenue to the overall business than connectivity alone can generate,” Analysys Mason notes.

China Mobile and China Unicom have launched NB-IoT across several key cities with China Telecom launching NB-IoT networks across the country. Vodafone has also launched NB-IoT in Spain and the Netherlands.

DT has launched in several cities in Germany and nationwide in the Netherlands. AT&T and Verizon have previously announced nationwide launches of LTE-M technology.

In addition to these deployments, the GSMA also announced that its Mobile IoT Innovators programme, which is designed to encourage the development of new LPWA solutions, has reached over 500 members, underscoring the growth of the wider IoT ecosystem.  

Gartner forecasts that 8.4 billion connected things will be in use worldwide in 2017, up 31 percent from 2016, and will reach 20.4 billion by 2020. Total spending on endpoints and services will reach almost $2 trillion in 2017.

Regionally, Greater China, North America and Western Europe are driving the use of connected things and the three regions together will represent 67 percent of the overall IoT installed base in 2017, Gartner argues.

The consumer segment is the largest user of connected things with 5.2 billion units in 2017, which represents 63 percent of the overall number of applications in use.

"Aside from automotive systems, the applications that will be most in use by consumers will be smart TVs and digital set-top boxes, while smart electric meters and commercial security cameras will be most in use by businesses," said Peter Middleton, research director at Gartner.

IoT Units Installed Base by Category (Millions of Units)
Category	2016	2017	2018	2020
Consumer	3,963.0	5,244.3	7,036.3	12,863.0
Business: Cross-Industry	1,102.1	1,501.0	2,132.6	4,381.4
Business: Vertical-Specific	1,316.6	1,635.4	2,027.7	3,171.0
Grand Total	6,381.8	8,380.6	11,196.6	20,415.4

Source: Gartner

In addition to smart meters, applications tailored to specific industry verticals (including manufacturing field devices, process sensors for electrical generating plants and real-time location devices for healthcare) will drive the use of connected things among businesses through 2017, with 1.6 billion units deployed.

From 2018 onwards, cross-industry devices, such as those targeted at smart buildings (including LED lighting, HVAC and physical security systems) will take the lead as connectivity is driven into higher-volume, lower cost devices, Gartner predicts.

While consumers purchase more devices, businesses spend more. In 2017, in terms of hardware spending, the use of connected things among businesses will drive $964 billion.

Consumer applications will amount to $725 billion in 2017. By 2020, hardware spending from both segments will reach almost $3 trillion.

IoT Endpoint Spending by Category (Millions of Dollars)
Category	2016	2017	2018	2020
Consumer	532,515	725,696	985,348	1,494,466
Business: Cross-Industry	212,069	280,059	372,989	567,659
Business: Vertical-Specific	634,921	683,817	736,543	863,662
Grand Total	1,379,505	1,689,572	2,094,881	2,925,787

Source: Gartner

Total IoT services spending (professional, consumer and connectivity services) is on pace to reach $273 billion in 2017, Gartner argues. The huge proportion of that spending is on the actual IoT applications (including recurring fees) or the design and installation of such networks.

source: Analysys Mason

source: Machina Research

SD-WAN "Versus" MPLS? or SD-WAN "Plus" MPLS?

 How much will the wide area network connections business continue to change as cloud computing and the internet now drives the direction of the WAN business? The analysis will differ when looking at enterprise internal networking requirements, compared to enterprise customer-facing requirements.

Customer-facing use cases arguably represent the overwhelming bulk of transport requirements, if only because so much traffic is content delivery, especially video content delivery.

One source of uncertainty now is use of software defined wide area networks (SD-WANs) by business customers.

Some would note that SD-WANs were conceived, in part, as a replacement for Multiprotocol Label Switching (MPLS) networks, largely in the cost area, but also because SD-WANs are considered easier to deploy and configure.

But some recent surveys of information technology professionals suggest SD-WAN and MPLS will coexist. At least in part, that could be because IT professionals believe SD-WANs can be overlaid on MPLS , as well as reduce reliance on additional MPLS connections. Some would argue that one SD-WAN advantage is that it allows bonding of internet access and MPLS and other WAN transport networks.

In a survey sponsored by Cato Networks, some 41 percent of respondents said they relied on the internet for data networking requirements. That is important. SD-WAN is a potential replacement for MPLS only if an entity actually uses MPLS.

So the issue is how important predictability is a primary requirement. Where the lowest latency and highest predictability is necessary, some will continue to rely on MPLS. That does not necessarily mean abandoning MPLS, though.

