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Strand Consult has followed the mobile telecom industry for more than 26 years and has published predictions for the last 22. See the collection. This research note reviews the highs and lows from the mobile telecom industry in 2022 and makes predictions for 2023. This past year developed very differently from other years, and it was different from 2021.
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Here is our Strand Consult’s view of the key topics: broadband fair cost recovery, OpenRAN, security and geopolitics with Russia and China, radio spectrum, the Metaverse, the Titanium Economy, and assorted points on Alphabet, Netflix, and the other financial beneficiaries of broadband.
Where we got it right
Last year we predicted last year that broadband fair cost recovery will be a big topic in 2022. We were right. Policymakers in the United States and South Korea already get that it’s time for Big Tech’s free ride on the world’s broadband networks to come to an end.
We were also right about OpenRAN. We said that advocates like to talk about it, but that mobile operators don’t buy it. In 2022 Parallel Wireless threw in the towel, and most experts agreed that OpenRAN is not ready for prime time.
Strand Consult is proud of its work to create transparency in 2022. Following Russia’s invasion of Ukraine, we joined the Denis Diderot Committee to expose Eutelsat’s spread of Russian propaganda. French policymakers have been reluctant to bring the issue to the attention of Eutelsat’s leadership headed by CEO Eva Berneke. After long last, Reporters Without Borders and Members of the European Parliament including Andrus Ansip (former Prime Minister of Estonia) prevailed on the French Regulatory Authority for Audiovisual and Digital Communication (ARCOM) to stop empowering Vladimir Putin by removing Russian news channels from the Russian state.
Organizations can learn a lot from this case. This is what happens when you’re politically tone deaf and lack a moral compass. Even though thousands of companies have paused Russian operations or have left the country all together, Eutelsat maintained its footprint in Russia. Its focus on short term profit will hurt the company long term. Moreover, it misdeeds will subject the satellite industry to new regulation.
Similarly, shareholders see the risk of doing business with authoritarians in China. It your supplier puts your customers’ property, privacy, or security at risk, it is not a relationship worth having. This has been public knowledge for years. Mobile telecom operators in many nations have recognized this, and have opted out of Huawei, ZTE, and other Chinese government affiliated vendors. They did this without increasing cost or delaying 5G rollout, so it has been good for shareholders. We applaud the European Commission for updating its state aid rules so that operators which buy Chinese equipment will not rewarded with a payment to remove this malign equipment. This is a choice that shareholders should bear, not taxpayers.
In 2022 Strand Consult published many research notes and reports, and featured half a dozen industry experts on our guest blog, latest former FCC chair Tom Wheeler. Strand Consult’s analysis was quoted in some 1000 news stories globally. Our work took us to all the continents but Antarctica. Strand Consult’s mission is to help mobile telecom operators navigate a complex world and to create transparency for policymakers. Our readership continues to grow, and our predictions are amongst our readers favorites. Our predictions hit the mark in 2022, so read on to see what we think for 2023.
What will happen in 2023: Geopolitics
2023 will be a wild, uncomfortable year: there is war in Europe, a global energy crisis, and inflation which has made almost everything more expensive and disrupted many financial markets. China’s menace in Taiwan puts the world’s leaders on edge and imperils the supply of 90 percent of the world’s semiconductor manufacturing. Board leaders and directors should ask themselves what is their plan if case of China shutting down supply lines tomorrow.
This uneasy geopolitical reality affects the mobile telecom industry. Rising interest rates depress returns on capital, and investors willingness to invest in infrastructure. Relationships with authoritarian governments pose reputational risks. An operator can’t stick its head into the ground and pretend nothing is happening. Indeed operators which have opted out of Huawei and ZTE will gain an advantage over those which claim that there are no risks to using Chinese network equipment. The smart operator can say, “Maybe we can’t offer you a better price, but we can offer you a clean network with reduced risk of Chinese government intrusion.” This message will resonate with policymakers, customers, and shareholders.
Strand Consult closes out the year with the launch of a new report The Market for 5G RAN in Europe: Share of Chinese and Non-Chinese Vendors in 31 European Countries, which updates our 2020 report
Understanding the Market for 4G RAN in Europe: Share of Chinese and Non-Chinese Vendors in 102 Mobile Networks. The report is making an impact, and we are pleased to see EU Vice President Margrethe Vestager ask Germany to clean up its act on telecommunications infrastructure.
