How Big a Problem is Growing Mobile Data Demand?

Replacing declining legacy revenues with new sources is a key strategic challenge for service providers. So a key practical issue is whether new broadband access, video entertainment or managed services will grow fast enough to match voice revenue diminution.

In fact, Rupert Wood, Analysys Mason principal analyst, warns “there were already signs two years ago that the shifting balance between smart phone and mobile broadband would result in lower growth of mobile data traffic.” 

In other words, the problem is not "exploding growth," but not enough growth. 

Wood predicts mobile data revenue growth in Western Europe, for mobile service providers, will drop in 2012, for example. And though it might have seemed an improbable development, Wi-Fi has become a virtual default network for most smart phone and tablet traffic.

That doesn’t mean untethered mobile devices are best served by Wi-Fi when users are on the go, but the most data-intensive traffic will tend to get consumed indoors, because that’s the natural place to consume it, not because it is the only place with good enough connectivity, says Analysys Mason.

the problem is that demand will not grow enough. 

“Pipe” Services Will “Always” Drive Most Service Provider Revenue

Communications service providers dislike the phrase “dumb pipe” for obvious reasons, since it implies–often falsely–that a telecom supplier is “just” a provider of low-value, commodity access services. The notion is partly accurate, but has nothing to do with profit margin on “dumb pipe” services.

What, after all, is “best effort” Internet access but a “dumb pipe” service? The access is one thing, while nearly all the content and services are provided by third party suppliers. But profit margins on U.S. high-speed access are in the 40-percent range, hardly a low-margin, commodity service.

There are threats, but those threats are potential future threats, such as ever-increasing amounts of supplied bandwidth, for the same, or less, revenue. But service providers already are moving to tie consumption to revenue in a more-logical fashion, so the potential danger is unlikely to surface as a present danger.

Also, very few service providers are “just” Internet access providers. Video, voice, security, business services and managed services are applications with lucrative revenue streams that use the access network. 

The point is that pipe services always will drive most access provider revenue. 

Questions About Investment Return for IP Networks as PSTN Shutdown is Pondered

As policymakers and service providers ponder the implications of a future “shut down” of the public switched telephone network, they will face a new series of questions.

Since the robustness of investment in new networks will hinge on expectations about profits, many of the questions will flow directly from the more challenging business model. As the regulatory framework had to change in the shift from a monopoly model to a competitive model, so the framework arguably will have to change again with a shift to all-IP networks.

When service providers worry about the implications fo “dumb pipe” or “over the top” business models, they simply acknowledge a key change in the foundation of the networks business, namely that network access and applications now are logically distinct.

Whatever else might be said, it is obvious that “certainty” is not a key feature of the fixed network business anymore. That’s a problem since uncertainty is the enemy of investment. 

FCC Initiates Review of Mobile Spectrum Policies

The Federal Communications Commission (FCC) has adopted a Notice of Proposed Rulemaking (NPRM) to reexamine its mobile spectrum holding policies, last reviewed comprehensively more than a decade ago. 

The FCC review makes sense, many would argue, in light of the greater importance of terrestrial mobile broadband, compared to fixed or mobile satellite services, and the shifting of spectrum to terrestrial use. 

Also, the coming spectrum auctions for former broadcast TV frequencies necessarily will raise issues about the quality and quantity of competitor spectrum holdings, pro-competitive measures that might be taken and an overall need for clear and stable rules to stimulate investment.

As always, the setting of new rules necessarily will create concrete business advantage for some contestants, compared to others, likely creating new opportunities for at least some new or smaller contestants. 

In related moves, the FCC also is looking at its licensing rules for satellite services, with a new emphasis on interference issues. That has taken on new significance in light of repurposed low-power satellite frequencies that will operate as higher-power terrestrial Long Term Evolution 4G networks. 

The FCC also is preparing to auction spectrum formerly used by broadcasters, to support LTE networks. 

All of those moves show the heightened importance of spectrum policy, at the moment, for broadband progress overall. 

U.S. Needs “More Mobile Spectrum,” But When?

If there is any one "rule" that has "always" been right in the mobile business, it is that, over time, more bandwidth is consumed, and therefore more spectrum is needed. That isn't to deny the other ways any existing amount of bandwidth can be employed. There have been clear advances in coding and modulation that wring more usable bandwidth out of any amount of spectrum.

