Showing posts from April, 2015

Exhaustion of Business Models is the Key Strategic Problem Faced by Telecom

“Exhaustion of business models” has been a key--perhaps the key--issue for the global telecom industry for at least three decades.

It might seem odd today, but several decades ago, global telecom profits were driven by long distance calling. For a variety of reasons predating VoIP, prices per minute of use plummeted globally between the 1970s and 2010.
That the business did not collapse was due to product substitution. Essentially, mobile services displaced the lost long distance revenues. Then text messaging became the first important “data” service, before mobile Internet access took the lead.
In the fixed networks part of the business, a similar displacement, or product life cycle, can be seen. Where voice once dominated revenue, revenue growth now is lead by high speed access or video entertainment services.
Now mobile voice and texting are losing their salience. In some markets, overall usage is declining, as is average revenue per user or average revenue per account.
That is the …

DirecTV Would Create Triple Play for 47% of U-verse Homes

Though there are several reasons AT&T wants to acquire DirecTV, ability to rapidly supply linear video is among the key drivers.

AT&T has about 57 million high speed access locations, but only 30 million (53 percent) can get linear video service. The fastest way to create a triple play bundle for nearly half its consumer locations is to bundle DirecTV with U-verse.
Beyond that, DirecTV will throw off massive amounts of free cash flow, which is helpful for a firm that pays out most of its earnings in the form of dividends.
Eventually, DirecTV also would give AT&T the ability to create a triple play bundle out of region, where it does not have U-verse facilities. In those situations, AT&T would bundle DirecTV with mobile-supplied voice, messaging and Internet access.

Vodafone India Drops Roaming Fees As Much as 75%

In advance of mandates to lower roaming fees, Vodafone India has cut voice roaming fees as much as 20 percent, and text messaging rates as much as 75 percent. That is good for consumers but will hit mobile service provider revenues.
The rules on roaming fees are but one example of the profound impact regulators can have on communications markets, both enabling and shaping private actor decisions that directly affect end user welfare.
Investors and service providers also are speculating about what bottom line and top line impact might result from the recent Indian spectrum auctions that generated record $17.4 billion in spectrum costs for mobile service providers.
Observers say India’s carriers may have to raise prices (either for voice, or data, or both).
“While the costs of the industry are massive,” the average revenue per user (per month), or ARPU, of Indian telecom service providers is $2.96, compared with the international average of $35 to $40, according to the Cellular Operators…

FCC Rural Subsidies Might Not Find Takers: There Might Not be a Business Case

The Federal Communications Commission has increased Connect America Fund funding for “price cap” carriers by about 70 percent, but also raised the minimum required speeds to 10 Mbps, although the Federal Communications Commision has redefined “broadband” as a minimum of 25 Mbps.
The conditions include a requirement to serve all high-cost areas within a state, if a carrier accepts the funding. Predictably, not all potential affected carriers might support all of the requirements for funding.
In some cases, a service provider might conclude that the total impact of upgrades required to receive the high cost service area funds exceeds the revenue that can be earned by doing all the upgrades.
The new funding benchmarks range from $72.40 for 10 Mbps downstream/1 Mbps upstream service with a 100 gigabyte usage allowance, to $96.89 for 25/5 Mbps unlimited service.
High-cost fund recipients that are subject to broadband performance obligations are required to offer service at or below the benc…

No Consolidation Among Top-4 Mobile Operators is Possible; One Has to Fail

Even if one argues a four-provider U.S. mobile market is not sustainable, U.S. regulators have ruled out any consolidation among the top four suppliers. That means the market cannot consolidate to three strong providers by means of mergers among the contestants.
That leaves only one solution: one of the firms, or perhaps even a couple, would have to be so weakened that the top ranks shrink naturally to two or three providers, with a distant number four unable to keep up. Failure, in other words, is the only way the U.S. mobile market is going to consolidate.
That appears not to be the case in the video market.
Even 20 years ago it would have been possible to predict that, ultimately, both DirecTV and Dish Network would cease to be operating entities, and would have been acquired or merged with another entity. The logical candidates always have been Verizon and AT&T.
Now that AT&T has made the move to acquire DirecTV, half the prediction seems likely to be fulfilled. The issue now…

How Much Must Small Cell Costs and Backhaul Drop?

Ask yourself how much you would be willing to pay for an Internet connection to a $100 appliance (router, for example). At the low end of that range, one is looking at consumer-grade Internet access connections.
But put yourself in the shoes of an executive of an Internet service provider looking at big networks of small cell access points, perhaps with per-site costs in excess of $3,000, just for equipment, and not including site rent costs.
Consider a single macrocell, where backhaul could cost $24,000 a month, supporting perhaps 160 Mbps to 500 Mbps of capacity per site. How much capacity might a small cell require?
On the assumption a small cell only makes sense in a high-traffic area, the answer might be that the small cell requires as much capacity as a macrocell, in some instances. In other cases, perhaps a small cell only has to support a fraction of total macrocell bandwidth.
The issue is that traditional access using T-1 equivalents does not work. Small cells are going to req…

