Have Some Telcos Lost Battle for Relevancy in Cloud Computing?

U.S. incumbent telcos rationally thought operation of data centers would be a natural fit for their high capacity transport services. That arguably remains the case in other markets. The U.S. market, though, is home to the likes of Amazon Web Services, Microsoft’s Azure, Google and IBM cloud computing efforts.

In other words, telcos face unusually visible and formidable competitors with leading mindshare and scale.   

For telcos building cloud computing businesses, several major challenges have emerged, says David W Wang, a business development consultant based in Washington DC and author of the new book “Cash in on Cloud Computing.”

Melding acquired assets is one issue. Though Wang says “lack of strategic vision” is an obstacle, the more likely problem is integration of various acquired cloud assets to create seamless national offers, and change the value proposition.

Alignment of sales and marketing efforts also have been problematic, he says. “Unfortunately neither the legacy telco sales nor newly joined cloud sales seem to be ready to cross-sell the new services,” says Wang.

Customer resistance arguably is a bigger problem. Buyers are accustomed to buying transport from one set of suppliers, while information technology services are sold by a different set of suppliers.

To the extent that sales forces try and sell the new products, they necessarily must sell to the IT decision makers, who might be different from the connectivity decisions makers.

Even when the right decision makers are reached, IT buyers have tended to discount telco cloud offers, Wang argues.

Perhaps the biggest challenge is simply the domain competence and scale of the acknowledged cloud computing leaders such as AWS.

“The AWS brand is becoming too strong for public instant cloud applications and storage for the telcos to compete with,” says Wang.

That reality arguably is at variance with past expectations, when telco brands might have been deemed bigger players in the cloud services market.

Simply put, none of the brands currently bought or considered most frequently are “telco” brands.

source: STL Partners

source: Rightscale

Mobile Ecosystem Value and Revenue is Shifting to App Providers

Most of the revenue growth in the U.S. mobile ecosystem arguably is going to application providers, one might argue after reviewing estimates made by Chetan Sharma. Voice service revenue was down between 2013 and 2014. Access revenue (mostly mobile data) grew significantly. But total mobile service provider revenues did not grow as much as app provider revenues.  

U.S. Mobile Will Consolidate into 3 National Providers

The U.S. mobile market will consolidate into three providers, analyst Chetan Sharma predicts. There just is not enough margin to support the four leading national providers.

In 2015 so far, Verizon and AT&T have earned roughly $17 per account per month while T-Mobile US and Sprint have collectively lost $0.39 on every subscription per month, according to Chetan Sharma Consulting.

Us wireless market_q3_2015_update_nov_2015_chetan_sharma_consulting from Chetan Sharma

T-Mobile US Launches "Un-carrier Unwrapped" Promotion

T-Mobile US has launched a new “Un-carrier Unwrapped” promotion, starting with three full months of unlimited LTE data for T-Mobile US postpaid Simple Choice customers at no extra charge.

The promotion will feature a different gift coming each week. customers. T-Mobile US also teases that will be offering holiday gifts to Sprint, AT&T and Verizon customers as well: one carrier per week.

“But that’s not all….we know that Verizon, AT&T and Sprint customers need some holiday cheer, too - so we’ve got presents coming for them. Just wait!” said John Legere, T-Mobile US president and CEO.

Cable TV Could Lead Future Fixed Networks Business

There are a number of reasons to speculate on future roles of cable TV companies in the broader telecommunications business, and equally important reasons to sugg est that legacy telcos might not forever be the dominant providers. Some might argue they already have lost that role.

U.S. cable TV companies already are the dominant suppliers of high speed Internet access and entertainment video, and share the fixed network voice market with telcos.

But there are other reasons to wonder. A traditional rule of thumb for telephone networks serving consumers is that suppliers make money in the suburbs, lose money in the rural areas and break even in the urban areas.

With the caveat that services for business customers make a difference, those rules of thumb largely remain useful.

What sort of services provider historically concentrated first on rural areas, then moved to suburban areas and only lastly on urban areas? Cable TV networks is the answer.

Networks first were created to import distant TV signals from urban areas to rural areas, meaning network economics had to account for the high cost of building fixed networks in low-density areas.

Later, when the business model changed from “signal access” to “provide more choice,” the suburban areas were wired. The last stage was extension to urban cores, something that happened in the 1980s.