Traffic offloading using Wi-Fi also has become important, and networks can be redesigned using smaller cells, to effectively increase the amount of bandwidth any given amount of spectrum can provide. But the costs of shrinking cells grows as the cell radii shrink. 

At some point, there arguably is a point where the cost of tweaking existing bandwidth is more expensive than can be supported by retail service rates, and when allocating additional spectrum is the more affordable choice, from a national perspective of supplying lots more bandwidth at reasonable cost.

Some argue that there is no spectrum shortage. That might be correct, for the moment. Where argument increases is whether there will be potential spectrum shortages in the future, and what needs to be done to avert a problem.

One should be skeptical at times about claims that a specific country is "falling behind" on some measure of communications intensity. And that applies to claims of spectrum deficiency. 

Sometimes the "adoption" issue is simply that the value of a particular innovation is not immediately grasped. Once the value proposition is clear, adoption seems to occur rapidly enough.

In recent years it has been argued that the United States is behind in broadband adoption, either  fixed or mobile.   In earlier years it has been argued that the United States is “behind” Europe, for example, in mobile phone adoption.

Similar concerns have been expressed about use of text messaging (short message service) or U..S. use of mobile multimedia or mobile payments, compared to Japan, for example.

That might apply, in some ways, to claims the United States "has quickly fallen behind the world" in  auctioning off spectrum that can be used to support wireless communications.

It is argued that Germany and Spain have auctioned about 50 percent more spectrum for broadband than the United States has. It is said that France has auctioned about 40 percent percent more spctrum, while Italy and Japan have auctioned 30 percent more spectrum.

"Specifically, the U.S. has auctioned about 410 MHz, Germany about 615 MHz, Spain about 600 MHz, France about 560 MHz, Italy roughly 510 MHz, Japan an estimated 500 MHz, and the United Kingdom preparing to auction about 600 MHz, Precursor principal Scott Cleland says.

Some skeptics will argue that one would expect Cleland to take that view, as one virtually always will find Cleland taking positions that are "against" Google and "for" telcos. And there is little doubt that mobile service providers virtually always seem to be looking for more spectrum as they add more customers.

The new reality is that each of those new customers are starting to consume network bandwidth at unprecedented rates, compared to past usage of narrowband voice and messaging apps.

That isn't to deny that more spectrum will be needed, in most countries, as mobile broadband adoption increases. Nor are U.S. regulators unmindful of the need to clear unused former TV broadcast spectrum for mobile use. So the "auction gap," like many other past "gaps," will close over time.

Also, what isn't immediately so obvious is what other spectrum assets already exist that can be "re-purposed," as U.S. mobile service providers are decommissioning older 2G or iDEN spectrum for new use by fourth generation networks.

And then there is spectrum Clearwire already has deemed surplus, the potential Dish Network, LightSquared and Nextwave spectrum, for example.

Long term, most service providers will need more physical spectrum. What isn't so clear is that there really is a spectrum auction gap that means anything terribly important at the moment.

That isn’t to deny a future issue, though. The growth rate in global mobile  data traffic is projected to grow 60 percent annually from 2011 to 2017, which will result in a 15-fold increase in traffic by 2017, mainly due to video traffic.

“Such an explosion in data traffic requires more spectrum,” the International Telecommunications Union says.  In this regard, policy-makers and regulators can help to create a supportive environment and encourage investment and ensure sufficient availability of quality spectrum, the ITU broadband report  says.

Analysts at Deloitte concur with that assessment, and in fact urge more rapid clearing of spectrum for 4G mobile network use in the U.S. market.

U.S. investment in 4G networks could fall in the range of $25 billion to $53 billion during 2012-2016; conservatively, these investments could account for $73 billion to $151 billion in GDP growth and 371,000 to 771,000 new jobs, Deloitte argues.

The lower levels of investment and economic benefits are consistent with a “baseline” or “business as usual” scenario in which U.S. 4G deployment proceeds at a moderate pace and the transition from 3G to 4G stretches into the middle of the decade, Deloitte argues.

Under these conditions, U.S. fi rms would be vulnerable to incursions by foreign competitors capitalizing on aggressive efforts in their home markets to deploy 4G networks and develop
4G-based devices and services, Deloitte also warns, however.

