U.S. Mobile Sustainable Market Share Might Require Consolidation

Huge fixed costs explain why the number of facilities-based access providers seems always to be a small number, no matter what regualtory frmaework is employed, economists at the Phoenix Center for Advanced Legal and Economic Policy Studies  have argued. In fact, the starting point for analysis should always be that there were be only a few facilities-based providers of any communications or video service, notably in the terrestrial facilities business, and especially when referring to networks using some form of wired access. See read more here

By direct implication, excessive competition will, over the longer term, "always" revert to a small number of providers, in large part because only a small number of providers can actually invest and make a profit. To be sure, the analysis is a bit different in a multi-product market, than in a single product market. In other words, the hurdle rates for a fixed-line provider with just one product will have different dynamics than markets where each contestant sells three to four anchor products.

The obvious example is minimum market share in the fixed-line market where entertainment video, voice and broadband access are the anchor products. An executive from a rural cable TV provider, at a time when the sole product was "cable TV," once was asked what would happen if the company's penetration rate of homes dropped from 70 percent to 65 percent. "We'd be out of business" was the reply, so sensitive was that firm to the arrival of a single competitor, when there was but one product.

In today's market, where three products are key, the hurdle rate can be far lower, in part because even a smaller number of subscribing households might buy two to three products, allowing any single contestant to survive or thrive on a smaller base of customers. In other words, were that same company able to sell voice, broadband access and video, meaning three separate revenue streams, even shrinkage of video customers substantially below 65 percent would not be a catastrophy, provided an equivalent or greater revenue stream could be generated from sales of the additional products, even to fewer numbers of customers.

Still, there are limits. Consider a sample market where entry costs are equivalent for all facilities-based contestants at 15 units. Where one firm operates, it gets 100 percent of possible profits. Where there are two contestants, profit falls to 40 units. Where there are three contestants, profit falls to 20 units per firm. With the potential entry of a fourth firm, profits drop to 12 units, leaving the fourth firm under water. The fourth firm rationally decides not to enter the market.

The particulars of each real-world market will diverge from the hypothetical example, but the point is that there are some clear limits to the potential profitability of contestants in the fixed-line access business, even when triple play services are possible.

Verizon Wireless has the highest market share in the U.S. mobile market. It also has the highest profit margin. AT&T is second in share, and second in margin. Sprint is third in share, and third in margin.

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Sprint and T-Mobile USA in Merger Talks?

Deutsche Telekom AG has held talks to sell its T-Mobile USA unit to Sprint Nextel Corp. in exchange for a major stake in the combined entity, Bloomberg said. “In general, all options are open in the U.S. -- the sale of the whole business or of parts,” Deutsche Telekom Chief Financial Officer Timotheus Hoettges said read more

Talks have been on and off, and a deal may not be reached, sources suggest. Such rumors have floated before, and observers have noted the high risk of integration, with any new entity operating multiple different networks (GSM, CDMA, iDEN, WiMAX). Of course, Sprint has said it will shut off the iDEN network, and almost certainly will light a new Long Term Evolution network. Granted, it is typical for any major carrier to support at least two networks concurrently. Supporting four networks would be quite challenging, in terms of gaining scale economies from any merger of T-Mobile USA and Sprint. read more.

On the other hand, the reason such rumors or talks have happened is that the U.S. mobile market arguably has too many contestants for a stable market structure. Indeed, there are two schools of thought on a potential merger between Sprint Nextel and T-Mobile USA.

On the one hand, notes Bernstein Research analyst Craig Moffett, the U.S. wireless market is “crying out for consolidation.” In most local markets, there are as many as seven different price actors, Moffett said. Most observers say that amount of competition in a capital-intensive business such as mobility is not stable over the long term. A merger would create three major facilities-based providers, allowing the new entity to compete more evenly with AT&T and Verizon Wireless.

But among the big issues are the chores of integrating incompatible networking technologies, since over the long term it will be difficult to obtain operating economies without reducing the number of supported protocols. read more.

The rumored talks might not lead to an actual deal. Citigroup analyst Michael Rollins reportedly estimates the odds of a deal as being under 30 percent. He also cites the significant integration risk; and he says there is only a 50 percent to 60 percent chance that regulators would approve such a combination. Some might well note that, historically, mergers between weaker partners often fail, over the long term, to close a gap with a market leader. Sometimes, the result is simply a larger, but still weaker contestant unable to close the gap with a market leader.

Still, the current market structure likely will remain unstable for both Sprint and T-Mobile USA so long as both remain independent entities. The market share gap between either of the firms and AT&T and Verizon Wireless is substantial and consequential. There is a reason neither Sprint nor T-Mobile USA have rights to sell the Apple iPhone or iPad. So long as AT&T and Verizon have something on the order of 30 percent to 33 percent share, the other two contestants, with shares in the 11 percent to nine percent range, will face hurdles.