The point is that network economics were tweaked, from the start, for the worst business case. That tends to extend to every other part of the business.

In the end, network economics always are a balance between expected revenue and expected capital investment to garner those revenues.

So if gross revenue starts to be an issue, as it now is, the lower-cost provider is going to have advantages. Since all triple-play providers now sell the same products and services, that matters.

Network economics plays a role in fixed service provider strategy, the perhaps longest-running example of that being the decision when and where to invest in fiber to home platforms and when to use some other next generation network platform, for the moment.

In that regard, cable TV hybrid fiber coax networks have an advantage: they do not yet require as intense a fiber deployment as do fiber to home networks, but can deliver services that might otherwise require FTTH.

For example, Morgan Stanley surveyed 2,500 U.S. households during August 2015 and September 2015 on broadband and TV services, and found "U-verse and AT&T DSL had especially weak satisfaction results," compared to cable TV customers.

Cable customers reported an average speed of 38 megabits per second, while DSL subscribers said they had 21 Mbps service on average.

Verizon Communications FiOS customers on average had nearly 30 Mbps service and were happier, despite price hikes, says Morgan Stanley.

There are new questions we might raise. As customers increasingly find they can substitute use of one platform for another, and as new suppliers enter existing markets, market positions can change.

Substitution of mobile for fixed voice and messaging provides one example. Use of mobile Internet access does affect demand for fixed Internet access. And a coming shift to mobile video likely will provide another challenge.

At the same time, new suppliers are entering and reshaping the market, especially gigabit-providing independent Internet service providers such as Google Fiber and a growing number of third-party suppliers.

It no longer is absurd to consider a future where former telcos are unable to compete in fixed network markets.

Apple Still Earns Most ot the Money in the Smartphone Business

Apple had about 13.5 percent of shipments, but accounted for as much as 94 percent of profits in the smartphone business, in the third quarter of 2015. That is a problem for all the other suppliers, as sooner or later, profits must be made or the effort is not sustainable.

To be sure, some firms are deliberately pricing to take market share, with the expectation that profits can be generated later. That is a workable strategy, up to a point.

At some point, smartphones likely will be the only phones sold, globally. So, sooner or later, sustainable pricing levels must be reached. There simply is not room, long term, for all the current providers, in a market where most suppliers do not generate sustainable revenues.

source: Business Insider

source: Mobile News Archive

Data Plan Prices Will Drop 15% to 20% in Indian Market in 2016

Data service plan prices will fall by at least 15 percent to 20 percent when Reliance Jio enters the mobile market sometime in 2016, analysts at Fitch Ratings predict.

“We expect competition  to intensify as Reliance Jio  enters the market with likely cheaper and faster data-focussed tariff plans armed with sufficient spectrum and access to funds,” Fitch Ratings said.

“We expect blended monthly ARPU to fall by five to six percent to around Rs 160 (2015: Rs 170) due to a decline in data tariffs, which will more than offset the rise in data usage,” Fitch Ratings said.

Fitch expects industry revenue to grow by low single digits compared to the 2015 level of nine percent growth, driven solely by data services. That might be a significant prediction. Up to this point, voice revenues have driven perhaps 80 percent of mobile service provider revenues.

A shift to mobile data as the “sole” driver of growth would indeed be significant.

Mobile data will rise to around 25 percent to 27 percent of total revenue in 2016, compared to the 2015 level of 18 percent to 20 percent, on a doubling of data traffic volume.

But the biggest four mobile service providers will experience a drop in earnings before interest, taxes, depreciation and amortization (EBITDA).

EBITDA will narrow by 0.1 to 0.2 percent in 2016, partly a result of higher marketing spend and lower mobile data prices.

On the other hand, 2016 industry capex/revenue could rise to 19 percent to 20 percent, up from the  2015 level of 18 percent, in part because of investments to improve call drop performance.

But there should be upside as well. Lower prices tend to drive higher consumption of desired products. So more affordable mobile Internet access prices should lead to higher buy rates, and a higher volume of consumption as well.

Fitch Ratings said weaker unprofitable mobile operators  including Videocon, Aircel and Tata could exit the industry as they make operating losses and lack key spectrum assets and financial flexibility to invest in data networks and five to six operators emerge from the industry shake-out.

“The top-four--Bharti Airtel, Vodafone India, Idea Cellular and Reliance Communications--are likely to raise revenue market share to 80 percent,” said Fitch Ratings.

