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Showing posts from May, 2018

Hard or Soft Landing for Linear Video Business? And Why That Matters

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Many observers thought AT&T should not have purchased DirecTV. Others oppose the Time Warner acquisition. Some might be skeptical about whether Verizon and AT&T can create digital advertising platforms built on their content assets.
There are a range of objections. These include arguments that it was the wrong acquisition. Others might say it was a reasonable acquisition, but came at too high a price. The former argument is that there were other places to invest capital; the latter argument is that debt burdens were too high, relative to the value obtained.
But it is possible to argue that DirecTV is having positive impact on AT&T’s mobile business, while throwing off needed cash flow, and setting the stage for a bigger role in the video business “up the stack.”
And though some might criticize the DirecTV move as allowing AT&T to become the biggest video subscription provider in the United States without upgrading all of its fixed network lines to handle video, others wou…

Are Application Markets Already Changing?

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As Mary Meeker’s latest “Internet Trends” report suggests, search has changed. These days, when consumers use search, they often are searching for products to buy. And those searches start with Amazon, about half the time.
Users start with a search engine 36 percent of the time.
All that should remind us that trends and market advantage change fast in the internet apps and platforms space. For regulators and antitrust authorities, that suggests caution is called for.
It almost never makes sense to apply new regulations to industries that already are declining. We have made that mistake in recent decades, deregulating the voice business just before the voice business entered what some would call terminal decline.
It is possible that changes in demand already are at work to disrupt the leaders of the application market as well.
Internet Trends Report 2018 from Kleiner Perkins Caufield & Byers
source: Kleiner Perkins

Teens Have Abandoned Facebook, as a "Most Often Used" App

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Ignoring for the moment issues about privacy and content fairness and accuracy, there already are signs that web giants such as Facebook--facing mounting calls for antitrust action--already are losing favor.
A new study by Pew Research finds Generation Y (the generation after Millennials) already largely has abandoned Facebook. The most-often used app platforms among U.S. teenagers include Snapchat, YouTube and Instagram.
source: Pew Research
Over the last three years, teen social media preferences have changed dramatically.
In the Center’s 2014-2015 survey of teen social media use, 71 percent of teens reported being Facebook users. Some 52 percent of teens said they used Instagram, while 41 percent reported using Snapchat.
That clearly has changed. Facebook usage dropped 20 percentage points. More significantly, Facebook is “most often used” by just 10 percent of teens.
Such rapid changes in app preferences are one reason hasty antitrust action might best be avoided. In fast-changing mar…

What Ails Telstra Will Ail Many Others

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One should not pin too much meaning on a single quarter’s results, but Telstra has had a rough time over the last couple of years, losing half its equity value since 2015.
The most-recent quarter had Telstra getting a downgrade on its bond rating, mobile average revenue per user dipped nearly three percent in six months, and ability to cover its dividend is seen as in doubt.
It is not that Telstra is failing to gain accounts; it is doing so. But the revenue contributed by new accounts does not compensate for lower ARPU across the board.
source: Citi
In some ways, Telstra made a choice similar to those made by U.S. telco Rochester Telephone back in 1995, when the firm divested its telco monopoly in exchange for freedom to enter unregulated businesses, especially long distance.
At the time, long distance was viewed as a high-growth, higher-margin business. Of course, both the local telephone business and then usage of long-distance services, along with long distance ARPU, reached a peak b…

Latest Mary Meeker "Internet Trends" Report

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Here’s the latest “Internet Trends” report published by Mary Meeker, partner at Kleiner Perkins Caufield & Byers. If you have followed this report for a long time, you will notice that almost all the data now is about use cases, applications, platforms, devices and other parts of the internet ecosystem, not internet access per se.
Let that be a clear signal about where value is seen as being created within the ecosystem.
Internet Trends Report 2018 from Kleiner Perkins Caufield & Byers
As you would expect, U.S. internet users now spend more time interacting on their mobiles than on their desktops, laptops or other connected devices.
source: Kleiner Perkins Caufield & Byers

What is the Relevant "Mobile" Market; What Will it Be in a Few Years?

