Why is it considered a fantasy for Internet giants to operate “a nationwide LoRa network”?

On August 17, China Tower, the world's largest communications infrastructure service provider, signed a strategic cooperation agreement with Alibaba. This caused a stir, especially the statement in the cooperation announcement that "it will provide site resource support services throughout the country for Alibaba's Internet of Things construction" was very intriguing. Many people in the industry interpreted this move as a prelude to building a nationwide LoRa network. In my opinion, this statement has many ambiguities and conjectures. Let's analyze it one by one from several issues.

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1. Who will invest in, build and operate a nationwide LoRa network?

Since it is considered to be a "LoRa network covering the whole country", there must be an investment entity and an operating entity similar to a telecom operator, that is, a national network operator. So who will be responsible for this entity? Judging from the two parties who signed the contract on August 17, China Tower, as a central enterprise managed by the State-owned Assets Supervision and Administration Commission, is positioned to provide infrastructure support for operators, industry applications, and innovative business operations. In addition, the three major operators are its initial shareholders, and it is impossible for it to become a national network operator. Therefore, many people believe that this role will be assumed by Alibaba, which means that Alibaba will become a new wireless network operator. In my opinion, this idea of ​​hoping that an Internet company will become an IoT basic network operator is highly imaginary.

2. Why is it a fantasy for Internet companies to become IoT infrastructure network operators?

In the past few months, in addition to Alibaba, Internet giants such as Google and Tencent have also joined the LoRa Alliance to promote the implementation of the Internet of Things strategy. Joining the LoRa Alliance and supporting the development of LoRa does not mean that Internet companies must assume the role of "a nationwide LoRa network" operator. We can interpret this from the following five aspects.

1. Will the regulator issue basic telecommunications operating licenses?

Since we want to be a "LoRa network covering the whole country" operator, obtaining an operating license is the first problem to be solved. Whether it is domestic or overseas, regulatory agencies will definitely not allow a company without a license to carry out national network operation services. However, this license is not as easy as applying for ISP, ICP and other licenses for Internet companies in the past.

Looking through the regulatory rules and regulations such as the "Telecommunications Business Classification Catalog" and "Telecommunications Business License Management Measures" issued by the Ministry of Industry and Information Technology, if LoRa is used to build a nationwide network and operate it externally, this business can be classified as "network access facility business" in the second category of basic telecommunications business:

A LoRa network with nationwide coverage can be further classified as "A25-1 Wireless Access Facility Service Business". Regardless of which business category it is subdivided into, since a nationwide network is built and business is conducted openly, it is undoubtedly providing basic telecommunications services and requires a basic telecommunications business license.

At present, in addition to China Mobile, China Telecom and China Unicom, only a few state-owned units such as China Radio and Television Network and China Communications and Information Center have basic telecommunications business licenses, and their business is subject to many restrictions. Whether in China or abroad, a basic telecommunications operating license is an extremely difficult license to obtain. For Internet companies to become national LoRa network operators, this will be a threshold that is difficult for most to cross.

Regulation is not only reflected in the basic telecommunications business license, but also in the spectrum regulation. Previously, the draft for comments on the management of radio spectrum for micro-power devices only allowed metering instruments to use the 470-510Mhz frequency band. Large-scale networking has not been finalized, let alone nationwide networking, which undoubtedly sets another threshold for national LoRa operators.

2. Based on past experience, is the asset-heavy model of network operation in line with the style of Internet companies?

To take a step back, even if an Internet giant obtains a basic telecommunications operating license and a clear spectrum policy, investing in and operating a network is still a very difficult task, mainly because network operation is an asset-heavy model.

Internet companies have precedents in network operations, the most typical of which is Google's entry into the broadband service operation business Google Fiber. In 2012, Google first launched its ultra-high-speed fiber optic service, which the industry believed would have a strong impact on the fiber optic broadband operations of operators such as AT&T and Verizon. However, six years later, the fiber optic broadband services of AT&T and Verizon have not been greatly impacted by Google, while Google Fiber has fallen into trouble.

