Sunday, August 31, 2014

What's More Important: Bigger Buckets or Lead App Plans?

It isn’t yet clear whether various U.S. mobile service provider promotions that provide more mobile Internet access for the same, or lower prices, or new “lead app” packages will have greater long-term impact.

On one hand, bigger usage buckets for the same, or lower price, might make mobile Internet access a more-potent competitor to fixed access, over time.

On the other hand, “lead app” packages might lead to creation of new customer segments in the same way that the ability to buy single TV programs or channels could reshape customer segments in the video entertainment business.

Whether “more for less” or “buy only what you want” will have bigger impact long term.

T-Mobile US or Sprint adding more gigabytes to Internet usage buckets are an example of the former. Virgin Mobile Custom is an example of the latter.

It might be tempting to argue that “more for less” is the more-important trend.

But in the content consumption realm, the “buy only what you want” feature might be equally important. The issue is whether it will be as important in developed country markets as it could be in developing countries.

As content unbundling represents the big potential change in the video entertainment business, so content “unbundling” might be important for many mobile users or accounts.

The Virgin Mobile Custom plan allows account owners to control and limit usage by users on the plan, a feature deemed helpful to parents.

Virgin Mobile Custom allows account holders to activate up to five lines for as little as $6.98 per line per month.

The “Base” plan comes with 20 texts and 20 voice minutes, while the “Unlimited” plan for $35 provides unlimited talk and text.

The interesting parts of the plan are the ways account holders can customize usage.

After purchasing the basic level of service, customers can buy unlimited texting for $10 or  unlimited voice for $18 a month.

Customers also can add unlimited access to specific social apps such as Facebook,Twitter, Instagram, Pinterest or  Pandora for $5 a month.

Another option provides 30 minutes of international calling to specific countries, and can be added on a recurring or non-recurring basis.

On the other hand, it can be argued that, if usage buckets offer more value for less money, there is no need for special “lead app” plans.

The main app class where that might not be the case is entertainment video, where moderate to heavy usage would potentially be a burden for all but fully unlimited plans.

Rural Areas Might Gain 36 Times More Bandwidth While Urban Areas Get 1,000 Times More

Making new spectrum available for Internet access arguably is more important in rural and hard-to-reach areas than it is in high-demand urban areas. The reason is that key methods for increasing the use of bandwidth (smaller cells) are often unavailable.

Some might argue that, as a generic, 10 times improvement might be gotten by adding new spectrum; 10 times a contribution from redesigning denser networks; and then 10 times from other sources of advantage, such as better modulation or coding, better radios and use of hybrid networks.

Others might argue that as much as half the advantage could come from denser, small cell networks, and far less a contribution from adding new spectrum.

One way of putting matters is that a 1,000-fold improvement in available bandwidth would come from access to three times more spectrum, six times more efficiency and 56 times denser networks.

And if that is true, you glimpse the problem. Adding more spectrum provides three times the advantage. Use of small cell architectures could provide 56 times the capacity boost.

But the tools available in rural areas might include only the three times boost from new spectrum and the six-fold improvement from coding methods, air interfaces or network management.

Most of the upside comes from small cell approaches that are unsuited to rural areas, and also often  impossible or highly impractical solutions in rural areas. For starters, backhaul facilities do not exist, and would be financially tough to add.

Any way one looks at the matter, it will remain difficult to provide as much bandwidth in rural areas, as affordably as it can be provided in urban areas.

If one assumes that Internet service providers eventually must supply 1,000 times more bandwidth than they do today, “how” to do so is a key question.

Today’s answers suggest a combination of approaches must be taken, ranging from adding new spectrum to creating smaller cell networks, gaining more efficiencies from offloading or using more-efficient radio technologies and coding methods.

Different solutions will be possible in dense areas than rural areas; developed and developing markets; regions where there is lots of backhaul compared to regions where backhaul does not exist, or is expensive.

You can see the potential challenge in rural areas, or areas where backhaul options are limited. Most of the gain (56 times) comes from a denser network with small cells. That does little good in a rural area, and depends on plentiful backhaul networks.

That leaves only the three times advantage from availability of new spectrum, and the six-fold improvement, or at least up to six-fold improvement, from all other efficiencies.

All together, that implies that the advantage in available bandwidth to be gained in urban and dense areas is 1,000 times, but in rural areas could be only 36 times, assuming 300 percent more available spectrum, and the same efficiencies in both rural and urban markets.  