Indeed companies will be increasingly asked to address their stress test scenario vis-à-vis China. What will they do about financial assets and revenue streams dependent on China? How much do they have to lose, how much will be written off? German leaders’ acquiescence to China has become an unaffordable political liability.
The debate is hardly limited to the US and Europe. Strand Consult provides its security expertise to policymakers in Africa, Asia, and Latin America. Strand Consult collaborates with the Parliamentary Intelligence- Security Forum which gathers democratic Parliamentarians and government officials to learn and solve the worlds most pressing problems. Strand Consult joins these fora to describe the security of telecommunications networks. This year we participated in events in Colombia, Guatemala, Budapest, and Washington and a number of other countries.
Spectrum
While we can fault the Chinese government for its authoritarian ways, it deserves credit for allocating the right radio spectrum frequencies to its best technological use in the case of 5G. Simply put, if you want to do 5G, you need mid-band spectrum in the 2.6-6 GHz range, the frequencies which maximize data transmission across distance. This is nothing more than basic physics and technocratic management, but US policymakers are failing on this front.
As of this writing the US Congress still has not reauthorized the auction authority of the Federal Communications Commission (FCC). To align the incentives and economics to best serve Americans, the FCC should have perpetual auction authority. Today the FCC only received a 3-month extension, which expire in March 2023!.
It’s hard to contemplate a modern nation being so irresponsible. We are talking about the ability of the US government to raise hundreds of billions of dollars being put on ice because the Defense Department can’t modernize. Simply put, the US military lost its spectrum edge by waging wars with non-peers for two decades. Instead of upgrading to the most spectrally-efficient tools on the appropriate frequency, the Pentagon is entrenched with bloated legacy systems on the mid-band beachfront with 12 times the spectrum that’s available for 5G.
It is remarkable that the US has achieved such incredible wireless success to date given the limited access to frequencies. But to compete with China in the future, the US will need a more aggressive approach to making mid-band spectrum available for exclusive licensed use. China has not been so foolish to squander its spectrum resources. It just unveiled a high-power, low-frequency P-band (216-450 MHz) satellite-hunting radar, reported to detect and track low-orbiting satellites and functions around the clock in all weather conditions. Observers dubbed it the “Anti-Starlink” system.
Broadband fair cost recovery
As countries look at their populations and those who suffer a lack of digital equity, particularly people of color, low-income, and the elderly, they will see that the traditional concept of universal service should come to an end. Taxing broadband subscriptions for the sake of raising money for infrastructure does not scale when it comes to closing the digital divide for the poor.
Making the cost of broadband higher for end users undermines its affordability for the digital poor and disenfranchised. Countries will increasingly look at Big Tech to foot the bill for the unrecovered costs they impose on networks. Closing the digital divide globally and getting some 3 billion people online for the first time are also the goals of the International Telecommunications, now led by a woman for the first time in its history.
South Korea, the world’s #1 broadband nation, has long recognized that content providers have a financial responsibility to ensure the quality and delivery of their data and has had operated a cost recovery regime since 2016. South Korea enjoys the highest adoption of FTTH (86%) and 5G (47%) in part because end users are not forced to bear the full burden of the cost of broadband.
Indeed Google’s gambit to undermine the policy effort of good faith negotiation for cost recovery backfired. It is a bad look for a company which is the single largest source of traffic in South Korea hijacking the democratic process.
Google Korea launched a series of Google ads against a Korean Assembly bill and enjoined South Korean YouTubers to join. Asia-Pacific Vice President for YouTube Gautam Anand warned that the bill would “penalize the companies that provide the content, and the creators who share a living with them.” Some 265,000 YouTubers signed the petition.
However Google’s lobbying practices came under fire in one Assembly hearing which revealed that South Korea’s leading internet advocacy non-profit OpenNet, which was founded with Google as the sole sponsor, received some $10 million to espouse favorable policy. Lawmakers questioned the relationship for what appeared to be lobbying efforts outside the organization’s remit and an official financial disclosure from the organization that noted a far lower figure than the actual gift from Google.
Big Tech may grumble about not getting to free access to networks, but they are enjoying record profits in the country. Google Korea reported its 2021 sales grew almost a third over the prior year to 292.3 billion won with 88 percent operating profit.