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As a capital-heavy model, broadband operators first need to invest in and operate network infrastructure. Building infrastructure from scratch is a difficult task. In the early days of its operation, Google relied heavily on fiber optic deployment and city partnerships, but it has been facing many difficulties, including various obstructions caused by project construction, lawsuits for hanging fiber optic cables on existing infrastructure, and high and continuous expenditures, which has led to its very slow development and was defeated by traditional suppliers. Although it is still in operation, there has been no substantial progress in more than 6 years, and it can be said that it is on the verge of failure.

To a large extent, the Internet giants who are used to asset-light operations are not adapting to asset-heavy businesses that require a lot of capital and manpower, which is one of the main reasons for the difficulties in Google's fiber network operations. Network operation is a dirty and tiring job. Telecom operators have more than ten years of rich experience and operation and maintenance personnel all over the country, as well as a large number of "network optimization mercenaries" who undertake network maintenance work to achieve stable operations. China Mobile's profits far exceed those of Internet giants such as Alibaba and Tencent, but its overall valuation is far lower than that of Internet giants. The capital- and labor-intensive asset-heavy model is also one of the reasons for the valuation gap.

There are many similarities with the operation of fiber-optic broadband. Wireless network operation is also an asset-intensive business. Although LoRa network deployment is relatively flexible and low-cost, as a nationwide network, long-term operation and maintenance are essential, which requires a long-term operation and maintenance team.

3. How to calculate the cost of network construction and operation and the lack of applications?

As a national network operator, it is not only the initial and rolling investment costs of the network, CAPEX, but more importantly, the operation and maintenance costs, OPEX. However, can a large number of IoT services be immediately brought in by spending a huge amount of money to build a network? The cost-benefit here also needs to be considered in depth.

From a cost perspective, since the cost of LoRa-related equipment is relatively low, we will not talk about the initial network construction cost for now, and only examine the operating costs. Among these operating costs, the tower rental alone is a high expense. The author has consulted several IoT manufacturers that cooperate with towers and learned that for IoT network equipment such as LoRa, the tower rental has multiple tiers according to different cities and regions, ranging from 30,000 to 40,000 yuan per site per year to 5,000-6,000 yuan, and the average rental cost is basically more than 10,000 yuan per site per year. Deploy a nationwide IoT network, benchmarking China Unicom's 300,000 NB-IoT base stations, assuming that 300,000 LoRa base stations need to be deployed. According to this calculation, the annual expenditure on tower site rental alone reaches 3 billion yuan. Since each tower has costs such as land rent, manpower, and electricity, unless the operator has other models to return to the tower, even if it is a deep cooperation partner, the tower company will not provide sites for free. Some people may think that the LoRa network is flexible to deploy and many base stations do not necessarily require tower sites. However, as a national operator, 300,000 base stations are far from enough to achieve truly seamless coverage and deep coverage, and the demand for tower sites has also increased accordingly.

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Tower rental is only a part of the operating cost, and other costs such as manpower, maintenance costs, and power are daily costs. LoRa operators cannot compare with existing telecom operators in terms of operating costs, because telecom operators have already leased tower sites to deploy 2G/3G/4G networks. Deploying NB-IoT on leased sites can fully reuse various existing resources. Not only is the marginal cost of tower rental almost zero, but operation and maintenance, power, transmission, etc. can directly share the resources of existing cellular networks.

In the promotion of IoT business, there is often a misunderstanding: once the network is built, people will naturally make a lot of innovations and various applications will be connected. This situation is easy to occur for the traditional communications industry and mobile Internet, but the IoT is a more decentralized application in various industries of the national economy, and large-scale applications may not appear immediately after the network infrastructure is deployed. From the existing experience, as early as two years ago, South Korea's SK and France's Orange completed nationwide LoRa network coverage, and Sigfox has achieved network deployment in more than 30 countries and regions around the world, but it has not seen large-scale connection growth for such a long time; there are also a few domestic manufacturers who have deployed metropolitan LoRa networks in some cities very early, and there have not been many application accesses, and some manufacturers have even dismantled the originally deployed base stations.