Over time, that could change, as often is the case when new core network protocols are introduced. It is easy to make the argument for use of SD-WAN to support branch or remote locations. It is seen as a lower cost way to use “edge” appliances to manage organization data links.

But that decision might be separate from the decision to make core network transport choices.

source: Cato Networks

Why 5G? Why Now?

In many parts of the world, people will question why we seemingly are rushing to 5G. In one sense, we are not rushing. Mobile network generations tend to be upgraded about every decade or so, in large part because mobile operators arguably “run out of things to sell” in each generation.

When the ability to use voice on the go is the primary value, service provides eventually reach saturation. When text messaging becomes the “new thing you can do” with the 2G platform, another wave of growth happens, only to reach maturity at some point.

The third generation was the first to be based on the emergence of new apps beyond text messaging. For better or worse, it took some time for lead apps such as mobile email access, to develop.

The 4G network was the first to feature enough speed that video apps become feasible, and the first mobile generation where mobile apps and internet access actually became pleasant, in terms of user experience. Also, 4G was arguably the first mobile platform where internet or app use cases became dominant, eclipsing voice and carrier messaging.

Simply put, one might argue that, in the developed nations, mobile operators now have reached near saturation for all apps, all use cases and business models built on mobile apps and mobile internet access. Sure, 4G networks keep getting faster, but it is not so clear that revenue is keeping pace. In most markets, prices (and revenue) are falling or flat.

So 5G is seen as the way to create a revenue platform going beyond all existing major use cases. For that reason, 5G is virtually synonymous with IoT.

Faster speeds for human apps is going to be a feature of 5G, but not likely the main driver of new use cases. In fact, the conventional wisdom is that massively-faster human internet access is one of three fundamental use cases. The other two are internet of things and low-latency apps.

What Has Changed Since the Launch of the iPhone

The month of July 2017 marks the 10th anniversary of the launch of the Apple iPhone in 2007. Samsung would claim much of the credit for growth, after the iPhone reshaped the “phone” business, as can Android.

What we sometimes overlook is just how much has changed in just those past 10 years. Mobile computing, by time of use, surpassed "PC" or large screen use. Some whole new industries now are enabled directly by smartphones (ride sharing), while many industries (retail, the restaurant business, lodging, advertising) now are powerfully shaped by mobile interactions.

At the same time, mobile-only use of internet and internet-enabled apps--though a fact in every income demographic--is more important for lower-income users, especially.

It is a subtle shift, but still a shift, that a growing portion of human and future machine uses of the internet happen not primarily because of fixed internet, but because mobile internet is available. It might also be instructive to note that narrowband apps (internet of things) might drive the next big waves of revenue and use cases for internet apps.

Include among those use cases all activities enabled by the global positioning system (location).

And it is hard to imagine that degree of change, in a single decade, were it not for the iPhone.

The overall importance of the iPhone launch, however, goes far beyond the choice of devices people make. Mobile internet access has driven revenue growth for mobile operators in developed nations, even if new subscribers and voice have continued to drive revenue in developing nations.

source: StatCounter

source: StatCounter

Over the last decade, we have seen the rise of what some call the app economy or Over the last decade, we have seen the rise of what some call the app economy, which did not exist in 2007.

That is a bit of a misnomer, but the point is that whole businesses such as Uber are directly enabled by the widespread use of smartphones and faster mobile internet access. , which did not exist in 2007. That is a bit of a misnomer, but the point is that whole businesses such as Uber are directly enabled by the widespread use of smartphones and faster mobile internet access.

Just how much some businesses will be “mobile only” or “mobile first” is a good question. Some might argue that is not presently true, and might never be true, for some activities humans conduct on devices using screens.

Similar questions might be raised about the eventual use cases for internet of things apps (some might be useful only when mobile (connected car), others might be stationary (industrial sensors, light posts, parking spaces), others will be ambient (health and fitness monitors).

The point is that although most human activities have been reshaped by the internet, only some are directly dependent on the use of smartphones and mobility.

To be sure, most shopping activities have been reshaped by people using the internet. And as the advertising business has likewise been refashioned, now mobile-based usage is producing additional changes. But Uber and other ride-sharing services would not have been possible without widespread smartphone use and faster mobile internet.

Some of you might never have owned or used a feature phone. But some of us can remember the moment we realized even our “crackberries” were no longer our own choices: it was the moment the “web” became more important than access to email. That was the moment when the browsing experience on a BlackBerry became so obviously painful that the advantages of email handling could not outweigh a more-pleasant web experience.