The One Disruptive Implication of Google Fi

Fi, the new mobile service by Google, has been criticized in some quarters for not being disruptive enough. With the caveat that many changes could come as the service develops, observers have argued that the retail pricing isn’t really all that unusual, not especially affordable, and that the selection of handsets is nil.
All of that might be true, for the moment. But there is one huge shift in retail packaging and pricing that Fi does represent, and it is odd that it comes from a firm such as Google, which might be presumed to favor unmetered or unlimited usage.
Generally speaking, telecom service providers have preferred metered usage based on consumption. Generally speaking, Internet app providers prefer unlimited and unmetered usage plans.
The reason is simple: access provider make more money when users pay for what they consume, while app providers arguably make more money when usage fees place no constraints on the amount of app usage.
The reason “buckets of usage” exist is tha…

Is Facebook Next Regulatory Target in Europe?

Is Facebook the next target for European Union antitrust authorities? Possibly. 

Ostensibly, Facebook only wants a single, unified framework. Facebook VP Richard Allan warns that multiple, overlapping investigations of Facebook, instead of a single EU policy, would lead to higher costs and a decrease in the rate at which new features are developed.

Facebook’s concern partly is a “balkanization” of rules. National regulators in a number of countries, including Belgium and the Netherlands, appear to be initiating multiple, overlapping investigations of Facebook.
“In effect, this would mark a return to national regulation,” said Allan. “If it is allowed to stand, complying with EU law will no longer be enough; businesses will instead have to comply with 28 independently shifting national variants.”
The unstated concern is simply that antitrust investigations seem to be proliferating. The other, unstated issue, is growing regulatory scrutiny, as Google now faces.

Cablevision, Hulu Sign "First Ever" Deal

Cablevision Systems Corporation will offer the Hulu subscription streaming service to Optimum customers, becoming the first linear video provider to do so. The announcement contained no details about pricing or packaging, but it might be reasonable to assume the cost will be about $8 a month, the current price for a paid Hulu subscription, and that the tweak is that the content will be viewable directly from within Cablevision’s linear TV channel lineup.
In other words, Hulu likely will be offered in the same way a linear channel such as HBO is sold and packaged.
Some might say the deal adds value to both parties somewhat incrementally. Consumers already can buy Hulu directly, and can watch on TVs, PCs, tablets or smartphones. That likely will not change as Cablevision becomes a distributor.
But that’s where the incremental value might be created. Hulu gets a big distributor with a customer base and the ability to promote the service. Cablevision gets a new network nobody else offers as…

T-Mobile US Addes 1.8 Million Accounts in 1Q 2015

T-Mobile US reported revenue growth of 13.1 percent in the first quarter of 2015, on the strength of robust net account additions.

T-Mobile US had 1.8 million total net account additions in the quarter, marking two straight years of adding at least a million net new customers every quarter. Still, that was a slowdown from the 2.4 million net adds in the same quarter of 2014.

Some 1.1 million net adds were branded postpaid accounts, one million of those accounts being phone accounts.

At the same time, branded postpaid phone churn was 1.30 percent.

For the full year, T-Mobile US now expects to add a total three million to 3.5 million branded postpaid net adds.

T-Mobile’s branded prepaid net customer additions were 73,000 in the first quarter of 2015. Branded prepaid churn was 4.62 percent in the first quarter of 2015.

For the full-year of 2015, T-Mobile US expects adjusted EBITDA to be in the range of $6.8 to $7.2 billion, unchanged from previous guidance.
T-Mobile revenue rose to $7.8 billi…

Impact of 25-Mbps "Broadband" Definition

Conspiracy thinkers might see a pattern in recent decisions by the Federal Communications Commission to manipulate statistics on U.S. Internet adoption, even if each single decision has a logic of its own.

Beyond some greater inability to track progress, and some obvious marketing and strategic issues for entire classes of providers, it might be difficult to determine the impact--beyond universal service funding implications.

That might be considered odd, since the presumed reason for changing the definition was to spur faster investment in higher-speed networks.

Consider the decision to define “broadband” as a minimum of 25 Mbps downstream, in January 2015. Since access speeds are increasing, seemingly at a faster pace, it makes sense to periodically review definitions, at least for the purpose of determining performance levels relevant for government universal service purposes.
Oddly, the announcement about the speed redefinition began with the statement that “broadband deployment i…

Amazon Business to Tackle $1 Billion U.S. B2B Market

Amazon Business, a customization of Amazon for business customers will not come as a surprise, any more than marketplaces for consumer services are a surprise.
Amazon Business is an expansion of what was once Amazon Supply, the wholesale site it launched in 2012. At it's peak, Amazon Supply had about 2.2 million products serving millions of business customers. Amazon Business certainly will be much bigger, boasting hundreds of millions of products.
In part, the effort reflects the size of the business products market. In 2014, the business-to-business market was about $1 trillion, according to estimates by the U.S. Commerce Department.
That is almost four times the size of the business-to-consumer e-commerce market that recorded sales of $263.3 billion in last year, according to the U.S. Department of Commerce.
B2B e-commerce also is growing slightly faster than U.S. online retailing—at an annual estimated rate of about 19 percent, according to Deloitte, compared with 17 percent fo…

1,000 Times More Data Center Processing to Support IOT in 5 Years?