Therefore, the IoT network should be built based on an application-oriented model, especially for manufacturers without any experience in network deployment and operation, they should first have applications and then build networks on demand. The three major operators have achieved nationwide commercial use of NB-IoT, and base station upgrades have been completed, but not all of them have been opened. Instead, they are in an on-demand state, and will be opened in places with a certain scale of application.

From the perspective of revenue, as a network operator, how much revenue can selling connections bring? As we all know, the average revenue of telecom operators' IoT connections is continuing to decline, and the revenue of each connection may be less than 10 yuan/year in the future. As a more economical connection method, LoRa's pure connection charges will not be higher than the revenue of telecom operators. Based on this calculation, if Internet giants build and operate a nationwide LoRa network, even if the number of connections can reach 1 billion at an astonishing rate in the next 3-5 years, their revenue will not exceed 10 billion. The tower rental alone is 3 billion yuan per year, plus other cost expenditures, the revenue from this network connection is very meager, and the increase in other businesses brought by network operations is still uncertain. Therefore, from the perspective of cost-benefit, it is not economical for Internet companies to operate a nationwide LoRa network.

4. Don’t you consider leaving a way out for your partners?

Taking a step back, assuming that the above three conditions are not a problem for Internet giants and they can operate a nationwide LoRa network, then a new problem arises and the living space of many partners is squeezed.

Why do you say that? The Internet of Things does not have a very obvious winner-takes-all effect like the Internet ecosystem. The entire industry chain is very long and the industry forms are different. One giant cannot cover all links, so the win-win cooperation of the industry ecosystem is very important. In the NB-IoT industry ecosystem, telecom operators still continue their role as network operators, and other companies in the industry chain can still form a benign relationship with them. However, in the LoRa industry ecosystem, due to the flexibility of LoRa itself, it gives more innovation opportunities to participants of various types and sizes in the industry chain, allowing many vertical field companies and small and medium-sized enterprises to have the opportunity to participate in network operations. If the Internet giant itself becomes a network operation giant, it will undoubtedly be a huge blow to other participants in the industry chain who can innovate various network deployment and operation methods.

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In a large number of IoT projects, there are various forms of industry-level, enterprise-level IoT operators and smart city project operators. These groups are originally key partners of Internet giants in the IoT ecosystem. If Internet giants also do the work of operators themselves, can their ecological strategy be promoted? For example, in IoT projects of industrial parks and smart communities in which many Internet giants participate, park-level LoRa networks are often built, and the operation of this network is generally carried out by park operating companies or third-party partners. It is precisely with the help of the flexible deployment and flexible operation of the LoRa network that more companies can get the opportunity to participate. Internet giants provide platform-level solutions and LoRa network platform empowerment support, but do not participate in network operations.

Taking the industrial ecosystem of Alibaba Cloud IoT as an example, the IoT Partner Program Alliance and various business teams it initiated have brought together more than 300 partners in the IoT field, including many small and medium-sized enterprises and industry and enterprise-level network operators that provide LoRa network construction and operation. If Alibaba builds and operates a nationwide LoRa network itself, these groups will no longer be able to become partners in its ecosystem.

5. Will not being a network operator harm the Internet giants’ layout in the field of IoT?

Some people believe that Internet giants acting as LoRa IoT network operators is a reflection of their layout and voice in IoT, and a means of seizing the first opportunity in IoT. In fact, it is not the case. It is uncertain whether Internet giants can gain the first opportunity by acting as network operators in their IoT layout, but not acting as operators will not have a significant negative impact on their IoT layout.