In fact, Deloitte analysts believe that even an additional 500 MHz of allocated 4G spectrum would be insufficient to keep up with demand. “The Federal Communications Commission and Commerce Department are working tomake 500 megahertz of spectrum available for wireless
broadband in the next 10 years, but even if that goal is achieved, it could be difficult to keep U.S. commercial wireless spectrum supply and demand in balance as interest in new 4G offerings grows, Deloitte argues.

Past experience with 3G networks suggests the value of allocating more spectrum, and easing rules about its use, Deloitte says. From 1994 to 2000, FCC auctions tripled the amount of spectrum available for commercial mobile services.

“However, spectrum caps limited U.S. carriers to 55 MHz per market, while abroad most European and Asian carriers were allowed to own 80 to 90 MHz,” Deloitte says.  In 2003, the
spectrum caps were removed, while U.S. carriers also were permitted to buy and sell spectrum.

Those moves prompted a 250 percent increase in investment and a 300 percent increase in jobs in the mobile market, Deloitte argues.

But some might argue current Federal Communications Commission plans to auction off 500 MHz or so of new spectrum for Long Term Evolution 4G networks by about 2014 will happen soon enough to avert potential spectrum problems for the market as a whole. That doesn't mean particular competitors cannot have local issues. But that's a different matter.

Mobile Already is the Preferred Way of Accessing the Internet

It isn’t hard to argue that mobile is the preferred way most people around the globe want to use voice services.

Globally, there were  87 mobile phone subscriptions for every 100 people in 2011. There were in 2011 about 18 fixed line phone subscriptions for every 100 people.

What now is happening that mobile is becoming the way a majority of people access the Internet. A large part of the reason is that smart phones increasingly represent the way people use the Internet.

For the first time in history, the installed base of smart phones will exceed that of personal computers at the end of 2012.  
.

There were 589 million fixed broadband subscriptions by the end of 2011 (most of which were located in the developed world), but nearly twice as many mobile broadband subscriptions at 1.09 billion, the International Telecommunications Union broadband report says.

Of a stock of 5.97 billion mobile cellular subscriptions worldwide by the end of 2011, some
18.3 percent related to mobile broadband subscriptions..



According to Ericsson,mobile broadband subscriptions are growing by approximately 60 percent year over -year and could reach around 5 billion in 2017.

Worldwide, the total number of smart phones is expected to exceed 3 billion by 2017 (Ericsson, 201214), with the number of smartphones sold in Africa and the Middle East expected to increase four-fold from 29.7 million units sold in 2011 to 124.6 million by 2017 (Pyramid Research).

In Latin America, smart phones could represent half of all mobile phone sales by 2016.  Smart phone adoption is also gaining momentum rapidly in the Asia-Pacific region, where smart phones are projected to account for 33.2% of all handsets sold in 2012, with China alone representing 48.2 percent  of units sold.


But other mobile or untethered devices are important as well. Ericsson estimates that the total subscriptions of data-heavy devices (smart phones, mobile PCs and tablets) will grow from around 850 million at the end of 2011 to 3.8 billion by 2017.

To be sure, smart phone users do not  tend to consume as much  bandwidth as PC users do. But the number of smart phone devices will be so large that their overall impact will be about as large as the impact of PC Internet access, in terms of network demand.

Cisco estimates that adding one smart phone to a network is equivalent to adding 35 basic phones; adding one tablet is equivalent to 121 basic phones(or three smart phones); while adding a laptop or mobile PC is equivalent to 500 basic phones.

So total offered network load will be a combination of the quantity of devices and the bandwidth demand each type of device tends to create.

This leads Ericsson to conclude that, by about 2017, data traffic will be split fairly equally between smart phones, mobile PCs and tablets. 

How Big is SMB Revenue Opportunity?

While the U.S. cable operators in 2012 may generate over $7 billion in annual revenues providing telecommunications services to businesses, they "will be chasing a declining business telecom services segment" and face fierce competition from entrenched telco providers with very deep pockets ready to staunchly defend their existing base, according to a study from The Insight Research Corporation.

Cable operators will gain some market share, but "they will remain small players in a big industry with low margins and little cash flow," Insight Research argues. 

That the small business market is fragmented is uncontestable. That the market is "declining" is more contestable. 


By way of contrast, other analysts say services aimed at small and mid-sized businesses will be among the top-three fastest-growing communications services for fixed network providers, according to Atlantic-ACM. 