Backhaul turns out to be a very big deal.

Sometimes Disruption Requires Big Firms

We have a notion that big changes in techology and capabilities are fostered primarily by small firms and teams of innovators. Often, that is correct. 

Sometimes, though, innovation requires action by big, wealthy firms. Only a big firm such as Apple likely could have changed the way mobile devices are brought to market by cellular communications firms. 

Likewise, sometimes firms have to be able to invest quite a lot in regulatory changes. That appears to be the case for delivery drones. The Federal Aviation Administration will have to be convinced that use of drones for all sorts of purposes is safe. 

No small firm will be able to supply the evidence or push through big changes in policy. 

Saturday, August 30, 2014

"This Time it's Personal," T-Mobile US Says

uncarrier7.pngT-Mobile US is going to fire more shots in the U.S. mobile marketing war on Sept. 10, 2014. You can bet there will be a Sprint reaction. 

At this point, while T-Mobile US could announce yet another tweak to its value-price propositions, even that might not be so noteworthy. 

More data usage for less money is a good thing, from a consumer perspective. 

But with Sprint seemingly now willing to respond in kind for every T-Mobile attack on the packaging front, the upside seems to be less valuable. 

So what new attack might T-Mobile US be unleashing? 

And will the new promotion focus on end user experience, single-line accounts, prepaid or family accounts? 

And at what point will the attacks start to move the needle on multi-line accounts?

Value and price are important, to be sure. But it is easier to switch a single-user account than a multi-line account. It is one thing to swap out a single device, and to make a decision for a single user.

It's harder to switch multi-line accounts when four or five devices have to be replaced, or where coverage is important. 

What might it take to get multi-line accounts to seriously consider a swtich? And can T-Mobile US afford to underwrite the switching costs? 

Will Tablets Cannibalize Smartphones, or Will Smartphones Displace Tablets?

The extent to which larger-screen smartphone devices are cannibalizing sales of tablets is unclear, but possibly quite important, in at least some markets.

But the reverse might also be happening in some markets, namely tablets cannibalizing smartphone sales. That might be an odd or unexpected development.

But the developing trend of larger-screen smartphones and smaller-screen tablets likely fuels the divergent trends.

In some cases, where consumers cannot afford both a smartphone and a PC, they might be choosing a tablet.

In other cases, the choice might be more an instance of “which device do I carry with me?” Sometimes, the choice is “which two devices do I carry?”

Once tablets get mobile network capability, including voice, and smartphones get bigger screens, the choices might be harder.

Consider that sales of voice-enabled tablets that are able to use the mobile network reached 25 percent of total in the Asia/Pacific (excluding Japan) region in the latest quarter, according to International Data Corp. analysts.

That represents annual growth of 60 percent. That suggests many end users in this region are looking for a single device that can meet their needs in terms of voice communication and media consumption.

For some that single device is a tablet and not a smartphone. For others, a smartphone with a larger screen might provide the same functionality.

In other words, in some markets, smartphones might be cannibalizing tablets, while in other markets tablets are cannibalizing smartphones.

That might account for the unexpected slowdown in tablet sales recently. In North America and Europe, most people who find value in tablets seem to have bought them. At the same time, more users might find that a larger-screen smartphone is a reasonable substitute for a tablet.

In some parts of Asia, consumers seem to be viewing tablets as substitutes for smartphones, at least in some instances.

Perhaps the growing market confusion in the ground between the smartphone and the PC is why the tablet market is growing quite a lot more slowly than originally expected.

IDC has lowered its worldwide tablet forecast for 2014 to 6.5 percent, down from the prior 12 percent, a reduction of about half.

In May 2014, for example, IDC lowered its forecast for tablet sales to 12 percent annual growth, from an earlier forecast of 52 percent.

IDC says two different trends are at work. “First, consumers are keeping their tablets, especially higher-cost models from major vendors, far longer than originally anticipated,” IDC said. That means the replacement cycle often seen in the smartphone market, where consumers upgrade every two years or so, does not seem to be as prevalent in the tablet market.

"Second, the rise of phablets--smartphones with 5.5-inch and larger screens--are causing many people to second-guess tablet purchases as the larger screens on these phones are often adequate for tasks once reserved for tablets," IDC said.

Sales of tablets  in North America and Western Europe will be flat in 2014, while the remaining regional markets will generate 12 percent unit growth over the same period.