Internet giants have always changed and even overturned the model of traditional telecommunications business not by building and operating an infrastructure similar to that of telecommunications operators, but by providing better applications, content and business models, and further pipeline-izing the telecommunications industry. For example, the emergence of WeChat caused the cash cow SMS business of the telecommunications industry to fall off a cliff. Soon after, the launch of WeChat voice replaced many markets for mobile voice calls to a certain extent. In addition, various "king cards" jointly launched by telecommunications companies and Internet companies in the past year or so have further widened the gap in operators' traffic, etc. All these large-scale impacts on the telecommunications industry are achieved with the help of Internet companies' precise exploration of user needs, development of high-quality applications and production of rich content, but they are definitely not achieved by investing in the construction of network infrastructure and operating networks themselves.

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Internet giants have not done any work in network construction and operation, but they have made network operators pipeline-based, relying on the voice of applications, content, and users; in the era of the Internet of Things, although network connections are still very important, their value in the entire industry chain has further declined. If Internet giants can continue to explore the direction of Internet of Things applications and user needs and build a more complete industrial ecosystem, they can also make network operations further pipeline-based and gain a certain voice in the Internet of Things industry.

Based on the above five points, the author believes that it is unlikely for Internet giants to build and operate a nationwide LoRa network. The so-called nationwide LoRa network is just a fantasy.

3. Even if you don’t operate the LoRa network, you can still be the main force in promoting the LoRa industry

It is unlikely that "a nationwide LoRa network" will be independently built and operated, but Internet giants such as Alibaba and Tencent still have the opportunity and ability to be the main force in promoting the entire LoRa industry ecosystem, and thus form their own voice in the IoT industry chain. In the article "Tencent and LoRa: Internet Giants' IoT Business", the author believes that the LoRa industry ecosystem is a good entry point for Internet giants to deploy the Internet of Things. Of course, through the powerful platform-level capabilities of Internet giants, they will also become core players in the LoRa industry ecosystem.

1. Empowering LoRa network deployment and operation

At the press conference at the end of March this year when Alibaba announced its full entry into the Internet of Things, the tree diagram of Alibaba Cloud IoT's Internet of Things industry layout was quite eye-catching. Everyone noticed that its network-level layout mainly released the LinkWan platform, which can empower the deployment and operation of LoRa networks.

In my opinion, the slogan "Today every home has a WiFi network, and in the future every enterprise will have a LoRa network" accurately reflects Alibaba's demands in the LoRa field. Every enterprise has a LoRa network, just like every family can buy a WiFi router and configure it to form a home Internet network. This scenario has already been realized; then, if every enterprise can buy a LoRa gateway and configure it by itself to quickly form an enterprise-level IoT network, it will make the deployment of the LoRa network super simple.

The realization of such scenarios requires to a large extent the simplification and fool-proofing of LoRa gateway configuration and maintenance, so that it is easier to realize "every enterprise has a LoRa network". As early as several years ago, a team of enthusiasts in the Netherlands provided a simple access platform for LoRa gateways called TTN. Any enthusiasts who have a LoRa gateway but do not have the ability to configure the relevant network can register on the TTN platform and manage the network through various operation and maintenance tools provided by TTN. Currently, more than 3,300 gateways are connected to the platform. The Link Wan launched by Alibaba can be regarded as an enhanced version of the TTN platform, which actually provides tools for accelerating the implementation of all enterprises and individuals who want to build an IoT network. Similarly, the Internet can empower all large and small LoRa network construction operators through such a cloud platform, thereby realizing the vision of "every enterprise has a LoRa network", which can be said to make "everyone operator" a reality, which has a much greater leverage effect on the industrial ecosystem than deploying a nationwide LoRa network by itself.

