How Long Until "Peak Text Messaging Revenue?"

In 2013, text messaging is  expected to generate in excess of $130 billion worth of service revenue for mobile service providers, with profit margins as much as 90 percent.

But whether 2013 turns out to be the peak year for messaging revenue, or whether that happens in 2014 or 2015, the peak is coming shortly.

The Global Mobile Consumer Survey predicts global text messaging revenues are expected to continue growing until at least 2015, reaching a peak of $159 billion.

Also, the study suggests, the relationship between text messaging and instant or social messaging is a bit subtle. In developed markets, there is a strong inverse correlation between instant messaging penetration and text messaging usage.

In markets where text messaging historically has been lightly used, social messaging usage is high. In Spain, for example, a typical subscriber sends just seven text messages a month, over the top messaging penetration and usage is high.

In France, where over the top messaging penetration is just 15 percent, an average subscriber

sends more than 250 texts per month.  In other countries, there is no clear correlation between

use of text messaging and use of over the top messaging.

In Germany, both text messaging and instant messaging are growing.

So what should carriers do about over the top substitutes for text messaging? As usual, the advice is to “reassess their analysis of and relationship with OTT.”

“Specifically, they should consider how to better monetize the growing popularity of IM, as part of a broad and growing suite of messaging solutions,” Deloitte says. Some mobile carriers have begun exposing network and data assets to OTT apps using application program interfaces,  allowing third parties to integrate their applications and services more closely with the

mobile device, subscriber information module and elements of the network.

That recommendation is fine, so long as the third parties agree to do so, see value and are willing to pay something for the privilege that the mobile carrier finds acceptable.

Some approaches involve supplying in-app advertising or billing services. Deloitte suggests unlimited use of instant messaging also will be popular with many users, and that service packages can be crafted to supply such access.

At the same time, carriers should work to add value to text messaging, which will remain a substantial business for some time.

Wi-Fi is Primary Way to Connect to Internet in 16 of 20 Countries

Wi-Fi has become an accepted part of the mobile carrier network, and is likely to become more important in the future, as more devices are able to connect both to Wi-Fi and carrier networks.

Nearly 66 percent of consumers in the United States report that they most often connect their smart phones to Wi-Fi networks as opposed to a mobile network when using the Internet, according to Deloitte’s Global Mobile Consumer Survey.

Most people across 20 countries use four to eight devices, most of which have Wi-Fi access, and people rely on Wi-Fi to connect those devices.

Furthermore, in 16 of 20 countries surveyed, Wi-Fi is the primary method of connecting to the Internet.

Those statistics illustrate both the important role Wi-Fi access now plays in the broad “connected device” business, and also indicates the potential for mobile service providers who create attractive connection plans for their customers.

The upside for mobile service providers is the opportunity to convince people to use the mobile network, thus generating more revenue, more of the time. The larger data bundles typically sold to Long Term Evolution subscribers are a major contributing factor to higher usage and also revenue.

In South Korea, for example, some 36 percent of 4G subscribers have a data allowance of 3GB or larger, compared with only nine percent for respondents using 3G. A similar trend is seen in the United States, Japan and Singapore.

At least some consumers say  they are spend more to get faster speeds, with 41 percent of respondents indicating that they would be willing to pay more for substantially faster speeds, with nearly 10 percent willing to pay up to $30 on top of their current rates.

Consumers who use 4G still seek out Wi-Fi alternatives for two reasons, though. There are times when using Wi-Fi means a better experience. Also, Wi-Fi is viewed as a way to save money by allowing use of more-affordable mobile data plans (by an 11 percent margin over their non-4G counterparts).

Although Wi-Fi is likely to remain the dominant form of connectivity, measured both by minutes connected and bits sent and received, consumers are likely to use mobile at least some of the time to connect their devices. They are also more likely to upgrade to a larger data bundle.

The point is that most of the devices people now use are equipped for Wi-Fi access, and people will use Wi-Fi most of the time, for obvious reasons: it sometimes offers a better experience and it also does not count against a user’s data plan.

Consumers in developed markets and urban professionals in developing markets on average own or have access to between four to eight devices.

A growing proportion of those devices are connected to a mobile network; especially smartphones and tablets and to some extent laptops. The GMCS shows that ownership of Internet-connected devices increased in all countries surveyed in 2012 and 2013.

By the end of 2013, more than 2 billion smartphones, 300 million tablets and one billion portable PCs are expected to be in use globally.

One trend likely to be prevalent among smartphone and tablet owners is multiple ownership of the same type of device. Across the countries surveyed, between 12 and 29 percent of smartphone users own or have access to more than one smartphone; similarly across tablet users, between eight and 29 percent own or have access to more than one tablet.