Machine-to-machine services, business Internet access and business VoIP all have double digit growth rates, according to Douglas Barnett, Atlantic-ACM senior analyst.

Between 2011 and 2017, M2M will have a 28 percent compound annual growth rate, small business Internet access will have a 24 percent CAGR and Business VoIP will have an 18 percent CAGR, Atlantic-ACM says. 

Of the 146 million U.S. wireline retail local telephone service connections in service in June 2011, about 38 percent were provided by incumbent local exchange carriers, about 26 percent were  ILEC business customers, while 20 percent of lines were supplied by non-ILEC residential service providers, while 16 percent were supplied by non-ILEC business service providers. 

In addition to the cable companies, local telcos also have emerged as significant suppliers in the CLEC business, especially in business customer segments. 

Revenues for U.S. CLECs were forecast to grow at a compound annual growth rate of 26.9 percent to reach $61.1 billion by 2006, Atlantic-ACM forecast in 2001. 

In 2003, The Brattle Group estimated that U.S. CLECs held more than seven percent of the U.S. business market, and nearly 10 percent of the U.S. consumer market. 

Neither of those figures has proven incorrect. A substantial amount of market share and revenue has indeed shifted to new providers. The Federal Communications Commission reported there were more than 206 million broadband access connections in service in mid-2011. 

Assume an average revenue for each of those connections of $40 each (a blended rate assuming $35 for a mobile connection and $50 for a fixed connection, and including both higher-priced business connections and consumer connections). About 81 percent of those connections were supplied by cable or wireless providers. For the sake of argument, assume that every wireless line is functionally a competitor to an incumbent broadband line. 

So 81 percent of 206 million connections would be 166.86 million accounts. At $40 a month, each of those lines might represent $480 a year worth of revenue. That would represent about $80 billion in annual revenue. 

To be more strict, assume only cable modem and a quarter of "ILEC" broadband accounts are counted as "CLEC" revenue, for purposes of estimating CLEC broadband access revenue, eliminating all wireless lines. 

That implies 27 percent of all fixed network broadband lines were supplied by "CLECs." 

Of the 206 million broadband connections, 23 percent are supplied by cable operators and 18 percent are supplied using DSL or fiber to home technologies. That implies 37 million CLEC lines using telco platforms and 47.4 million cable high speed lines. 

Assume 100 percent of the cable modem lines properly are counted as  "CLEC" revenue, at an average of $50 a month. Assume that 20 percent of the DSL or FTTH lines are sold by CLECs at $80 a month. 

That in turn suggests cable CLEC revenue of $28.4 billion and telco platform CLEC revenues of about $35.5 billion annually, for a total of about $35.5 billion in "CLEC" broadband access revenues. 

Assume that the 36 percent of fixed voice lines represent $45 a month in revenue (a conservative estimate including both consumer and business lines). That implies $540 a year in revenue for each line in service.

The FCC says there were 146 million fixed voice lines in service in mid-2011. That would imply 52.6 million "CLEC" lines in service, or $28.4 billion in end user revenues, not including access or other carrier revenues. 

So the "CLEC" revenue stream might be as little as $64 billion a year, or as much as $108.4 billion a year. 

News Consumption Now is an Indirect Concern for More Telcos

Until the past couple of decades, changing trends in news consumption would have had tangential, if any relevance, for telcos and mobile service providers. That began to change when telcos became video entertainment service providers, making TV news consumption at least a minor point of interest.

To the extent that consumers shift news consumption from print to television, that indirectly drives demand for video subscriptions.

Over the past couple of years, a shift to online consumption of news began to be more important, at least to an indirect extent, first as PC consumption created needs for broadband access, and more recently as "on the go" consumption has become an indirect driver of smart phone and mobile data service plans.

The percentage of Americans saying they saw news or news headlines on a social networking site "yesterday" has doubled from nine percent to 19 percent since 2010, for example. 

Among adults younger than age 30, as many saw news on a social networking site the previous day (33 percent) as saw any television news (34 percent), with just 13 percent having read a newspaper either in print or digital form, the Pew Research Center says. 

For an Internet access provider, that is indirectly of interest since such habits drive sales of fixed network and mobile Internet access, as well as use of public Wi-Fi hotspots. 

The proportion of Americans who get news online at least three days a week has leveled off, after a period of dramatic growth, though. 

