Thursday, March 15, 2018

U.S. Fixed Network Internet Access Market Reaching Saturation?

Is the U.S. consumer fixed internet access market near saturation? It is quite possible.

By at least one estimate, there are 95 million U.S. buyers of fixed network internet access.


In the fourth quarter of 2017 there were an estimated 136.9 million U.S. housing units. Vacancy rates are an issue, though. Some 16.7 million of those units were vacant.


In the fourth quarter of 2017, some seven percent of rental units were unoccupied, as were some 1.6 percent of owned residences. So assume the number of residences where fixed network consumer telecom services could be sold is about 120.2 million.


So that implies 79 percent of all U.S. households buy a fixed network internet access subscription. Assume another 1.6 million buy a satellite internet access service (about one percent of occupied U.S. residences. That implies 80 percent of occupied homes buy internet access.


But we also must add another six million subscribers served by all the smaller telcos, cable TV companies and independent internet service providers (assuming those smaller fixed network suppliers supply five percent of homes). That adds another five percent, bringing consumer household buying of internet access up to about 85 percent.


Also, some 10 percent of homes use mobile internet access exclusively, according to the Pew Research Center. So add another 12 million occupied U.S. homes to the total of buyers of internet access.


That brings buyers of internet access up to about 95 percent of U.S. occupied homes. The point is that we fast are approaching the point where at-home internet access is saturated. There simply are not that many more U.S. homes to convert, possibly six million or so (unless the percentage of occupied homes grows and millions of new households are formed, driving demand for new housing stock).


In fact, some might argue that as we move into the 5G era, there will be even more mobile substitution. That means it is possible we are very near to the peak of fixed network residential internet access penetration. With the exception of older demographics, home internet access adoption home internet access adoptionhas been flat since about 2010.


Leichtman Research Group reports the 14 largest U.S. cable and telephone providers of internet access  in the United States, representing about 95 percent of the customers--acquired about 2.1 million net additional high-speed Internet subscribers in 2017 (that figure also includes business users).

Broadband Providers
Subscribers at End
of 4Q 2017
Net Adds in
2017
Cable Companies


Comcast
25,869,000
1,168,000
Charter
23,903,000
1,310,000
Altice
4,046,200
83,700
Mediacom
1,209,000
47,000
WOW (WideOpenWest)*
730,000
11,100
Cable ONE**
524,935
11,027
Other Major Private Company^
4,880,000
90,000
Total Top Cable
61,162,135
2,720,827



Phone Companies


AT&T
15,719,000
114,000
Verizon
6,959,000
(79,000)
CenturyLink
5,662,000
(283,000)
Frontier
3,938,000
(333,000)
Windstream
1,006,600
(44,500)
Cincinnati Bell
308,700
5,500
FairPoint^^
301,000
(5,624)
Total Top Telco
33,894,300
(625,624)



Total Top Broadband
95,056,435
2,095,203

The point is that market share shifts are likely to be the key battleground in the consumer fixed network access market, as it appears we are very near saturation, where nearly every customer that wants to buy the product already is a buyer.

Wednesday, March 14, 2018

AT&T Time Warner Acquisition Could Trigger Merger Wave, or Quash It

Consolidation tends to come in waves, as big deals by a major competitor trigger competitive responses by other contestants. So approval--or rejection--of the AT&T acquisition of Time Warner will matter.




Tuesday, March 13, 2018

Core Network Virtualization and the "Dumb Pipe" Reality

Virtualization and “dumb pipe” are related concepts and practices in core networks, just as applications and services now are logically separated from the transport and access networks. And both those trends illustrate where value is being created within the internet  ecosystem.

Today, owners of networks are virtualizing. Eventually, it is likely to be possible to federate across networks, for that very reason. So essentially, the commoditizing of physical infrastructure will increase.

“Virtualization implies that the control of services and networks can be accomplished outside the physical networks,” and separately from the bit transport layer, argues  Rick Talbot, Current Analysis principal analyst.

That applies initially to any single network, but eventually is likely to extend across multiple federated networks as well, where control lies outside any single transport network.


Network functions virtualization, for example, replaces embedded software in physical network elements across a range of appliances (firewall, packet core, broadband network gateways, customer premises equipment, network address translation, session border controller, provider edge routers), for example.  

“It is only a matter of time before most, if not all, of the specialized network elements and appliances are replaced with--or supplemented by--virtualized instances of themselves,” says Talbot.

There are analogies to this process of core network virtualization. Consider the generation of economic value within the internet ecosystem.


At the moment, perhaps 15 percent of value (measured as firm revenue) is claimed by internet access providers. In the future, that is likely to fall, if mostly because the rest of the ecosystem will have far-higher rates of growth.
To be sure, service providers want and need networks that are more flexible, cost less and also are more capable. Virtualization is one way to achieve those goals. But virtualization also tends to lay bare the growing “dumb pipe” role of networks. Even when networks are “smart,” that smartness is abstracted from the physical network.



