I’ve often said that telcos fear competition more than they value opportunity, which in effect means that they tend to play a defensive game in the market. The problems with a pure defense mindset are well known, in warfare and even in American football (the draw play is an example). If you think about it, this might open another negative dimension to the telco focus on wireless standards evolution as a revenue strategy.
Wireless standards evolution has, in the past, worked well for telcos. It’s what brought broadband Internet services and enabled the whole smartphone revolution, after all. But over time, it’s focused telcos on coming up with features to enable new applications, not to extend old ones (like Internet access) to mobile, and telcos have been unwilling or unable to promote all the ecosystemic components of the new stuff. Arguably, they’ve not even thought about what the new stuff might be. I’ve said for years that this was a strategic fault; you can’t expect fancy new apps to spring up without the required business cases for all the stakeholders the apps would depend on. Nothing has changed here.
What may have changed then? The answer lies in the nature of the “Gs”, which are really all about mobile access and potentially service/access independence. In one sense this is logical; most “new applications” of network services would necessarily have new access requirements or they wouldn’t require changes in services at all. In another sense, it’s opening a big problem.
Access is a sink for roughly a third of all network capex. Because access services get you on the network, they are baseline requirements that aren’t linked to a specific desirable application, but to…well…access to applications. Table stakes, so you can’t price them too high or nobody comes to the table at all. Consumer broadband is a good example of this; the price per bit of consumer broadband is insignificant compared to the price of business bandwidth, especially if you consider history. I remember when the average business paid almost a thousand dollars a month or so for 1.5 Mbps of access; today twenty or thirty bucks a month gets you a couple hundred Mbps in most developed markets. So access has a high capex and low base revenue; meaning it has a lousy ROI.
Telco focus on the “G” succession in mobile service, then, is focusing them on the connectivity role that at least sustains and might even exacerbate their revenue per bit problem. And this is happening as seemingly unrelated industry forces are pushing things in an unfavorable direction in the access space.
Let’s start with the cloud. Cloud computing is a byproduct of the shifting of consumer information-gathering to an online task. Gathering information is an irregular, unpredictable, activity overall, and most enterprises quickly found that the level of traffic generated by these applications varied considerably. If you sized your hosting for a typical safety margin above the average, some outside factor could drive up demand suddenly, resulting in your failure to serve your users, and likely poisoning the relationship. If you sized for the peak, your hosting costs skyrocketed. So you bought hosting from a third party (the cloud provider) who could average hosting costs across a large base, creating the classic economy-of-scale resource pool.
But if this is the typical situation, which it is, then more and more consumer broadband is simply getting users to a cloud. And why couldn’t the same strategy work for employees in remote locations or working from home or on the road? If that happens, then the low-ROI consumer access network gets everyone to the cloud, and the cloud provider offers a connection to your data centers. If you have the average thirty sites of a multi-site business, you might have had thirty-one (including your HQ) expensive business data lines. Now you have one.
Then there’s voice and text, traditional non-Internet services. Every mobile plan to speak of includes them, but most have shifted from linear voice to VoIP. And what are voice or text services seen as most important for? Emergencies, which is a problem because anyone in a remote area or anyone whose Internet is down suddenly can’t use them. So they want satellite backup. How long will it be before satellite companies can offer basic voice/text? That doesn’t mean that telcos can’t sell theirs, but it does mean that at least some users will be looking for a mobile cellular service that doesn’t include voice, and that the notion of a “universal number” independent of provider is in the offing. How much of mobile service stickiness is generated by a phone number and the hassle of porting it?
The same is happening with video; cable companies are finding it harder to sell linear TV, with users moving away from scheduled to on-demand viewing and with TV sources offering streaming services. Streaming video means that there is no unique video channels to sell users, no extra revenue. Cable companies had a big advantage over telcos because of those channels and the “What’s on?” mindset. You can already see that going away.
How does this impact our progression of mobile service standards? Well, low-latency is a way of getting real-time data to a processing point with minimal delay. But who makes the money on it? The processing people. Low-latency broadband would just be a new generation of table-stakes connectivity. And how about network slicing? What applications require special QoS? Not ones we have online now, so new ones will be hosted, and the same sort of disintermediation the cloud generated will now hit these QoS-dependent apps.
Mobile standards are an access trap for telcos. Even if they succeeded, they’d succeed in the context of an application ecosystem that rewards other more experience-related players far more than it would telcos, while focusing telco spending on an area that is not only low-ROI by nature, but is also cannibalizing (via the cloud and SD-WAN) other more profitable business access opportunities. They’re getting sucked into the communications-services equivalent of a draw play, and they’re not only not resisting, they’re actively helping with their own disintermediation. And they’re not going to stop.
That’s why we have to watch the players like Ericsson and Nokia. They’re remoras on the telco sharks, so if telcos starve so do they. And as equipment vendors, they have a broader infrastructure view. So think less about 5G or 6G or any-G, and more about what these vendors are trying to do at the application level. That’s the only stuff that can get telcos back in the game.