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Mobile Marketing and Technology

Low Banking Usage in Sub-Saharan Africa Creates Mobile Opportunity

Sub-Saharan Africa has the lowest deposit institution penetration in the world standing at an average of 16.6 percent compared to 63.5 percent in other developing countries, the African Development Bank says. “It is this gap in the financial services market that is creating a unique niche for mobile phone banking to develop on the continent, enabling a growing number of people to access financial services for the first time,” ADB says.

Even Africans with bank accounts often face high charges for moving their cash around, due to high transaction costs. It is this gap in the financial services market that is creating a unique niche for mobile phone banking to develop on the continent.

Mobile Marketing and Technology

35% of U.S. Mobile Subs Downloaded Apps in January 2011

In January 2011, 68 percent of U.S. mobile subscribers used text messaging on their mobile device, while browsers were used by 37 percent of subscribers (up 0.8 percentage points). Some 35 percent of subscribers downloaded applications, an increase of 1.6 percentage points. Accessing of social networking sites or blogs increased 1.1 percentage points, representing 25.3 percent of mobile subscribers. Playing games represented 23.7 percent of the mobile audience, while listening to music represented 16.5 percent (up 1.1 percentage points).

comScore Reports January 2011 U.S. Mobile Subscriber Market Share - comScore

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1% of Social Media Users Create All the Content

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Youth a Segment, or Lead Indicator?

Marketers often recommend segmentation of potential customer bases, for logical reasons. There nearly always are distinct preferences among generations, age and other "groups."

Beyond that, one might argue that technology behaviors now color traditional segmentation in new ways that make "youth" something more than an age segment.

"Young people have a pattern of discovering new methods, after which older generations later catch on and outnumber them," says Graham Brown, cofounder and partner of research firm Mobile Youth.

In that sense, "youth" segments simply are the "lead adopters" of new behaviors enabled by technology, that nevertheless become "typical" behaviors for people in every age demographic. Seen in that light, one might argue it is important to know technology-enabled behavior in the "youth" segment because it will spread, often quickly, to all the other age segments rather quickly.

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Will 99% of New TV Channels Be Hosted on YouTube?

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"The Web enables you to build the kinds of channels that wouldn't have made sense for cable, in the same way cable enabled you to build content that wouldn't have made sense for broadcast," said YouTube CEO Salar Kamangar. "We want to enable the next-generation MTV, the next-generation CNNs."

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Texas Energy Network Works 4G Energy Niche

Texas Energy Network has gone live with its first 4G tower site in the Andrews County, Texas, the first of many TEN expects to build as it expands its wireless communications network dedicated to the oil and gas industry. At first blush, you might wonder why. Isn't the wireless space, including mobile broadband, rather well supplied? Well, yes and no. Lots of rural areas--including many aeras where energy companies operate--are in fact not well supplied with fast broadband of any sort, wireless or fixed.

That's a bit of a historical legacy: mobile service up until recently was a service used by people who needed to communicate with other people. Only recently has the notion of machine-to-machine communications arisen as a key growth area for mobile service providers.

"The oil field is a barren place, quite remote," says Greg Casey, Texas Energy Network CEO. There are lots of sensors in operation, and until now, most have been narrowband devices, using a variety of different networks for transport. TEN plans to use leased 4G spectrum to create a single wireless backhaul supporting all requirements of the telemetry, seismic data, pressure data that energy firms typically have to manage.

The advantages, aside from simplicity, include lots more bandwidth. Traditionally, energy company sensor networks have been forced to use networks supporting kilobytes, and now will have access to megabytes. Typically, that leads to creation of new apps, and oil service applications should not prove to be an exception to the rule.

In part, TEN is an outsourcing play. In the past, energy companies, like many other enterprises, have built their own networks. TEN proposes to offload those chores, provide enhanced utility, and cut costs. You might wonder how TEN sources its 4G spectrum. As it turns out, there typically is a third player, even in markets lead by AT&T or Verizon Wireless. Quite often, that spectrum is not yet in commercial use, or there is spare capacity (rural areas are less dense, and therefore have less loading of any available network, compared to urban networks).

For the most part, though, "we are going places where AT&T and Verizon do not go," says Casey. "We are off the beaten path, in the desert and so forth.

"TEN Office" provides a wireless broadband solution with service level agreements of a minimum of 1Mbps of symmetrical bandwidth.

"TEN SCADA" and "SCADA Plus" are designed for the collection of remote telemetry from the field. They are engineered and priced to be deployed in large numbers in remote areas lacking wireline, cellular or electricity. This turnkey communications solution provides an Ethernet and/or RS232 handoff and is designed for low bandwidth applications.

"TEN Alarm" offers the highest-possible SLAs  regarding packet priority and guaranteed bit rate for alarm data, and is offered in a fully-redundant configuration.

"TEN Secure" provides secure, remote monitoring capabilities of field assets that may be prone to trespass, theft, vandalism or require validated entry and remote logging of site access.

"TEN Mobile" is designed to support the communication needs of mobile remote field personnel and provides mobile wireless broadband services that turn any vehicle into a mobile Wi-Fi Hot Spot.

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