Netflix, another person non grata that enjoys record profits in South Korea, declares that it has “no obligation to pay for or to negotiate for the use of” another’s network. Strand Consult has detailed the Scrooge-worthy saga of Netflix’s litigation against a local broadband provider in Netflix v. SK Broadband. The David and Goliath Battle for Broadband Fair Cost Recovery in South Korea.
In the US, there is bipartisan Congressional support for the FCC to investigate the feasibility of a fair cost recovery regime. With Congress having failed to rein in Big Tech on the antitrust front, fair cost recovery remains one of the few rational, evidence-based methods to address Big Tech’s abuse of market power, namely its perversion of public policy to achieve its corporate goals and the free use of public and private resources.
Economists will have a field day exploring the cost recovery business models: market-based pay as you go (PAYG), ad taxes, usage fees, USF surcharges and so on. While there is no one size fits all for every country, there is an increasingly recognition that broadband policy must evolve. The prevailing models of broadband access where enshrined when email was the killer app of the internet more than 30 years ago. No one knew that video entertainment would become the key use case and account for 80% of the internet’s traffic. It’s time to update policy to reflect reality.
In 2023, Strand Consult will launch an update to its earlier report Middle Mile Economics: How streaming video entertainment undermines the business model for broadband. The new report describes an investigation of 50 broadband providers in 24 US states. It finds that middle mile costs are growing 2-3 times faster than household broadband revenues, that traffic from Big Tech consumes as much as 90 percent of network capacity, and that few, if any, broadband providers have been able to monetize the increase in video streaming entertainment traffic in their network.
Metaverse: Second Life 2.0?
Meta (formerly Facebook) calls its Metaverse, “the future of digital connection…moving beyond 2D screens and into immersive experiences in the metaverse, helping create the next evolution of social technology.” It’s all very exciting, the dream (or nightmare) of science-fiction turned into a commercialized reality of being ever closer to people you don’t know in a digital world. The big question is whether it will become a reality or whether it will be a replay of Second Life, which flopped big time.
To test whether the Metaverse will succeed, try innovation expert Clay Christiansen’s milkshake test. The milkshake test attempts to gauge whether a new product or service can become a reliable, affordable substitute. For example, some order a milkshake for breakfast at the fast-food drive though because it is as filling as breakfast (We are not weighing in on the nutrition here!). The milkshake question whether the firm—Meta–can produce a quasi-food beverage (or experience) such that it gets enough users with the right monetization.
For Strand Consult the more interesting questions are whether Meta will pay for the radio spectrum and infrastructure which the asserted “successor” to the mobile network will require. Meta announced a $19.2B investment in the new online world for 2023. That’s about half of the capex that the world’s mobile operators spend on RAN in a good year.
Few of the people gushing about the marvels of the Metaverse have stopped to think what it would cost, along with the other proposed online “verses”. If you are concerned about online streaming video entertainment consuming as much as 90 percent of internet bandwidth today, how will it be for broadband providers to recover costs when even more data to be pumped into networks? How will such a broadband subscription be price in today’s framework? Is it such that users are asking for every Meta bell and whistle, or do they just want some of the experience? There will need to be some policy innovation and business model upgrade before the Metaverse is real.
Emergence of the Titanium Economy: Over the top vs. Net Centric?
Strand Consult is excited about 5G and the mobile industry’s continuous improvement of its networks. 5G for home broadband, also known as Fixed Wireless Access (FWA), is a game changer and can substitute for wireline broadband in many cases. While the tower is connected to a larger network with wires and/or radio links, no wires are required to the customer’s premises, only a wireless receiving device. FWA is soon expected to account for 10 percent of all US broadband connections.
What’s beyond home broadband is the bigger question for 5G. Many want to see 5G transform industry and bring a new era of advanced healthcare, transportation, and manufacturing. Indeed some leading manufacturers already integrate 5G into their production like John Deere, Bosch, ASML and some carmakers. Even more exciting is the manufacturing renaissance afoot in USA led by small and mid-cap companies earning returns that rival the online tech/software sector. They are not widely known or discussed, but there are some 4000 of them, driving about $200b in revenue. Their startup costs are relatively low, and they take advantage of 5G, and 5G enabled AI, robotics, automation, and cloud computing. Strand Consult’s suggested holiday reading on this topic is The Titanium Economy: How Industrial Technology Can Create a Better, Faster, Stronger America by Nick Santhanam, Gaurav Batra, and Asutosh Padhi.
