Remarkably Consistent Smart Phone Video Consumption in France, UK, US Markets

It will come as no surprise to just about anyone that people who own smart phones watch video on those devices. What is interesting, in this bit of survey research, is the consistency of the behavior in different markets. As it turns out, the percentage of respondents to a Yankee Group survey who say they watch video at least once a week on their smart phones is precisely 42 percent each, in France, the United Kingdom and the United States. 


As you also would guess, feature phone users watch far less video. 

AT&T Price Hike Illustrates Trend

Beginning March 1,2012, AT&T's base rate for "measured phone service" in California will rise $3 a month to $15.37 from $12.37, — a 25 percent increase. The charge for additional local calls will be three cents per minute. Separately, AT&T's flat-rate charge for unlimited local calls will increase $1.05, to $21 a month. Some think the rates are not justified. Granted, it's always hard to determine whether retail rates are "fair" or not. But the rates do illustrate one often-forgotten and fundamental change in AT&T's cost structure.

As more and more customers abandon landline service for mobile service or rival providers, a fundamental issue is that a smaller customer base means fixed overhead costs of the network must necessarily be shared by a smaller number of customers. line loss

That means higher costs for the remaining customers, and the process will not stop as customers continue to shift their communications spending to other providers or other types of service.


Capital intensive networks are susceptible to changes in demand. In Denver, where we live in an arid climate and are highly susceptible to drought, residents continually are exhorted to use less water. We have done so. The result is higher rates. Why? Because the water utility's fixed expenses have to be covered, even in the face of lower usage (what we were asked to do), which lowers Denver Water's revenue. 

Predictions about Mobile Web Experiences Will Be Wrong

Union Square Ventures Partner Andy Weissman argues that, up to this point, most observers have assumed that mobile versions of PC experiences would be be similar to the bigger screen experiences, with relatively similar take rates, use cases and business opportunities.

He now suggests that we might have been wrong, and have been applying old rules in a new context, where the predictive value of the older assumptions isn’t as accurate. One might therefore guess that lots of unexpected change will occur as the smart phone experience begins to mature into a very distinct medium.

Reading, social networking, payments, learning, location services, medicine and media are some of the areas where expectations of end user behavior, value and revenue creation could be different than expected.

Think back to Netscape (if you are old enough) when it first was introduced in 1994, or even 1995 and 1996.  What were the then-current experiences Netscape enabled? Keep in mind this was before Amazon, eBay and Google, before e-commerce, before web mail, before Netflix, iTunes.

Who would have predicted then, the way the web has developed? Much the same is likely to happen with mobile web and smart phone-enabled experiences.

Unpredictable mobile impact

The Device is the Disruption

“Disruption” is the whole reason most companies receive venture capital backing. Disruption largely defines what has been happening in the telecom business for several decades. And yet there is extreme sensitivity about the notion. For good reason, one might argue.

Just one example: Microsoft owns Skype, which soon will be available on every major smart phone operating system used globally. Oddly, Microsoft is the last remaining major OS where Skype has not been supported.

So the irony is that voice revenues, which continue to represent 70 percent to 75 percent of all mobile service revenues, now will start to be challenged by mobile VoIP that is simply built in to the smart phones that represent the industry’s future.

Disruption, in other words, now has become a feature of the very devices the mobile networks themselves depend on for future growth. Mobile VoIP forecast

M2M Revenue $35 Billion in 2016?

The machine-to-machine (M2M) market, basically the ability of sensors to communicate using wrieless means to servers, generally is viewed as one of the key three to four areas where the mobile services industry can look for growth in coming years, especially once sales of mobile broadband services become saturated.

By the end of 2011, most major mobile operators in North America, Europe, and the Asia-Pacific region had established M2M business units, in part because of a belief that connections will rise from about 110 million in 2011 to approximately 365 million connections by 2016.

The caveat is that some observers consider tablet, e-book and mobile PC connections to be M2M, while others do not.

Still, the 27 percent compounded annual growth rate between now and 2016 and translates to about $35 billion in connectivity services revenue.

The two largest cellular M2M market segments over the forecast period, by revenue, will be automotive telematics and smart energy.  

Automotive telematics, including factory-installed systems such as GM’s OnStar service, aftermarket services such as usage-based insurance, and fleet management systems, will together represent more than $15.5 billion in 2016, according to ABI Research.

Meanwhile, smart energy, specifically cellular connectivity to smart meters and data concentrators, will represent more than $7.5 billion in 2016.  M2M

Android, Apple iOS Continue to Dominate

If you want to know why Research in Motion is in trouble, just look at RIM's market share. 





Android, iOS dominate smart phone OS market

Wireless Spectrum Shifts

Verizon Wireless now has gained a step on AT&T in the spectrum resources area, adding additional capacity from SpectrumCo, Comcast, Cox Communications, adding about 54 megahertz, for a total of about 172 MHz, while AT&T has about 114 MHz.


To put that in perspective, 20 MHz is a big deal, allowing use of about 10 MHz for both upstream and downstream communications.