2. Integrate a large number of decentralized LoRa operator resources

As mentioned above, the flexibility of LoRa provides the industry with more opportunities for innovation, and a large number of decentralized companies can participate in the operation of LoRa networks. However, this situation results in a very fragmented and diverse standard. Internet giants can take advantage of their cloud platform capabilities in this field and integrate these decentralized operator resources.

This is a process of "a spark turning into a prairie fire", that is, starting with a large number of scattered industry applications, deploying small-scale LoRa networks on demand. These small-scale LoRa network operators are generally small in scale and may not need to build their own dedicated core network, network management, and billing systems. They can quickly realize network operations with the help of a third-party existing cloud platform, which can be undertaken by TTN or LinkWan. With the increase in applications, network deployment will gradually become denser, and it is possible to connect or overlap. At this time, network resources can be managed and allocated on this platform. Under certain rules, network resources can be shared between different operators and users to avoid duplication. In time, a large number of scattered LoRa networks are likely to form city-level coverage. Of course, this is a gradual process. What makes the spark eventually turn into a prairie fire is the third-party cloud platform behind it.

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The author believes that this model can be compared to the cloud computing model, that is, each LoRa operator does not need to deploy the core network, network management platform and billing system by itself, but the Internet giant provides this platform, which can be used and paid on demand, which not only reduces the cost of deploying the platform, but also enjoys the powerful platform-level capabilities provided by the Internet giant. Each decentralized operator deploys the access network part, which has a special LoRaWAN standard specification, and after the backhaul, the cloud platform provided by the Internet giant is used. In the core network part, there is a unified specification of this cloud platform, which guarantees the end-to-end standardization of the LoRa network to a certain extent. Since the core network, network management and billing system of LoRa are guaranteed by the IT personnel and capabilities of the Internet giant, a large system with the ability to handle ultra-large connected IoT networks can be formed, which is what other partners in the industry chain do not have and need. Of course, for the Internet giant, this cloud platform can also become a carrier for realizing the standards and industry influence in LoRa. At present, Alibaba has launched the LinkWan platform, and it can be expected that Google and Tencent, which have joined the LoRa camp, will also launch similar platforms. Driven by these tools and capabilities, Internet giants do not need to build and operate LoRa networks, and can also integrate LoRa industry chain resources.

3. Avoid various problems and create leverage

In addition to third-party core network platforms, Internet giants also have certain advantages in IoT standards and large-scale project acceptance, which have leveraged the IoT industry. Instead of being a nationwide LoRa network operator, integrating decentralized LoRa operators can avoid the five problems mentioned above. Specifically:

• LoRa operators scattered across various industries, parks, and enterprises can be regarded as operators of dedicated networks. Without interfering with other normal communication services, they do not need a special operating license.
• For operators, small-scale LoRa networks are more of an on-demand deployment based on their applications. It is a demand-oriented behavior and does not constitute heavy asset operation.
• Decentralized LoRa network operators not only operate networks, but also operate parks, industries, and businesses. The network is only a part of their operations, so cost-benefit is often considered from the perspective of overall operations;
• Internet giants provide core networks, network management, and billing system platforms that support large connections. Partners will not provide such a more complex platform, and this is often the capability that partners need;
• Internet giants can still gain a say in the Internet of Things by focusing on customers and applications.

Regarding the cooperation between China Tower and Alibaba, China Tower provides the site resources for the deployment of the IoT network, and Alibaba's IoT ecosystem can make more innovations. Let's imagine a business model: as a partner of Alibaba, various manufacturers can deploy LoRa networks on China Tower by themselves. If they use Alibaba's LinkWan platform, they can enjoy preferential prices for the site rental of China Tower, or share the profits with China Tower according to the application deployment. This will not only accelerate the deployment of the partners' LoRa network, but also increase the number of devices connected to the LinkWan platform, and open up some innovative business revenue sources for China Tower.

Let me reiterate my opinion: It is a fantasy for Internet giants to build and operate "a nationwide LoRa network", but Internet giants can become the main force in promoting the LoRa industry through other means.