Strand Consult is keenly interested in the 5G value chain, where monetization will occur, and who will win. The big question is whether operators are positioned to capture the value in applications or services, or whether over the top (OTT) third parties be the winners. If 4G is any guide, the content and application providers took the prize.
Network monetization has long dogged the mobile telecom industry. In 2009, GSMA launched a suplement to premium SMS, a reboot of SMS payment introduced in 1999. However, few or non innovations succeed. Strand Consult’s report OneAPI – Next Generation Value Added Services in the Mobile Industry described many of the challenges to launch this kind of mobile network business models.
Simply put, the long-term trend for consumer monetization by mobile operators goes in a negative direction. It may be a boon for consumers that broadband prices have stayed constant (if not fallen) during this cost-of-living crisis, in the long term it does not scale for mobile operators to continually upgrade networks with better technology if they earn declining returns. This can be improved on the policy front with consolidation, lowering costs so operators can get a better case for investment. Strand Consult suggests that countries should move from 4 to 3 mobile network operator markets, as Strand Consult details in its report Understanding 4 to 3 mobile mergers.
Another needed policy reform is to modernize net neutrality. Strand Consult predicts that policymakers will pick this up in 2023.
Net neutrality
Following the lead of United Kingdom’s Ofcom which proposes to modernize its rules, Strand Consult predicts that European and Latin American telecom regulators will issue a call for evidence on the performance of net neutrality regulation. Invariably they will find that the policy is failing consumers, innovators, and investors. These countries want to move forward with 5G smart networks, but they have policy designed to maintain a dumb pipe. This can’t be resolved, even with the proffered “5G slicing” techniques.
More important, consumers are denied their freedom of choice by being forced to value all data uniformly and equally when their preferences show that they place different values on different data. Policymakers will see that they are trading away billions of dollars in network investment for the sake of a “look good, feel good policy” which does not serve consumers, startups, or investors. Simply put, no leading 5G nation has hard net neutrality rules, and yet they protect consumers and the ecosystem with competition law and transparency rules. Strand Consult will launch a report on this topic in early 2023. Check out our library of reports and research notes covering this issue for the last decade.
Mobile operators will mature their ESG practices
Green energy consumption is a big deal in broadband. Many mobile telecom operators have formalized in Environmental, Social and Governance (ESG) goals into key performance indicators. Yet the corporate maximization of ESG by some companies has led to “greenwashing”, deceptive marketing to create the illusion of goodness and to hide malpractice perpetuated by ESG practices and regulation.
Politicians, regulators, and business leaders often claim to be focused on sustainability. Yet, few fully appreciate the difference between being truly sustainable and just “less bad”. The traditional ESG metrics of CO2 emissions, energy consumption, etc. are used as proxies for sustainability progress, but often performance is merely incrementally improved and then celebrated as sustainability. This is not sustainable – it is just “less bad” performance, as the negative impact is still there.
As such, the Future-Fit Business Benchmark has emerged for clear, actionable guidance to perform without negatively impacting people, society and the planet. European solar power producer Better Energy uses Future Fit in its provision of Purchasing Power Agreements for certified green energy to mobile telecom operators and content/application companies, and its performance model is likely to be adopted even more widely.
Another key learning is that operating parallel infrastructures with small cells is not sustainable. The business case for small cell is in network sharing. Mobile operators in United Kingdom just announced trials of a shared small cell network which hosts all 4 mobile operators.
Conclusion
Strand Consult’s Christmas wish is that the war in Ukraine will end in 2023. We have a simple choice in this world: democratic capitalist systems with promote human freedom, rights and flourishing OR totalitarian systems which demand control over public and private life and prohibit opposition. Mobile networks telecom networks improve quality of life for their users. In 2023 Strand Consult will continue its work in policy transparency to ensure that mobile telecom networks have sustainability, security, and integrity.
This past year In 2022 Strand Consult published many research notes and reports, and featured half a dozen industry experts on our guest blog. Strand Consult’s analysis was quoted in some 1000 news stories globally. Our work took us to all the continents but Antarctica. Our readership continues to grow. For the last 22 years, Strand Consult has made predictions for the coming year. You can check our archive to see whether we were right.
COVER IMAGE: myHSA