In the past, whether tablets displace PCs has been a question.

The new question is whether tablets displace smartphones, or smartphones displace tablets. It isn’t clear yet which question is more germane.

What might be clear is that the tablet category might be in flux. Perhaps we used to think tablets displaced PCs. We might now be asking whether tablets displace phones, or phones cannibalize tablets.

That, at least, would explain why tablet sales growth rates are dropping so fast.

Tablet Year on Year Growth
2013 Actual
2014 Forecast
2018 Forecast
North America + Western Europe
Rest of World
Source: IDC Worldwide Quarterly Tablet Tracker, August 29, 2014
Note: Total tablet market includes tablets plus 2-in-1s.

Thursday, August 28, 2014

How Fast Will Internet Usage Grow in Asia?

It often is the case in the communications business that “where we are” matters less than “where are we going?” In other words, observers have in the past noted that U.S. consumers used mobile phones less than consumers in Europe, by a sizable margin.

Likewise, U.S. consumers once used text messaging far less than European or Japanese consumers.

And it is a recurrent theme that U.S. high speed access prices are high, and speeds slow.

Some studies of U.S. high speed access suggest that actually is incorrect.

Of course, European policymakers no longer agree with that characterization, arguing that U.S. fixed and mobile speeds and prices actually are better than typically is the case in Europe.

In fostering competition, European telecom policies have created an investment problem, many argue.

The point is that where usage or adoption now stands can be a completely unreliable indicator of where adoption or usage is going, even over relatively short periods of time.

It would be correct, for example, to note that Internet penetration in Asia-Pacific region is among the lowest in the world.

In 2014, perhaps a third of the region’s people use the Internet, compared to about 26 percent in the Middle East and Africa, for example.

In Latin America, Internet usage is up to 54 percent.

But the rate of change is where observers seem to have disparate expectations. where things stand is not where the uncertainty lies. We tend to agree on where things now stand, We might not agree on fast things will change.

Researchers at eMarketer, for example, believe that by 2018, Internet use in Asia and the the Pacific will have climbed to just 41 percent, while adoption in Africa and the Middle East will have grown to about 31 percent.

By 2018, “no major shifts are expected,” eMarketer contends. Since most observers believe smartphones will drive Internet use, rates of smartphone adoption are viewed as key. And in that regard, eMarketer also believes progress in Asia will be incremental.

Though more than one-third of Asia-Pacific residents will have a smartphone by 2018, that will leave them below the worldwide average and still in second-to-last place, eMarketer says.

In other words, “by the end of our forecast period, the situation won’t be much different,” eMarketer predicts.

The International Telecommunication Union, on the other hand, notes that mobile Internet access in Africa grew by an order of magnitude between 2010 and 2014 alone.

And mobile Internet adoption is growing at about 16 percent annually, in Asia. At those rates, adoption doubles in less than five years. That implies 66 percent Internet adoption by about 2019.

In 2014, in developed nations, Internet adoption is about 78 percent, according to the ITU.

The point is that “where we are” is not the question. The big question is “what comes next?” How fast will Internet adoption happen, on the backs of mobile Internet adoption?

At least for now, opinions are widely divergent. Analysts at eMarketer see only incremental growth. Researchers working for the ITU think change will b e exponential.

To be sure, the averages obscure big differences. Adoption in Japan, South Korea, Taiwan, Singapore and Hong Kong is different from patterns in China. China’s patterns are different from those of most of South Asia and Southeast Asia.

But not all researchers think growth will be an incremental as eMarketer projects. To be sure, there is a big distance to be covered. But one might argue that growth rates have reached a nonlinear stage, where extrapolation from past trends will prove inadequate.

Adoption of smartphones is perhaps the one metric that most observers believe will drive Internet usage.

By 2019, the number of smartphone subscribers globally will have grown 2.5 times over the 2012 level, driven primarily by customers in Asia Pacific, the Middle East and Africa (MEA), and Latin America, according to Forrester Research.

That represents the difference between growth rates of a few percent a year, and growth rates as high as 14 percent, annually, in Asia, which is what Forrester Research estimates.

Asia, Africa and Latin America are home to 84 percent of the world’s population and will contribute a significant proportion of the next 2.5 billion smartphone subscribers.

Asia, Africa and Latin America Internet adoption estimates by IDC also suggest faster rates of growth much faster than foreseen by eMarketer, which does not share that optimism.