Fitch Ratings also lowered  telecom sector outlook to “negative” from “stable” for 2016.

The agency expects the 2016 credit profiles of the top-four Indian telcos to come under pressure amid tougher competition, larger capex requirements and debt funded mergers or acquisitions.

Comcast and Time Warner Cable Garnered 71% of Net New Internet Access Accounts Over the Last Year

Just two U.S. Internet service providers--Comcast and Time Warner Cable--got 71 percent of the three million net new high speed Internet access subscribers added in the U.S. market over the last year, according to Strategy Analytics.

In the third quarter of 2015, Comcast and Time Warner Cable led the growth in U.S. high speed Internet access subscriptions, adding 552,000 net new subscribers.  

In the third quarter, AT&T lost a net 106,000 subscribers and Verizon added only 2,000. The problems for those carriers is two-fold. Gains powered by fiber access services (FiOS and U-verse) grew, but both service providers lost digital subscriber line accounts.

In the third quarter average revenue per account grew between two percent and seven percent.

High Speed Internet Access ARPU, 3Q14 to 3Q15
	3Q14	4Q14	1Q14	2Q15	3Q15	Y-o-Y %
AT&T	$44.04	$44.13	$44.69	$45.42	$46.48	5.5%
CenturyLink	$33.87	n/a	n/a	n/a	$36.13	6.7%
Charter	$46.62	$46.86	$48.87	$49.92	$49.88	7.0%
Comcast	$43.86	$44.20	$45.36	$45.84	$45.61	4.0%
Time Warner Cable	$47.24	$47.30	$47.82	$48.04	$48.17	2.0%
source: Strategy Analytics

Separately, Leichtman Research Group reports that U.S. cable TV companies accounted for all the net growth in high speed Internet access connections in the third quarter, adding about 788,000 net accounts. U.S. telcos lost a net 143,000 accounts in the third quarter.

AT&T had a negative net rate of growth for its Internet access services in the third quarter of 2015, adding U-verse connections but losing copper connections, as has been the case for some years. Verizon added about 2,000 net connections, according to Leichtman Research Group.

CenturyLink and Windstream also lost customers, on a net basis, in the third quarter.

Collectively, the top U.S. cable TV companies have 61 percent of the installed base of customers, while the top telcos have about 39 percent of the installed base. Cable TV companies have steadily gained share in the high speed access market over the past several years.

The 17 largest cable TV and telephone providers in the United States, representing about 94 percent of the market, acquired about 645,000 net additional high speed Internet access  subscribers in the third quarter of 2015.

One More Reason We Cannot Tell What Impact Common Carrier Regulation Has on Investment

There remains significant debate about the imposition of common carrier regulation on Internet access services, in particular the effect on capital investment in new facilities. Determining any such impact is not an easy, for any number of reasons.

The Phoenix Center for Advanced Legal & Economic Public Policy Studies provides yet one more reason why it is nearly impossible to gauge such impact.

As a mandatory condition of the AT&T deal to buy DirecTV, the Federal Communications Commission  required AT&T to build out fiber to home connections  to 12.5 million customer locations within four years after the deal closed.  

The FCC would rationally fear that its reclassification of broadband Internet access as a Title II telecommunications services will reduce investment incentives, counter to the mandate of Section 706 to promote availability and adoption via infrastructure investment.  

By mandating that AT&T engage in aggressive wireline investment as a condition of its acquisition of a DBS satellite provider (a ridiculous proposition on its face), the Commission virtually ensures that investment will grow by whatever amount it takes to install 12.5 million new fiber-to-home connections by AT&T.

That’s one way to ensure investment. But the investment tells us nothing about the direct impact of common carrier regulation on supplier incentives.

Sprint Spins Off Device Financing to New Mobile Leasing Solutions Company

Sprint spends $10 billion every year on devices. Hence the value of its shifting of device funding to a newly-formed Mobile Leasing Solutions.

Sprint will sell to, and then lease back, devices from Mobile Leasing Solutions. That will result in $1.1 billion in cash proceeds at closing.

The cash proceeds are part of approximately $1.2 billion in total consideration that are expected to be exchanged for approximately $1.3 billion of leased device assets, Sprint says.  

The transaction, which is expected to close in the first week of December, will immediately improve the company’s liquidity position and the funding comes at an attractive cost of capital, which is well below Sprint’s alternatives in the high-yield debt market, the company says.