All that, and eventually more, were enabled, one could well argue, a decade ago when Apple launched the iPhone.

source: Business Intelliigence

source: Asymco

source: Intercom

Revenue, Users or Subscriptions: What Matters for OTT Video?

 Some say Netflix now has more U.S. subscribers than U.S. cable TV providers. That is true. But the claim has to be put into context.

There now are about 93.3 million U.S. linear video accounts in service, according to Leichtman Research. Of course, the cable TV segment does have 48.6 million accounts, as Statista notes.

But the linear video category includes both satellite and telco suppliers. So some might argue the appropriate comparison is Netflix or OTT video versus “all linear video subscription” providers.

Looked at that way, Netflix still has some ways to go before it can be said to represent more accounts than linear TV, as Netflix has about half the number of total  linear video accounts.

Of course, Netflix is not the only U.S. over the top video provider. Add up paid subscriptions from Amazon Prime, Hulu, Sling and others and you can make an argument there are as many OTT video subscriptions as linear subscriptions.

For purposes of measuring financial results, accounts--not “users”--are what matters, even if OTT providers or analysts sometimes measure users rather than accounts. The reason is that accounts directly produce revenue.

In some key respects, though, revenue--not users or accounts--remains a key metric. Linear video monthly average revenue per account is close to $100, while OTT service ARPU is closer to $10 a month.

U.S. linear subscription revenue grew was about $107.3 billion ($91 per month.

U.S. OTT access revenue (based on 47 OTT providers and led by Netflix) was about $8.3 billion in 2016, says Convergence Research Group.

One has to be careful about comparing apples and oranges as though they were the “same thing.”

source: Statista

OneWeb Approval Means More Stress on Rural Operator Business Model

There is, in essence, no commercially-viable and sustainable business model for fixed network communications services in many rural areas of the United States, even in some cases where there is but one supplier.  That is why we have subsidies for such services.

But the business model is going to get worse. Even if competition from cable operators do not worsen, and even if internet service providers using fixed wireless, and even if mobile operators do not become stronger competitors, there rather soon will be one or more providers with sufficient scale, and low enough recurring costs, to provide new competition.

OneWeb, for example, plans to offer internet access from a new constellation of low earth orbit satellites that will be able to offer internet access at speeds up to 100 Mbps initially, and possibly a gigabit later, across the United States, and, if fact, covering the surface of the earth, ultimately.

The Federal Communications Commission has approved a request by WorldVu Satellites  (OneWeb) to access the United States satellite market. The action paves the way for OneWeb to provide internet access in rural areas, with scale.

With mobile providing a substitute for voice, streaming providing a substitute for video entertainment and OneWeb (and others) vying to supply internet access, every service provided by a rural fixed network provider can be replaced.

Enough of that demand will be replaced to further stress the rural fixed network operator business model.

ARPU Will be an Issue for 5G

One way fixed network operators have had an advantage over mobile operators is the ability to create differentiated offers for internet access. It is common to find fixed network internet service providers offering a range of speeds, and a range of prices.

You might well wonder why mobile operators have not done so. Technology constraints are the issue.

That regime has not developed in the mobile market (for reasons related directly to the way radios are used in mobile, compared to fixed network customer premises equipment.

Fixed network modems are “nailed up” to specific locations and accounts. That means different offers can be created and supplied.

Use of mobile radio resources always is temporary. Radio resources are allocated and then released on a routine basis, over a period of minutes or maybe hours, with lots of contention for ports. So it simply is inefficient or impossible to offer dedicated speeds.

There are other differences. Retail pricing in the fixed networks business often is by "speed." Higher speed tiers cost more. Retail pricing in the mobile business is by "consumption." Retail pricing is based on actual or expected usage (Gigabytes used). 

To some extent, fixed network ISPs have been able to justify investment in "faster speed" in a couple of ways. Taking market share is probably the biggest reason for doing so. But consumers, over time, also have shown willingness to spend more, to get faster speeds. 

In the mobile business, the upside has largely been in terms of consumption or overages. Speed has not proven a dependable, long term method of gaining and holding market share. Coverage, and the consistency of coverage, arguably is more important, in that regard. 

So the issue is whether mobile internet incremental revenue has grown, in direct proportion to incremental cost. That might be debatable.

By some estimates, revenue is developed nation markets has been remarkably flat, in recent years, despite mobile data revenue growth. The reason is that voice and messaging revenues have fallen almost as fast as mobile data revenues have grown.

source: Strategy Analytics

The point: ubiquitous gigabit speeds might not boost average revenue per account as much as you think.

source: Strategy Analytics