By the end of 2018, the situation won’t be much different, eMarketer argues. Smartphone penetration rates around the world tell largely the same story, eMarketer says.

But other researchers think growth and change will be far faster than eMarketer now expects.

Tuesday, August 26, 2014

Coould AT&T Become the Largest U.S. Video Entertainment Supplier? Possibly

Will AT&T become the biggest U.S. linear video services provider sometime in 2015? Possibly.

The scenario would have to involve two key developments: AT&T gets Federal Communications Commission and Department of Justice approval to buy DirecTV, and does not have to divest significant numbers of its customers (fixed or satellite).

The second requirement for this scenario is that Comcast is denied permission to buy Time Warner Cable.

In that instance, it is conceivable that AT&T might have 25.8 million video customers, while Comcast might have 21.7 million video customers.

Of course, the Department of Justice will have gotten AT&T agreement to take some measures to  “maintain competition” in the video market. Frequently, that takes the form of agreements to maintain prices and terms of service for a time, programs to support services for low-income customers and so forth.

Whether the DoJ will require divesting customers is the issue.

Nor is it clear whether Comcast’s purchase of Time Warner Cable will be cleared or denied.  If approved, AT&T would be the second-largest video provider.

AT&T reportedly has reached agreement with the U.S. Department of Justice on conditions to be observed if AT&T completes its acquisition of DirecTV, according to a report by the New York Post.

AT&T wants to acquire DirecTV for $48.5 billion, a move that would gain AT&T 20 million video entertainment customers.

If the report is correct, the DoJ will not oppose the deal on antitrust grounds.

Comcast will face the same sort of scrutiny by DoJ regarding its proposed acquisition of Time Warner Cable.

In both cases, antitrust officials will be analyzing the impact of both deals on the level of competition in the U.S. market.

Ironically, though many would argue that Comcast is correct in stating its acquisition would not affect the level of local competition, since the two firms do not actually overlap each other in local areas, the analysis will likely focus on the national impact of the deal.

In AT&T’s case, the acquisition actually would remove one video provider on a national basis, but arguably could provide more competition on the local level.

That argument rests in part on the fact that AT&T only operates in 22 of the 50 U.S. states, and is extremely unlikely to get approval to grow its fixed network footprint any further.

On the other hand, by adding a nationwide video capability, AT&T arguably could combine DirecTV with mobile Internet and voice access, to create a nationwide triple play offer that would compete against cable offers and other telco offers on a national basis. And that arguably will increase the amount of effective local competition, though reducing the supplier base by one provider.

In other words, the difference between the two deals is impact on competition nationally, in the case of Comcast, and locally, in the case of AT&T.

If allowed to buy Time Warner Cable, Comcast would have 40 percent share of the U.S. market for high speed access.

Traditionally, a 30-percent threshold has been important in antitrust reviews. Basically, it is rare for any provider to be allowed to obtain market share greater than 30 percent, for any particular service.

So 40 percent share of the strategic and anchor high speed access service is likely to be the issue for Comcast. Even after it acquires DirecTV, AT&T would have less than 30 percent share of the U.S. linear video subscription business, ranking second, after Comcast.

T-Mobile US Promotion Attacks Tablet Segment of the Market

Not content to battle for phone accounts, T-Mobile US now has launched a promotion aimed at snaring more tablet accounts. 

T-Mobile, starting September 3, 2014, will allow any Simple Choice customer to add a tablet to a postpaid Simple Choice phone plan for $10 per month. 

T-Mobile US also will match the customer's 4G Long Term Evolution data plan, up to 5 GB a month.

For example, a customer with a Simple Choice smartphone plan with 5 GB of LTE data can add a tablet with another 5 GB of data set aside for use on that tablet, for just $10 per month.

That particular promotion is significant because, in recent quarters, all four leading U.S. mobile carriers have added net new accounts on the strength of tablet activations.

T-Mobile US, meanwhile, arguably has had the lowest amount of activity in that regard. 

So the tablet promotion serves two purposes, bringing T-Mobile US up to parity with tablet adds by the other three leading carriers, and also helping T-Mobile US maintain its net new customer momentum, since growth now is driven by tablet connections.

T-Mobile US has lead net addtiions since the first quarter of 2013, though both Verizon and AT&T have gained as well. Sprint and the mobile virtual network operators have lost customers. 

Screenshot from 2014-08-26 10:06:53.png
source: Telco 2.0

Monday, August 25, 2014

How Widespread will Gigabit Competition Be?