Currently, 46 percent say they get news online or on a mobile phone or device at least three days a week, unchanged from 2010. About a third (32 percent) of the public gets news online every day, the Pew Center says.

Mobile Marketing More Used than Mobile Payments, at the Moment

At least so far, use of mobile devices to "pay for purchases" remains a less frequent activity than using devices to compare prices or check product reviews, as you might expect at this point in the development of a range of mobile commerce, mobile advertising and mobile operations options for retailers and consumers. 

When asked whether they have used a mobile to compare prices and look at product reviews while out shopping, 61 percent of U.S. respondents 18 to 34 and  51 percent of U.K. respondents reported they had done so.

But there are key age differences.  Only a minority of shoppers in older age group brackets said they had done so, Econsultancy reports. 

The results also suggest the importance of mobiles when shoppers are out and about. When asked what they would do if a particular store did not have what they were looking for, 45 percent of U.K. respondents and 46 percent of U.S. respondents indicated they would try and find the item at another store.

Some 32 percent of U.K. respondents would go home and then search online, while 32 percent of U.S. respondents would do the same. About five percent of U.K. respondents would use their mobile device to try and find the item, while eight percent of U.S. respondents said they would try that approach. 

Shoppers are turning to their phones for price comparison and reviews while out shopping, according to the survey. The survey found half of U.S. shoppers have used their mobile to compare a price or read a review when out shopping, along with 43 percent of U.K. shoppers.

Dish Talks to Viacom About Over the Top Delivery, Not Tied to Subscription

Dish Network Corp. reportedly is talking to networks such as Viacom, Univision and Scripps Networks Interactive about licensing some content to a new Dish over the top video offering that would not require purchase of a Dish Network video subscription, Bloomberg says. 

That would be a break with "TV Everywhere" packages that require customers to buy a linear video subscription first, before being able to use the TV Everywhere feature. 

The expectation is that Dish could create lower-cost online services that virtually any U.S. consumer with broadband access could buy. The issue is whether an appealing package, costing perhaps $20 a month, for users watching on tablets and smart phones, for example. 

35% of Smart Phone Data is Consumed Using Wi-Fi

On average, smart phones are making eight Wi-Fi connections per day and offloading as much as 35 percent of total data consumption to a Wi-Fi network, while heavy users offload as much as 70 percent , according to DeviceScape. 

You might think such statistics point to heavy smart phone data consumption, but that seems not to be the case. 

The overwhelming majority of customers on AT&T, Sprint, T-Mobile and Verizon networks studied by NPD Connected Intelligence don’t even use 2 GBytes worth of mobile data per month, which suggests most consumers do not need “unlimited” service plans. 


NPD Connected Intelligence tracked users on 1,000 Android smart phones as part of the study. T-Mobile USA has users who consume more, though. Some 11 percent of T-Mobile USA customers use more than 3 GBytes per month, compared to four percent of AT&T and Sprint customers who consume more than 3 Gbytes a month. 

About three percent of Verizon customers use more than 3 Gbytes a month NPD Connected Intelligence analyst Eddie Hold says Apple iPhone usage is pretty similar to that of Android users. 

From a consumer standpoint, there often therefore is little to no actual difference between an “unlimited” and a “big enough” service plan for voice, messaging or Internet access. 

The reason is simply that most people don’t actually use enough of any of those apps to “need” unlimited usage. On the other hand, there frequently are good reasons for a service provider to offer “unlimited” access to voice, messaging or Internet access. 

That especially is the case when the carrier’s own usage statistics indicate that most people will not use unusual amounts of capacity, whether that is voice, messaging or Internet access. 

Under such conditions, provider safely can offer “unlimited” service with no danger of unusual stresses on the network. In other words, “unlimited” is an excellent marketing platform when a service provider knows it can safely make the offer. 

The "Real-Time Cloud" has Implications for Mobile, Fixed Service Providers

The coming era of" real-time cloud" services will have clear implications for access providers. Real time services include apps such as voice and video, for example, as well as any number of business processes. If those services are hosted in the cloud, one would have to assume the existence of access mechanisms that can support real-time applications well.

One also would assume real time cloud services would be consumable by any device with Internet access, especially mobile devices, with low latency a virtual requirement for user experience. And, of course, any real time cloud environment would be ideal for over the top real time applications.