“Providing mobile devices to customers is the biggest use of cash in the carrier model and with this new structure we have more closely aligned Sprint’s cash flows with those associated with leasing devices to our customers,” said Sprint CFO Tarek Robbiati.

Mobile Leasing Solutions, LLC was formed by a group of equity investors including SoftBank and has secured debt financing from several lenders including international banks and leasing companies.

Brightstar Corp. through its Financial Services Business provided support in structuring the transaction, including assisting in the formation of Mobile Leasing Solutions, LLC which is utilizing Brightstar's Lease Management and Tracking System.

Brightstar has also been contracted to provide reverse logistics and device remarketing services, which will include a forward purchase agreement that is being finalized with Foxconn, thus minimizing the downside risk of future changes in device residual values.

Who Will Defect to Sprint Because of New "Half Off" Offer?

This chart tells you why some analysts are queasy about Sprint's new half off offer for current subscribers of T-Mobile US, Verizon or AT&T mobile services. 

Some might note that the half-off offer had initially be restricted to consumers on AT&T and Verizon networks. 

The latest offer adds T-Mobile US. 

So some might argue that the likely impact will potentially be felt most by T-Mobile US, the reason being that customers of AT&T and Verizon who found the half-off offer compelling already would have taken advantage of the offer. 

Mobile Represents 94% of Internet Accounts in India

In India, fixed networks support about six percent of Indian Internet access connections, while mobile supports about 93.5 percent of such connections. Since growth rates for mobile Internet are vastly higher than for fixed networks, it is self evident that mobile is the primary platform for Internet access in India.

There were in October 2015 some 375 million Internet users in India, according to the

Internet and Mobile Association of India.

According to the Telecom Regulatory Authority of India, there were in March 2015 about 15.5 million broadband fixed line Internet access accounts and some 3.6 million narrowband accounts, for a total fixed network Internet access base of about 18.9 million.

In March 2015 there were about 83.2 million mobile broadband customers (3G, mostly) and some 199.6 million narrowband mobile consumers (2G), representing some 282.8 million mobile Internet customers.

So fixed Internet access represents about two percent of the narrowband Internet access accounts. Mobile represents 98 percent of narrowband Internet access accounts.

Fixed broadband accounts represent about 16 percent of total Indian broadband Internet accounts. Mobile represents about 84 percent of broadband Internet access accounts.

source: TRAI

source: eMarketer

PTC16 is Coming in January 2016

PTC16 is coming! 


PTC'16: A Truly Unique Industry Experience from PTC-TV on Vimeo.

Moore's Law Not Broken, Intel Says

Moore's Law is not exhausted, Intel says. That matters for all matters related to computing power and storage and the cost of computing and storage.

Moore’s Law, formulated in the 1960s by Intel chairman emeritus Gordon Moore, predicts that the number of transistors on a chip will double roughly every 18 months to 24 months.

That trend has enabled better, faster, smaller and cheaper tech products, and it has allowed miniaturization to proceed so that the gap between circuits is now only 14 nanometers, or 14 billionths of a meter. That has been an issue, though.

Production yields for 14-nanometer chips have been difficult and are behind where Intel wanted to be. But yields are improving. "14-nm is harder than we thought, but we do not see a long-term difference in what we were able to see in the past and what we can achieve in the future,” said Bill Holt, Intel EVP.

So Intel is comfortable the linear trend associated with Moore's Law can continue.

Comcast Stream TV Usage Does Not Count As "Usage" for Internet Access Customers, Nor Should It

“Stream TV” is a managed video service sold by Comcast. For that reason, Comcast high speed Internet access customers are not charged for usage when they watch Stream TV content, any more than they are charged data usage when watching linear TV.

Consumer managed services that happen to use IP are exempt from all network neutrality rules. That applies to carrier voice or messaging, as well, for example.

In some quarters, zero rating is viewed as a violation of network neutrality rules, not in the sense of violating the rule about “best effort” access, but because, some say, zero rating does not “treat all bits equally,” in a business model sense.

For such reasons, some object to T-Mobile US allowing access to all compliant streaming audio or streaming video services without any charges against a mobile Internet service plan bucket, despite the obvious consumer benefits.

Some might argue network neutrality does not--or should not--apply to business models, pricing, terms and conditions for Internet access services.