Gigabit networks now have become the value-price umbrella under which Internet service providers in a growing number of communities must operate. 

To be sure, not every neighborhood will have access to one or more providers, nor is it clear that demand is present in every neighborhood of every city. 

In all likelihood, supply will tend to be deployed where there is expected demand. 

Some might worry that there will not be competition in many, or most markets. 

Some of us would bet there will ultimately be two or more ISPs offering such service in most markets where major cable and telco ISPs compete head to head.

Where cable and telco ISPs face each other as direct competitors, it seems logical that, over time, contestants will try and maintain parity, at least, with the key competitor. 

That doesn't always mean gigabit access. In many neighborhoods, 100 Mbps or 300 Mbps might match demand characteristics better. But in such neighborhoods, many of us still would bet there will be a minimum of two providers.

The big difference in future markets is that satellite ISPs and fixed wireless ISPs will not be able to match the 300 Mbps to 1 Gbps speeds, and will have to concentrate on segments of the market uninterested in buying the faster services. 

This diagram by Gigaom illustrates the current state of affairs. 

Chart provided by Gig.U.

TV Drives Deutsche Telekom Fixed Network Results

Fiber to cabinet investments in the German market remain difficult to justify on tradtional return on investment grounds, but appear to be strategic, nonetheless.

Deutsche Telekom argues it is “investing more in our home market than any other European incumbent,” according to Timotheus Höttges, Deutsche Telekom Chairman of management board chairman and CEO.

As part of that investment, Deutsche Telekom has bumped Long Term Evolution coverage to 77 percent of potential customers and fiber to the home coverage to 39 percent of households.

Deutsche Telekom expects it will cover 45 percent of homes with fiber facilities by the end of 2014, as well.

But financial results in the second quarter illustrate how difficult it is to justify the return on investment from fiber to home facilities, even when they are deemed necessary.

In the second quarter of 2014, overall Deutsche Telekom revenues fell 0.3 percent year-over-year.

Deutsche Telekom did report organic revenue growth of about 0.6 percent, mainly on the strength of the U.S. operations.

Adjusted EBITDA also increased 0.3 percent, largely driven by U.S. results, though operating cost reductions in Deutsche Telekom European markets also helped.

Deutsche Telekom says it gained 227,000 net new additions, of which 119,000 came from its own retail business. In total, the German service provider has almost two million fiber customers on our German network.

Broadband net adds totaled 7,000 in the quarter. But video accounts made possible by the high speed access investments, might be the bigger story.

Broadband revenues actually declined three percent year-on-year, despite TV revenue growth of 8.4 percent.

Deutsche Telekom added 63,000 net new video entertainment customers in the quarter.

Importantly, Deutsche Telekom says, 53,000 of those new customers came on the new upgraded fiber access networks.

Overall fixed network revenues declined by 1.2 percent year over year, while voice revenues were down 6.7 percent.

The point is that high speed access investments are important principally because they enable TV revenue. “Where we build VDSL, we see a higher uptake of customers,” said Höttges.

“So this is, I think, absolutely the support for our strategy for the huge investments which we're doing in the infrastructure,” Höttges said.

Part of the upside comes from the ability to sell faster high speed access connections, to compete with cable TV company offers, and partly to sell higher-price access packages.

But video entertainment arguably offers the bigger revenue opportunity. Deutsche Telekom has gained about 400,000 retail fiber customers, year over year, and 240,000 TV customers.

But high speed access revenues have dropped, year over year, while Deutsche Telekom also lost a net 69,000 high speed access customers.

TV revenues, on the other hand,  have grown, year over year.

The point is that the return on investment for fiber facilities (either fiber to home or fiber to cabinet) remaining a difficult proposition. It increasingly seems to be the case that telcos must, in many instances, invest in fiber to the home for strategic reasons, even if the traditional return on investment might be lower than for other investments.

Deutsche Telekom High Speed Access and Video Entertainment Revenues
Q2 2013
Q3 2013
Q4 2013
Q1 2014
Q2 2014
Retail broadband customers ('000)
Retail fiber customers ('000)
Broadband TV customers ('000)
Broadband revenues (millions)
TV revenues (millions)
Source: Deutsche Telekom

The Downside of Multi-Purpose IP Networks

By now, virtually all observers agree that direct revenue generated by fixed networks will shift to supplying broadband access, while some o...