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Regulators and lawmakers always face challenges when markets are fast evolving. When the first major comprehensive reform of U.S. telecommunications law since 1934 lead to the Telecommunications Act of 1996, the changes focused on enabling more competition for fixed network voice services.
With hindsight, we can see that this was just at the point that mobile was about to become the preferred means for consumers to use voice services. In other words, lawmakers decided to open up competition in a market that was about to shrivel.

source: CTIA
According to Federal Communications Commission statistics, fixed network voice reached a peak around 2000, just a few years after the Telecom Act was passed. https://www.slideshare.net/CommsDay/commsdayunwired2015-bob-james
The Telecom Act also was passed just several years before use of broadband internet access grew from about 15 percent of U.S. homes to perhaps 65 percent a decade later.
source: Pew Research Center
So the point is that it is going …

Colocation, Data Center Market Still Fragmented

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Equinix, Digital Realty and NTT are market share leaders in the colocation market, according to Synergy Research. But the market arguably remains fragmented, globally.
The three now control nearly 28 percent of the worldwide market and all have grown their market share over the last four quarters, both organically and through acquisitions.
Equinix had a 13 percent share in the first quarter of 2018. Equinix had a 17 percent  share of retail colocation, while Digital Realty had a 28 percent share of the wholesale (business to business colocation) segment.
Equinix sells more to enterprises who need private cloud computing facilities.
source: Synergy Research

Will 5G Capex Be Less, the Same, or More than 4G?

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Many critics of 5G argue that it will cost mobile operators too much to build the networks or that incremental new revenue will be insufficient to support the networks, or both. The argument often is accompanied by the observation that some other approach (platform, network or business model) would work better.
But the cost of building mobile networks is not growing. mobile operator capital investment has been flat as capacity supply has grown as much as seven times over the last four years, argue analysts at Rewheel.
To be sure, the analysis requires careful thinking.
“Our calculations show that the doomsayers will again be proven wrong,” Rewheel says. “Mobile network capex will stay flat the next five years with the help of 3.4-3.8 GHz spectrum and massive MIMO even if data traffic grows another 10-fold (from 20 GB in 2016 to 200 GB per unique user per month in 2021) as forecasted by Finnish operators.”
Rewheel also notes that “the annual cost of expanding a 4G network’s aggregate ca…

Can Mobile-Only Succeed? If So, Where and Why?

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Can a “mobile-only” business strategy succeed when markets reach saturation? In other words, once every potential customer already buys the service, can some combination of higher usage, new products or vertical integration offset pricing and profit pressures in zero-sum markets where market share gains can only come at the expense of other mobile operators?
It is, at present, an open question. Optimists argue that mobile operators will grow revenue from new customers, new applications, new roles in the ecosystem and even cannibalization of fixed network market share.
Pessimists likely will argue that while this is a possibility for the best-capitalized and largest providers in some markets, in most markets opportunities to grow roles, value, revenues and revenue sources are quite limited.
Still, there are some examples of mobile-only financial performance beating the financial performance of converged suppliers who own both mobile and fixed assets. In the quite-mature European markets…

App Providers Dominate Global "Brand Value" Rankings

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With the caveat that evaluating the value of a brand hinges on valuation assumptions and methodology, as well as one’s estimation of the value of brands in a market where consumers arguably are less reliant on brands to drive purchasing decisions, the latest BrandZ study illustrates the strength of tier-one app provider brands and growth, while also highlighting the challenges facing telecom service providers as both industries arguably are becoming parts of one broader category.
The biggest takeaway is that although one telecom service provider appears in the top ten of “most valuable” global brands, the top six spots are all app providers. Significantly, app provider brand value is growing at rates from 23 percent to 92 percent, while AT&T, the lone telecom service provider to make the top ten, shrank seven percent over the last year.
Though Orange lead the telecom group with a 14-percent annual change in brand value, while NTT added 10 points, others suffered declines. Comcast …

Spectrum Supply and Demand are About to Go "Unstable"

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It always is possible to get a robust debate about "whether enough spectrum is available." It might soon be possible to get a robust debate on whether spectrum prices will drop, based on increases in supply.
On one hand, demand keeps growing, so even if orders of magnitude new supply are added, supply and demand should remain in equilibrium, where prices are stable and supply matches demand, as economists like to say. 
On the other hand, many of you might look at your own experience in the communications business and not agree that the business is in equilibrium, and that applies to the value and price of acquired spectrum, as well as expectations about value and price as markets evolve. 
For example, though it is hard to place a financial value on mobile operator, business or consumer end user access to Wi-Fi, the ability to offload huge amounts of mobile phone internet access demand to Wi-Fi has a clear value to network operators who do not have to invest as much in capacity…