But total spectrum doesn't really tell the story. The key is how much new spectrum is available to support a fourth generation Long Term Evolution network. And that's where the disparity between Verizon and AT&T is most stark.


The cable deals leave Verizon Wireless with 56 percent more 4G spectrum than AT&T in the top 10 markets and 46 percent more in the top 100, according to John Hodulik, a UBS AG analyst.

Mobile Ad Impressions Growing Exponentially

In 2011, the InMobi mobile ad network saw 251 percent growth in mobile impressions globally. That is perhaps not unusual in rapidly-growing new businesses that have a small base to build on.

Given the rapid uptake of smart phones, and heavier use of smart phones for mobile web and mobile apps, InMobi also says growth of mobile impressions on smart phones was about 488 percent in 2011.


In North America, mobile impressions grew 366 percent while smart phone impressions grew 625 percent, inMobi says. 


Tablets also were a new factor, with tablet impressions increasing 771 percent year-over-year, to 11.2 billion. Review of 2011 mobile ad growth

AT&T Will Have to Do Something About Spectrum

AT&T will have to acquire more spectrum to support its fourth-generation network plans, most believe. The only question is what it can do to acquire that spectrum without triggering another regulatory battle.

Dish Network seems to many the safest and most-logical bet. Dish has no mobile or telecom subscribers and therefore would not represent another horizontal size issue for AT&T.

Dish owns satellite spectrum acquired from DBSD North America and TerreStar Networks that Dish has proposed to reuse for a Long Term Evolution network. AT&T Bid for Dish?

What Future for Fixed Line Providers in a Wireless World?

It is reasonable to note that a majority of global telecom service provider revenue already is being generated by mobile services. By some estimates, mobile already represents 56 percent of global retail service revenues. For AT&T, wireless represents about half of total revenue.

At Verizon, wireless represents 63 percent of total revenue. So what does that imply for the future of the business?

“If you are in the desktop business or the fixed line business, lie down and die,” quips Kara Swisher, All Things D co-producer. Swisher made those comments in reference to her view that “mobile now is everything.”

Swisher’s quip would be shared by many others, who in a purely studied way would point out that, on a global basis, mobile already contributes more than half of all global service provider revenues, and that most of the growth will be coming from mobile services over the next decade.

But there might be more to it than that. Ross Patterson, a commissioner of the New Zealand Commerce Commission, argues that “without government funding, fiber to the home networks would not have been built in Australia, New Zealand and Singapore.”

Those networks feature structural separation of wholesale network operations and retail service delivery, as well as open access to the wholesale infrastructure by third parties.

The direct implication is that the business model for ubiquitous fiber to the home is unattractive enough that public capital had to be pledged to create the infrastructure.

Granted, investment models and regulatory schemes vary around the world, but those choices in Southeast Asia and Australia point out the difficulty of the business model for large fiber to premises networks.

In the U.S. market, Verizon Communications, long the largest telecom firm to champion fiber to the home networks, has halted new builds, has sold rural exchanges and has inked deals with cable operators that suggest it no longer has complete confidence that the financial payback is there.

Other service providers, with more limited geographic areas to cover, or with some form of local government sponsorship or ownership, might not have different business models that could be workable.  

But Swisher’s half-in-jest quip, and the decisions of regulators and industry participants in three nations, suggest that the business model for widespread and large fiber to home networks could be more uncertain now that mobility has clearly become the growth engine for global telecom, and as wireless broadband alternatives become more workable.

Regulators in much of Europe also now seem to be grappling with the riskiness of such investments. What to do is the issue.

In Germany, there are mandatory open access rules, but only in areas where there is no cable competition, and with no mandatory pricing rules, says Matthias Kurtz, president of the Federal Agency for Electricity, Gas, Telecommunications, Post and Railways.

That is not to say anything is inevitable. But neither is it true that the financial prospects for fixed network service providers are as predictable or certain as they used to be.

There seem also to be growing voices saying “I’m not saying broadband is a human right, but...” 


Many also argue that broadband is infrastructure “like roads or electricity,” says Swisher. That implies a view of what should be done that could have potential unsettling results.


Whatever else you might say, the regulated monopoly period featured low consumer prices for basic local access, high rates for long distance calling, low rates of innovation, and very high business prices. Utilities often work that way. Some may yearn for some version of the "good old days," which, it might be argued, were not so good.

Verizon Could Offer "Drip-Casting" Video

And engineer can tell you that there always are trade offs in communications. And since peak-hour congestion is a growing problem, it comes as no surprise that mobile service provider executives are looking at ways to create incentives for off-hours consumption, much as they offer off-peak calling.

Now called "drip casting," the technique is what engineers call "store and forward." The idea is that when a consumer wants to watch a movie, the carrier could offer incentives to order ahead of time, instead of "now," allowing the carrier to stage delivery of the bits over time, at times when the network isn't congested and can more easily handle the load.