At the same time, the separation of logical and physical functions of networks is happening both within the core transport network, within data centers, in access networks and consumer devices.

The obvious analogy is the separation of application supply and network access that is fundamental to all internet protocol networks: any lawful application can be reached and used by end users over an IP network so long as they have authorization to use the apps, irrespective of the IP network used for access.

Where access to communication services once was highly vertically integrated, it now is highly disaggregated. Today, most services and applications used by most consumers are owned by third parties, not the access service providers.

To be sure, access providers (cable, telco, satellite, fixed wireless) have revenue models based on a mix of owned applications (voice, messaging, video entertainment) and “dumb pipe” (internet access, both fixed and mobile) services.

But it is hard to avoid the notion that, over time, value is shifting away from the supply of physical connections to networks (access) and towards “over the top” applications and devices. That does not preclude access providers creating or owning OTT applications themselves.

That, in fact, is what Sling and DirecTV Now are all about; or why Verizon owns automobile application assets.

In a study by AT Kearney of the U.K. internet ecosystem, analysts estimated that internet access accounts for 35 percent of the U.K. Internet value chain revenues (16 percent of the total Internet ecosystem). Excluding the value of e-commerce, the internet ecosystem in 2010 already had apps and services claiming 65 percent of value.


The point is that virtualization is another example of the way networks are changing: as services and features have been abstracted from the network, now even the control and management of networks is being abstracted from the physical facilities.

Monday, March 12, 2018

Data Centers Drive 100G in 2017

Data center adoption of 100 Gbps platforms is driving global Ethernet switch sales, says IHS Markit


Worldwide Ethernet switch revenue grew twopercent sequentially in the fourth quarter of 2017 to $6.7 billion.


For the full-year 2017, revenue rose 8 percent, reaching nearly $25 billion—the strongest growth in seven years, says Matthias Machowinski, IHS Markit senior research director.


“The transition to 25/100GE architectures in the data center is in full swing, driving strong gains in 25GE and 100GE, while in turn bringing down the 40GE segment, which had its first annual decline,” Machowinski said.


100GE Port shipments of 100GigE grew 400 percent year-over-year, and reaching over four million ports in 2017, he said.


Growth in the North American Ethernet switch market was above five percent. Asia Pacific remains the top growth region, primarily due to China.


Cisco’s revenue declined two percent year-over-year, while Huawei grew its revenue 24 percent HPE (Aruba) grew 13 percent.




OTT Versus Linear Video is Becoming a Global Battlefield

By now, nobody is surprised to hear that linear video subscriptions continue to drop or that over the top subscriptions are growing. Perhaps the bigger story is the globalization of the business. Netflix now is a global content supplier, while most other providers operate mostly in a single country, or a small number of countries.

So while it still makes sense to track how U.S. service providers are doing, compared to U.S. competitors, the battle has become global, and Netflix arguably is the leader, in that regard.

Related image

In aggregate, there are more U.S. paid streaming accounts than linear accounts in service.

Netflix has some 55 million U.S. accounts, while Amazon Prime has some 90 million subscribers. All the largest linear video providers together have about 92.2 million accounts.

Total revenue is another story, as monthly subscription revenue earned by a linear account can be an order of magnitude greater than the revenue from any single OTT streaming account.

In 2017, for example, the major U.S. providers lost about 1.5 million accounts, up from some 760,000 in 2016, according to Leichtman Research Group.

The big swing was that streaming services owned by the linear providers gained 1.5 million accounts, nearly the amount lost by the two satellite services.

The biggest six cable companies now have about 48.1 million video accounts. Satellite TV services claim 31.5 million subscribers (including DirecTV, owned by AT&T).

The largest three fixed network telephone providers have 9.2 million subscribers (nearly all provided by AT&T and Verizon).

The top OTT services have about 3.4 million subscribers.

Pay-TV Providers
Subscribers at
End of 4Q 2017
Net Adds in
2017
Cable Companies


Comcast
22,357,000
(151,000)
Charter
16,997,000
(239,000)
Altice
3,405,500
(129,000)
Mediacom
821,000
(14,000)
Cable ONE*
283,001
(37,245)
Other major private companies**
4,200,000
(90,000)
Total Top Cable
48,063,501
(660,245)



Satellite Services (DBS)


DIRECTV
20,458,000
(554,000)
DISH TV^
11,030,000
(995,000)
Total DBS
31,488,000
(1,549,000)



Phone Companies


Verizon FiOS
4,619,000
(75,000)
AT&T U-verse
3,657,000
(624,000)
Frontier
961,000
(184,000)
Total Top Phone
9,237,000
(883,000)



Internet-Delivered


Sling TV^^
2,212,000
711,000
DIRECTV NOW
1,155,000
888,000
Total Top Internet-Delivered
3,367,000
1,599,000



Total Top Providers
92,155,501
(1,493,245)


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