That means more competition for carrier-supplied voice and messaging. 

52% of U.S. Households are "Mobile Only" or "Rarely Use" Landline Phone

Just over 38 percent of U.S. consumers surveyed by iGR indicate they do not have a landline phone, with service from any telco, ISP or cable company (they are mobile only households). 

Of those respondents who do buy fixed network telephone service, just 24 percent of consumers said they use their landline phone "a lot." 

Another 23 percent said they use it "sometimes."


About 14 percent reported having a landline they used "rarely or never." Add that to the 38 percent of wireless-only households and a majority of U.S. households might now be functioning exclusively or nearly exclusively in mobile mode. 

The 38 percent of mobile-only users are more likely to be under 35 years old, as you might expect. 

At the moment, a higher percentage of households headed by older people use landline phones. There are at least a couple of ways to characterize that finding. One might argue that users find new uses for landline phones as they get older. 

Or, one might argue that a shift of demand is taking place, and that older consumers are heavier users of landline phones out of habit. In that view, younger users will not suddenly find themselves "needing" fixed lien phone service as they get older. 

The analogy here might be cable TV service. Decades ago, many observers would have questioned why a household would pay for TV when they could get it free over the air. For some decades after the adoption of cable TV began, one could still see a demographic difference in adoption rates, with the older demographic groups adopting at lower rates than other households. 

To use the somewhat non-artful phrase, "some people don't buy my product, but they're dying." 

Survey respondents over 55 years old were 76 percent more likely to say they have a landline they "use a lot," for example. compared to all other users. But that might be a strong habit originally developed at a time when the only phones were fixed network devices. 

Millennials have grown up in a world where "everybody" uses a mobile for voice and messaging, and where that is seen as the preferred mode of communicating. 

The annual survey by the Centers for Disease Control found in 2011 that 32 percent of homes are wireless only. The cord cutting trend seems less advanced in Canada, though, where a recent survey found about 15 percent of homes had cut the cord and become mobile-only households.

"Closed Versus Open," "Context or Distribution" Debates Never Die

Remember "Videotext?" Few now do. Before there was a public Internet, before browsers and the World Wide Web, AT&T and other telcos, as well as cable companies were experimenting with what we might today call multimedia.

And the approaches illustrate how some fundamental business and technology challenges oscillate over time, but never really are firmly settled. The "Viewtron" system was closed. The service providers were in charge of programming the service just as video entertainment service providers select which channels to carry. 

At the time (early 1980s), that might have appeared the only feasible way to aggregate and present electronic content on a widespread basis, as the PC had yet to clearly emerge as a mass market device. 

Later, we saw the first iteration of the "open versus closed" approaches to software or hardware platforms, a debate that never seems fully settled. 

Likewise, executives and observers of the video entertainment business have in the past argued about whether "content or distribution is king," a phrase that nicely captures the characterization of influence within the ecosystem. At times, it has seemed as though either content or distribution were "king." Recently, Apple's products have been the chief examples of instances where "distribution" (device ecosystem, in this case) seemed to be paramount. 

Apple also has emerged as the chief exemplar of the "closed" approach to development of software and hardware, at least in terms of end user experience. Recently, Android has emerged as the latest example of an open approach. 

It often seems, for a time, that one approach has decisively "won." In the PC era, it seemed open had clearly beaten closed. In the early mobile era, closed seemed to be the only model. In the smart phone era, open is emerging again.

In the video entertainment business, content initially was king. But with the advent of cable TV, power shifted towards distribution. With the arrival of the Internet and broadband, influence is shifting back towards content. 

The point is that these debates never are "finally" settled. Perhaps the reason is that a variety of business strategies will work. 

Amazon Could Be Working On A Square Competitor

As each new mobile payment service launches, the number of suppliers offering lower transaction fees grows. The latest rumor has Amazon readying a mobile payments product that could compete with Square, Intuit GoPayment and PayPal Here, TechCrunch reports.

Amazon is said to be targeting smaller chains of retailers, a logical positioning given the value of a smart phone or tablet dongle approach for a smaller retailer.

Amazon could be offering significantly lower credit card processing fees for merchants as part of its pitch. Rumors are that Amazon could be offering a rate as low as 1.9 percent. Current offerings include fees of around 2.7 percent.

Such a move would put Amazon into the physical retailing environment in a new way, and also shows why growing competition in the payments processing business is leading to lower fees for retailers who use the services. 