A main driver for multiple smart phone and multi-tablet ownership is likely to be device screen size. Of those that have a medium tablet, between 13 and 38 percent also own or have access to a large size tablet.

Maybe OTT Messaging Hasn't Visibily Cannibalized Mobile SMS Revenues, But Wait Until Next Year

Without much doubt, mobile messaging cannibalizes some amount of mobile end user use of voice services, text messaging or email. 

The issue is how much, and which services are benefiting from the changing behavior.

Itr is hard to prove a negative, in other words, how much slower mobile text messaging revenue has grown because people use social messaging on their mobile devices. 

Some, such as Portio Research, do not think mobile service providers actually have lost much revenue, so far, to social and mobile alternatives. That does not mean it is not happening, or will not happen in the future, only that revenue growth, though perhaps slowed, has not gone into reverse, yet.

That might provide scant comfort, as even Portion predicts revenue will start to decline, globally, in 2014.




Also, in some markets, all the mobile communication methods are used frequently. But network effects still are an inhibitor to wider use of various social messaging apps. 

That's the problem with social mesaging: one cannot always be sure a message recipient is on the same network, a fact that continues to weigh in favor of text messaging, which has ubiquity in the mobile domain.

Does Bundling Still Work?

What comes next for service provider triple play or quadruple play bundles, which gradually have become the dominant way fixed network service providers package and sell their services?

The question might become more relevant for a wider number of service providers as the original value--churn reduction--loses its effectiveness. "Bundling is at a crossroads," says Matt Davis, IDC director. The problem is that bundling, which initially proved a strong weapon for combating customer churn, now is losing its effectiveness.

That was more true in the early years of the first decade of the 21st century, but has become less effective since perhaps 2008. “Saving money” once was the big draw, though.

Of 4,400 consumers surveyed by KPMG in 16 countries in Asia, Europe, and North and South America, 57 percent indicated attractive pricing attractive pricing was the most important driver in the decision for signing a bundled service contract.

Of those who do purchase bundled service packages, 75 percent did so primarily to take advantage of lower pricing. Only 12 percent acknowledged convenience as a factor.

How much churn protection now is provided is questionable, though. About  56 percent of survey respondents indicated that even if only one of the bundled elements they subscribe to were offered cheaper or better by another carrier they would readily break their contract and switch carriers.

Only 15 percent of respondents indicated that their current service package was 'sticky' and they would not consider switching.

"The popularity of service bundles in the Middle East is not just attributed to discounted pricing, but also to the convenience associated with converged billing,” said Hasan Sandila, IDC senior analyst.

In some cases, bundles can boost revenue or take rates. But for the most part, service providers have used bundles to combat churn by essentially locking customers into money-saving deals.

That works until virtually every competitor offers the same features and advantages. At least one study suggests the churn reduction is most clearly seen only under some circumstances, such as a recession that highlights consumer perceptions of, and need for, value.

In the next wave of development, bundles might emerge as ways of enabling additional features and services, or be provided in more-diverse combinations of services, Davis argues.

In some cases, the extension will be bundling of fixed with mobile or bundling of additional services to the traditional voice, video entertainment, Internet access triple play or the fixed network triple play with mobile service to form a quadruple play.

But Davis suggests change will be broader than that, moving beyond the offer of lower prices for bundle packages and towards “more choice” as well.

Globally, telcos and cable operators will see bundle revenue from bundles grow by 65 percent from $124 billion in 2012 to $205 billion in 2018, according to Digital TV Research.

Triple-play subscriptions will reach 333 million by 2018; up by more than 300 million since 2008 and up by 239 million on the 2012 total.

Still, in markets where bundling traditionally has been most widespread, the value of bundling is declining.

By most estimates, at least globally, the amount of fixed network services sold as part of a bundle will grow significantly. How much incremental value service providers will derive, at least in some markets, is the issue.

When every major supplier offers a comparable bundle, the value of any particular value is less.

Verizon "Spot Deploys" Fiber to Home to Drive Maintenance Savings

Sometimes, doing what is more expensive winds up being financially beneficial for an access provider. 

If you ask a network designed what costs more--installing new customer drops one by one or all at one time--the answer generally is that the "all at one time" approach is cheaper, per line.

Sometimes the more-costly approach actually winds up saving an access provider money, however.

In 2013, Verizon Communications eliminated 600,000 repair dispatches (truck rolls)  as a direct result of migrating customers served by copper access loops over to fiber access, saving more than $100 million for Verizon.

The idea is that Verizon replaces drops that experience repeated trouble calls, as needed. 

That raises an interesting point about fiber-to-home economics in rebuild areas where copper access dominates. 

