Launching your IoT Strategy \ ASX Technology Dashboard \ Mobile Operators Approach to 5G Fixed Wireless \ Webscale Market Consolidates as US -China Battlelines Are Drawn

 
 



Welcome to the Venture Insights newsletter!
In this week’s edition, we look at the following:

  • Launching your IoT Strategy: Choosing a LPWAN Network for the Long Haul
  • WAAX vs FAANG : ASX Technology Dashboard
  • Mobile Operators Will Take a Measured Approach to 5G Fixed Wireless
  • Webscale Market Consolidates as US/China Battlelines Are Drawn

CHART OF THE WEEK

Big 4 Operators’ Share of Global Webscale Capex (Annualised)



Source: MTN Consulting

Launching your IoT Strategy: Choosing a LPWAN Network for the Long Haul

Table of LPWAN network technologies



Source: Venture Insights

Interest and investment in Internet of Things (IoT) solutions is growing in every industry. IoT can cut costs, improve efficiency, and increase the visibility of industrial processes. It is not surprising that many companies and government agencies are now exploring IoT technology and developing use cases.

One option for IoT connectivity is a direct connection to the cellular mobile network. But increasingly, low power wide area networks (LPWAN) like NB-IoT and LoRA are preferred because of their cost, coverage and power advantages. Choosing the right LPWAN network is crucial to the long-term sustainability of an IoT strategy.
The White Paper, prepared by Venture Insights for Telstra, sets out the decision criteria for choosing a LPWAN to support your IoT strategy.
Different organisations are at different stages of this journey. Typically, they will start by experimenting with IoT devices and networks to develop a better understanding of the technology and its potential. But technology isn’t much use until it is applied to real business problems. Organisations must move past awareness raising, testing and trialing to address concrete business issues.
Organisations should conduct an early assessment of the strengths and weaknesses of each network technology, to ensure that the network can support the business solutions they are trying to implement. Otherwise, they risk committing to a ‘technology trap’: a network that can’t support the long-term business objectives of their IoT strategy.

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WAAX vs FAANG : ASX Technology Dashboard



Source: Venture Advisory

Over the past few years the ASX’s technology stocks have outperformed the market considerably and there has been a lot of focus on the so-called WAAAX stocks (Afterpay, Altium, Appen, Wistech, Xero) as a leading indicator of Australia’s tech sector. These five stocks alone have a combined market capitalisation of around $54 billion, which represents around 2.5% of the ASX’s total market value. The WAAAX’s are trading on FY21 EV / Revenue multiples of around 15.5x and only two of the five (Altium and Appen) have forward EV / EBITDA multiples of ~40x. This is a heavy contrast to the leading technology stocks in the US as represented by the FANGS (Facebook, Apple, Amazon Netflix and Google / Alphabet) which have forward EV / Revenue and EV / EBITDA of 5.6x and  21.5x respectively. This demonstrated the relative maturity and scale of the FAANGs versus the WAAAXs.  It should also be noted that the combined market capitalisation of the FANGS is around US$5,300 billion, which is around 3 times larger than the ASX’s total market capitalisation of ~A$2,000 billion. No doubt that these FANGS exert large economic power and some would say far to much competitive power to

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Mobile Operators Will Take a Measured Approach to 5G Fixed Wireless

In the future, would you consider taking up or switching to a 5G fixed wireless home broadband service if it becomes available?



Source:  Venture Insights Survey

Telstra’s launch this week of its mid-band 5G fixed wireless (5G FW) product promises to expand access wireless broadband significantly. The mobile network operators are keen to shift fixed broadband customers away from NBN onto 5G FW in order to get better (or any) margin on their revenues – this is no secret. But this strategy requires a careful balancing act.