Only about four years from now, the Internet of Things will need 750 percent more data center capacity in service provider facilities than it consumes today, according to a recent report by the market-research firm IDC.
At the same time, it is possible latency requirements will require offloading processing to the edge of the network.
The reason is the assumption that dense networks supporting highly mobile and distributed sensors and appliances will produce so much raw data, with a need to process so fast, that computing has to be offloaded from centralized data centers to edge processors of some sort.
Whether it will be possible to process fast, with latency of not many milliseconds, backhauling all data to data centers, is the issue. Many do not think that will be optimal, even if it proves possible.

Apple Earns 69% of Revenue from iPhones

If you ever wondered why “Apple Computer” is now simply “Apple,” it is because Apple is a mobile phone company, not a “computer” company. The Apple iPhone, in Apple’s second quarter of 2015, represented 69 percent of total revenue.
Apple had quarterly revenue of $58 billion and quarterly net profit of $13.6 billion in its most-recent quarter, up from revenue of $45.6 billion and net profit of $10.2 billion year over year.
Gross margin was 40.8 percent compared to 39.3 percent in the year-ago quarter and international sales accounted for 69 percent of the quarter’s revenue.
For the next quarter, Apple predicts its fiscal 2015 third quarter will feature
revenue between $46 billion and $48 billion.

Verizon Puts Muscle Behind A LA Carte and Streaming Strategy

Verizon wants to make omelets.  It has to break eggs.Did Verizon Just Screw The Content Giants? $VZ, $DIS, $FOX, $FOXA

Level 3 And Verizon Agree To Share Cost Of Network Upgrades

That is the way large networks and Internet domains always have interconnected. And it makes sense.When networks exchange roughly equal amounts of traffic there is no structural problem. When traffic is unequal,  the sending network imposes costs on the receiving network. "Sending network pays" is how it works.And how it should work, in fairness. Level 3 And Verizon Sign Interconnect Agreement: Agree To Share Cost Of Network Upgrades $LVLT, $VZ

ESPN Sues Verizon Over Skinny Bundles that Do Not Include ESPN

ESPN obviously sees the Verizon skinny bundle as a bigger threat than DirecTV’s skinny bundle. Verizon excludes ESPN from the base tier, relegating ESPN to an optional sports tier.

DirecTV does something similar, albeit on a smaller scale, by allowing consumers to purchase a basic tier without ESPN, though most of the packages do seem to include ESPN.
So Verizon’s approach likely is going to affect more consumers. Verizon has been sued, and DirecTV has not been sued.

55% of U.S. Internet Homes Buy OTT Video

Some 55 percent of U.S. households with Internet access now subscribe to an over the top streaming (OTT) video service, up from 44 percent in 2013, Parks Associates estimates.
Subscriptions are highest among households with a younger head-of-household, with 72 percent of households headed by those 18 to 24 and 71 percent of households headed by those 25 to 34 having an OTT service subscription.
That alone might not suggest a tipping point, or inflection point, is nearing. More significant are moves by content suppliers to create stand-alone streaming services not dependent on a prior purchase of a standard linear service.

AT&T Acquisition of DirecTV Seems Likely, for Good Reasons

As a rule of thumb, I tend to assume U.S. regulators will nix any acquisition by a market leader that produces an outcome where a single entity controls more than 30 percent national market share.
That math suggested Comcast would not be allowed to buy Time Warner Cable, since Comcast’s share of high speed Internet access would exceed 57 percent.
The only issue, after the Federal Communications Commission raised the definition of broadband to a minimum of 25 Mbps, was how much higher Comcast’s share would grow.
By way of contrast, an AT&T that has acquired DirecTV would still only have a maximum of 17 percent share of the U.S. Internet access market. The actual share, under the new 25-Mbps definition, is not clear, but would be less than 17 percent. And linear video share would not exceed 27 percent, in a line of business universally recognized to be declining, in any case.
That is why rumors of merger approval seem logical. Even if the acquisition consolidates one of the major li…

What if Nobody Wants to be the "Carrier of Last Resort?"

AT&T has about 17 percent share of the U.S. Internet access market, assuming none of its lines now fail the new definition of 25 Mbps. Most consumers buying satellite Internet, and probably most customers buying fixed wireless services likewise now are purchasing Internet access, but not, strictly speaking, what the Federal Communications Commission calls “broadband” or “high speed access.”
Beyond the issue of FCC regulatory fiat redefining a few industries out of business (most satellite and fixed wireless access services), causing a statistical, overnight decline in “broadband” adoption in the United States, and rendering multi-year tracking of Internet access more difficult, there are other perhaps perplexing issues in the U.S. Internet access business.
In a competitive market, some of us would argue, the low cost provider wins. In the fixed network Internet access market, that is cable TV.
So it is noteworthy that Verizon has been shifting capital investment into mobile, and gene…