A survey by the National Retail Federation in 2011 found that while only six percent of retailers said they used mobile point-of-sale devices, half of the respondents said at the time that they planned to adopt such devices over the next 18 months. 

Eric Schmidt, Gangnam Style

Dish Laucnhes 5 Mbps, 10 Mbps Satellite Broadband Access Services

Dish Network Corp. has annoucned the launch of DishNet, providing 5 Mbps and 10 Mbps satellite broadband access largely aimed at rural customers.

The service will start at $49.99 a month for download speeds of 5 megabits per second, and  $59.99 for stand-alone service at 10 Gbps.Combining DishNet with Dish’s satellite TV service saves customers $10 a month on either plan. 

ISPs Want to Tax App Providers, Now Newspaper Wants to Tax ISPs

Internet access providers have floated the idea of new business models that essentially charge large app providers a fee for imposing "load" on access networks, a move aimed primarily at apps that involve video, ranging from FaceTime on a mobile network to Netflix on a fixed network. 

In a twist, a writer at the Guardian newspaper goes the other way, suggesting that ISPs be taxed to support user consumption of newspaper products. 

"A small levy on UK broadband providers – no more than £2 a month on each subscriber's bill – could be distributed to news providers in proportion to their UK online readership," the article argues. "This would solve the financial problems of quality newspapers, whose readers are not disappearing, but simply migrating online," The Guardian argues. 

Both arguments rest on the assumption that value is being delivered in the Internet ecosystem without "reasonable" participation in the created revenue streams.

But the arguments are advanced from different positions. The Guardian argues that "people willingly pay this money to a handful of telecommunications companies, but pay nothing for the news content they receive" In other words, an app provider argues the access provider should pay the app provider for value created.

Access providers argue the reverse, that the access creates the distribution platform an app provider builds a big business upon. 

In a U.S. context, the newspaper argument can be opposed on freedom of speech grounds, namely that the media has to be free of government control or influence, and any regulation that shifts revenue from an access provider to an app provider therefore makes the app provider dependent on the government for its existence.

That might not be so relevant in a U.K. context. But it is striking that a content and app provider now argues it is the ISPs that are making the money in the Internet ecosystem, and that newspapers provide value for which they are not being compensated. 

Others might argue that "newspapers" are failing in many countries because it is a product people do not want to buy. There are important revenue issues, one cannot deny that. 

But the problem is a decline in demand for the product, which is disrupting the existing revenue model. ISPs are not causing that problem, "people who want to read newspapers" and "advertisers who spend elsewhere" are creating that problem. 

Comcast Using FTTH Overlay to Deliver 305 Mbps Residential Service

Comcast Corp. is using the fiber-to-the-home (FTTH) capabilities of its "Metro Ethernet" platform to power a new residential broadband service with a maximum downstream speed of 305 Mbps and a potential 65 Mbps upstream, not DOCSIS 3.0. 

In other words, Comcast is using an overlay approach, running a discrete new fiber from a transceiver node directly to a home, instead of using the cable modem standard and network. 

The move suggests Comcast believes demand for the 305 Mbps service will be relatively limited. If high take rates were anticipated, Comcast would simply move to Docsis 3.0. At low penetration, the fiber direct overlay means the entire spectrum plan for each local network can operate without disruption, while still accommodating some growth of the 305 Mbps tier of service. 

Netflix "Watch Instantly" Dominates On-TV Streaming Video

Netflix "Watch Instantly" is the dominant application for U.S. household Web-to-TV video, NPD says. Of people viewing online video on the TV, 40 percent use their connected TVs to stream video from Netflix, 12 percent access HuluPlus, and four percent connect to Vudu. 

Over the last year, the number of consumers reporting that the TV is their primary screen for viewing paid and free video streamed from the Web has risen from 33 percent to 45 percent,  according to The NPD Group. 

During the same period, consumers who used a PC as the primary screen for viewing over-the-top (OTT) streamed-video content declined from 48 percent to 31 percent. 

This shift not only reflects a strong consumer preference for watching TV and movies on big screen TVs, but also coincides with the rapid adoption of Internet-connected TVs, NPD argues. Up to this point, it has more commonly been a game console that has served as the gateway to watching streamed video on a TV set. 

Fitch Cuts Forecast for Global Growth, will Mobile be Affected?