The original justification for installing fiber to home networks was a combination of revenue upside and cost savings. So some areas were completely rebuilt, allowing Verizon to sell FiOS video services, for example, while reaping the benefits of lower maintenance costs.

But Verizon at some point concluded that the business case, given other alternatives for capital investment, was not so high as one expected. 

To be sure, the economics of a "whole network" rebuild arguably are better than a "rebuild individual lines if customers complain" model. When a whole network is upgraded at once, Verizon gains the ability to share costs, such as trenching, pole attachments and dispatch of crews to install drops.

Compared to that approach, the overhead costs for replacing single drips, as needed, are higher.

But the overall economics probably are better for the spot deployment business case, nevertheless. The reason is that there is no "video services" revenue upside in an area where copper replacements are done as needed, and strictly to reduce maintenance costs.

Oddly enough, the more-expensive spot deploy method is more financially efficient, since it avoids the cost of building facilities that would be stranded (no customer revenue from particular drops). 

So Verizon saves by avoiding stranded investment. It doesn't build facilities that will not generate a return. Those savings allow Verizon to come out ahead, financially, even when it has to spend more on each discrete new fiber to home drop.

Smart Phone Shipments Will Be 82% of All Handset Sales in 2017

Global smartphone shipments are forecast to reach 1.8 billion in 2017, accounting for 82 percent of total mobile phone handset shipments, up from 55 percent in the third quarter of 2013, says NPD.

Devices capable of running on Long Term Evolution 4G networks will represent  41 percent of smart phone shipments in 2017.

But 3G high-speed packet access (HSPA) will continue to be the dominant air-interface technology, comprising 51 percent of the market in 2017.

The compound annual growth rate (CAGR) for smart phones over the next five years will reach 21 percent, while feature phones will decline at a CAGR of 16 percent, according to NPD researchers.

The majority of smartphone growth will come from the Asia-Pacific region, especially China.

China is forecast to grow 63 percent in 2013, and is expected to comprise 30 percent of the smart phone market by 2017.

Worldwide Mobile Phone Shipment Forecast

Source: NPD DisplaySearch Smartphone Quarterly report

How Will Service Providers Find Investment Capital When Revenues are Falling?

European service provider revenues from fixed network services across Europe will decrease at an overall rate of around two percent a year through 2020, while mobile service provider revenues decrease 1.5 percent per year through 2020, analysts at A.T. Kearney have forecast.

The decline in European  fixed telephony revenues accelerated in 2012 (-8.3 percent in 2011 and –31 percent over the last five years), driven in part by a negative five percent growth of fixed lines in service, according to European Telecommunications Network Operators association.

Since 2005, fixed line subscribership is down 22 percent.  The bad news is that mobile revenues, long the driver of industry growth, also are declining (-0.6 percent), according to ETNO.

That poses a problem for service providers as they contemplate investments in next generation networks built to supply very high speed Internet access connections.

The reason is that it is difficult to increase capital investment in any business when gross revenue is falling. The more typical strategy, in such cases, is to harvest the declining business, when possible, saving scarce capital for investment in new and growing lines of business.

To be sure, telecom executives already are working to boost revenue and reduce cost. But the combined effect of revenue, operating cost and capital investment  reductions would still result in a decrease in the European telecom sector’s free cash flow from €44 billion in 2011 to just €23 billion by 2020, A.T. Kearney analysts also project.

That makes heavy new investments problematic, as necessary as they might be.

By some estimates, it will cost as miuch as 200 billion euros to upgrade all European fixed networks for Internet access at 100 Mbps. That would be tough to do if free cash flow is but €23 billion.

The latest estimate from the European Telecom Network Operators association suggests telecom service revenue will decrease by close to three percent in 2013 among major European countries, representing a drop of about €7.1 billion.

Across Europe as a whole Etno estimates that revenues will decrease by 3.7 per cent in 2013, twice the decline in 2012.

In 2012, total capital expenditure across the industry reached €46 billion, of which €26 billion was invested in fixed networks and €20 billion in mobile, according to Idate, which also has forecast potential costs of upgrading European fixed networks as high as €229 billion.

The problem is that, as a rule of thumb, fixed network service providers invest no more than about 17 percent of revenues in capital investment every year, according to Infonetics Research.

Some might argue that network capital investment in many markets is far lower than that, representing single-digit percentage of revenue spent every year in all forms of capital investment.

The problem is that at €23 billion free cash flow, all of Europe’s fixed network operators collectively would not be able to spend much more than about $4 billion a year to upgrade their networks. At that rate, it would quite a long time to rebuild European fixed networks to support gigabit speeds.