Our consumer research shows that there is significant interest in 5G as an alternative to NBN. As the graph above shows, 13% of respondents were happy to move to 5G FW immediately, and another 25% within 2 years.  These numbers – if translated into action – would see many millions of households shift from the NBN to 5G fixed wireless.
But it isn’t demand that will limit 5G FW takeup. In reality, the numbers will constrained on the supply side. Telstra has stated that 5G wireless “is not necessarily the right solution for every customer” and will initially offer 5G FW on an invitation-only basis. Optus is taking a more expansive approach, but is still selective about migrating customers to its network; we calculate it has about 300 5G fixed wireless customers on each 5G base station, and that number is fairly stable. This makes sense, because the average fixed broadband customer uses a lot more data than the average mobile customer. MNOs need to manage the balance of fixed and mobile customers on their mid-band networks without hitting capacity constraints that degrade performance for both.
The MNO strategy will be to focus on customers who are attracted to the higher speeds they can get on 5G FW (particularly in areas where NBN Co has deployed FTTN), but are not the heaviest users of data. Since data use is correlated to service speed, the target market for this product starts with customers on NBN’s 12Mbps product (where RSP margins are reportedly almost zero), but potentially includes remaining ADSL customers and some 25Mbps and 50Mbps customers as well.
Telstra, Optus and TPG have nothing to lose and a lot to gain by expanding 5G fixed wireless broadband. 5G FW customers will deliver higher margin. Taking customers away from the NBN can only increase pressure on NBN Co to review wholesale pricing. Offering 5G fixed wireless costs the MNOs no additional 5G capex because this is capital investment they need to make anyway. And if NBN wholesale prices were to fall in the future, 5G FW customer migration back to the NBN would simply free up more capacity for 5G mobile.
We argue that mmWave won’t change this picture for a while, because deployment of mmWave fixed wireless requires a lot of small cells in the cluttered environments where fixed broadband  customers typically reside. This will only be viable in areas with dense fibre networks that can support the requisite backhaul. The business case will improve as more sensitive CPE expands the useable cell radius, improves in-building penetration and reduces installation costs. But these developments are still some years away from commercial deployment. Until then, MNOs must make do with the capacity they already have.
Please read our 2020 Telco Outlook Report for or views on Fixed Wireless Substitution. We will be publishing our detailed fixed wireless forecasts shortly.

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Webscale Market Consolidates as US/China Battlelines Are Drawn

Annualized capex and R&D spending: WNOs (% revenues) 



Source: MTN Consulting

While economies are being disrupted by the COVID-19 pandemic, webscale network operators (WNOs) like Amazon and Google have reached all-time highs for a number of financial measures in 2Q20, including capital expenditures (capex), R&D expenses, and revenues. WNOs’ stockpile of cash and short-term investments reached $735 billion, up 11% YoY, and comfortably higher than WNO debt of $483 billion. Stock market valuations of key webscale players have climbed throughout the pandemic. The WNO business is about scale and building leading edge networks and service platforms. This is reinforcing a consolidation trend in the industry.

As WNOs have grown, they’ve developed more sophisticated offerings in the cloud, often targeting specific vertical markets with customized platforms, including telecom. This is impacting how telcos build their networks and develop services. In the last year, webscale partnerships with telcos have expanded, spanning workload shift, joint development, and service partnerships – often supporting 5G. In January, our research partner MTN Consulting flagged the need for more collaboration between telcos, WNOs, and carrier-neutral providers as essential for 5G success as telcos aim to lower their capex outlays.
Nearly all of the big webscale players are either American or Chinese. Both American and Chinese WNOs aim to have operations spanning the globe, and require access to cutting edge technology and skills. China’s webscale sector developed in a protected market, identified as strategic sector where foreign players were highly restricted. The U.S. is only now catching up with China’s strategic approach. As recently as the beginning of 2020, Alibaba and Tencent already had significant network and R&D assets in the US, and Chinese WNOs still had largely unrestricted access to US technology such as Intel platforms or third party-designed chips manufactured by foundries such as TSMC. Much of this is changing.
For more more insights into webscale markets and players, ask us about our research partner MTN Consulting’s series of reports on the global webscale industry by clicking below.

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