Communications and entertainment services are not immune to broader economic downturns, though consumer spending on communications and video services seems to have been affected in subtle ways during the Great Recession of 2008 and its aftermath which has seen sluggish growth in many regions, and an actual contraction in Europe. 

The impact of the Great Recession beginning in 2008 is easy enough to describe. According to TeleGeography Research, revenue growth slipped from about seven percent annually to one percent in 2009, returning to about three percent globally in 2011.
It isn't clear yet whether another recession, of broader scale, is coming. But it is reasonable enough to assume stubbornly tough conditions will endure for a few years. 

That should mean less spending, on a typical account, but not fewer subscriptions. 



Fitch Ratings has pared back its forecasts for global gross domestic product growth to 2.1 percent, citing “persistent weakness” in the global recovery. That is down from Fitch’s June view of 2.2 percent. For 2013, the forecast was reduced to 2.6 percent from 2.8 percent.

Fitch  lowered its 2013 GDP growth expectations for the United States to 2.3 percent, but kept its 2012 forecast at 2.2 percent. Persistently high unemployment and the uncertainty surrounding fiscal policy are expected to continue to challenge the U.S. economy.

U.S. growth in the second quarter also has been adjusted downward. Growth was 1.3 percent, down from a previous estimate of 1.7 percent, due to less consumer spending and business investment than previously estimated.

Fitch predicts the eurozone economy will contract 0.5 percent in 2012. Growth of only 0.3 percent and 1.4 percent is predicted for the next two years.

Spectrum Strategy Comes to the Fore

Spectrum issues are not always primary strategic issues in the communications business. Most of the time, other concerns dominate executive thinking. But spectrum issues now are emerging in a variety of ways as strategic matters, as typically is the case early in a new era of business and network deployment. The U.S. mobile duopoly, for example, was broken by the issuance of new "Personal Communications Service" spectrum.

New blocks of Advanced Wireless Service and Wireless Communications Service spectrum are underpinning the emergence of U.S. Long Term Evolution networks, for example. In Europe, major spectrum auctions of former broadcast TV spectrum will create the foundation for LTE in Europe.

Also, though, periods of intensive spectrum purchases also are times when debt loads become an issue. In fact, European service providers were widely in danger after many overspent for 3G spectrum.

In recent years much of the spectrum auction activity has been for LTE spectrum in the 2-GHz bands. But attention now is turning to 700 MHz and 800 MHz  "digital dividend" spectrum, including bands formerly used for broadcast TV.

World Previous Spectrum Auctions

The Federal Communications Commission, for example, is preparing to approve an AT&T request of use 20 MHz of its spectrum in the 2.3-GHz Wireless Communications Services (band for a new LTE network, after AT&T agreed to use 10 MHz of its spectrum as guard bands to avoid interference with Sirius XM services.

Separately, Sprint and Dish Network are fighting over a Federal Communications Commission proposal to shift 40 megaHertz of Dish Network AWS-4 spectrum about five megahertz in frequency, to allow Sprint to consolidate some of its existing spectrum to support LTE.

Dish Network cannot move forward with its own LTE network plans until the FCC changes its regulations on the AWS-4 spectrum, which originally was licensed for “Mobile Satellite Service.” But one issue is the request by Sprint to have the AWS-4 band shifted upwards in frequency by 5 MHz.

The Sprint proposal would shift the band up 5 MHz from 2000-2020 MHz to 2005-2025 MHz, and a similar 5 MHz on the upper paired band, allowing that spectrum to be put up for auction.

Sprint wants the FCC to shift the frequency plan so that if it wins the frequencies at auction, its adjacent Sprint-owned “PCS” spectrum in the 1915 to 1920 MHz and 1995 to 2005 MHz blocks could be used to create a bigger block of contiguous  spectrum for its LTE network.


Dish argues that the spectrum shift would delay its plans to build a new LTE network.

Additionally, AT&T has been a major spectrum-buying spree to support its own LTE network. And Verizon Wireless recently received clearance to buy chunks of LTE  spectrum from Comcast, Time Warner Cable, Cox Communications and Bright House Networks.

Without a doubt, spectrum issues have moved to the forefront of wireless carrier strategy in the U.S. and other markets. That also means a key boost for capital spending, since spectrum costs are long-term assets, and for management of debt loads.