The value exchange could be as simple as "use drip casting and the data won't count against your data cap." Drip-casting

Video content distributors also use the concept, though not for reasons of bandwidth efficiency. Tivo, or any other digital video recorder, essentially "catches" data when it actually is transmitted and then stores it for later viewing. It's a variation of the basic technique, which is that transmission of data and consumption of that data occur in non-real time.

The other angle here is that the plan is a bit of a shift in the direction of value-based charging, where the "price" or "rate" for some use of the network varies based on the value of the sessions, or the timing of the sessions.

In this case, consumers receive the value of a big download that isn't charged against their data plan, while the service provider receives the value of alleviating strain on the network.

U.S. Consumers Reducing Entertainment Spending?

From 2000 to 2008, adjusted for inflation, U.S. consumers have been reducing the amount of money they spend on out of home entertainment. That obviously has implications for providers of video entertainment products, negative for out of home venues but positive for in-home options. 


The issue is that Blu-ray, so far, has not grown fast enough to offset declining DVD product purchases. In the technology transition from tape to DVD, the new format seemed to have higher value, boosting sales of physical media and gjrowing the category. 


That has not yet happened with the transition to Blu-ray, and an obvious conclusion would be that the successor product to DVDs is not Blu-ray but online delivery. 

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Ultraviolet Initiative Illustrates Business Issues

UltraViolet, the digital rights management initiative and "content locker service" backed by Warner Bros., Universal, Sony and Paramount illustrates some long-standing issues in the video content business, as well as an application of traditional thinking to a new channel, namely "cloud-based" applications and channels.


In many ways, Ultraviolet also illustrates why, though we keep getting more options for online delivery of content, in the movie and TV business, the range of options will be shaped and controlled, at least in terms of pricing and availability, by the willingness of content owners to make their content available online. 


The key implication might be that, in the case of popular movie and TV content, consumer access and pricing might not be subject to all of the retail pricing trends we have seen in the music and print content business, with one key exception.


One might argue that the pricing declines we have seen in print and music products now consumed online is due to a change in packaging, in large part. Music used to be as "albums," while print content has been sold as a bundle known as a newspaper or magazine. 


Online delivery unbundles those products into discrete songs and stories. If you assume there is a significant difference in value and pricing for a bundle of 10 to 12 songs, compared to buying one song, you also can see the analogy to pricing changes for buying one story as opposed to a whole newspaper or magazine. 


Also, you might say that in the case of print content, one version of a story that has to be bought also faces pressure from other versions of a story that might be available for free. The other bit of context is that movies traditionally have been a "fee-based" product, where print content typically has been an advertising-supported product.


Broadcast television has been more like print, in terms of end user pricing, while cable, telco or satellite TV pricing has been more like that of  movie products. 


UltraViolet is an effort to solve a couple of problems. 

UltraViolet will allow buyers of Blu-ray physical media to view those assets online, at no extra cost. For starters, the initiative is an attempt to preserve the value of existing channels even as the industry adapts to a new distribution channel. That is the thinking about nearly all content licensing schemes, as well as the system of staged release windows for access to movie content.

On the other hand, UltraViolet also is an effort to try and supply consumer demands for online viewing on any device, with declining sales of DVDs, which have been a key channel and revenue generator for decades.


To be sure, the original hope had been that the Blu-ray physical format would be the successor to DVDs in the era of high-definition television. That almost certainly will occur at some point, but the issue is whether collective Blu-ray revenue ever will match the heights of DVD sales in an era where online delivery will be common. 

UltraViolet further is an effort to create a revenue model for streaming, essentially by generating all the revenue when the physical product is purchased. That is similar to what cable operators are trying with TV Everywhere, essentially making purchase of the traditional video entertainment subscription as a prerequisite for using the no-incremental-cost TV Everywhere features.

It is something of a reverse "freemium" model, which gives away one product and then generates revenue on sales of add-on products. The Ultraviolet model does the reverse, making revenue on the classic product and then adding a "no additional fee" feature. The studios hope UltraViolet will help with the DVD sales drop

On the other hand, DVD sales have dropped precipitously over the last decade. The music industry faced roughly analogous issues, as have newspapers. 


As content migrates onto the Internet, there is a tendency for retail prices to fall. This price compression has affected major music label revenue from recorded music in part because of the ability consumers now have to buy songs one at at time, instead of bundled in the form of albums, which contain 10 or 12 songs and can be sold at a correspondingly higher price. 



UltraViolet aims to support DVD sales while providing something of the value provided by rental services as well, including Apple and Netflix. Ultraviolet

In principle, mobile-focused entertainment video has the same context as TV-focused entertainment in many ways. Movie products, which have been sold as discrete products, are less threatened than the bundled products we know as cable, satellite or telco TV.


Those products are susceptible to the same dangers as unbundling in the music business when sales shifted from collections to songs, or newspapers and magazines to stories. 










DVD sales dip

Computing Product Life Cycles

If you study consumer adoption of technology professionally, or just enjoy learning about product life cycles, this is useful, tracking adoption of various computing devices. It sure looks as though the PC is entering the peak of its product life cycle, doesn't it? PC product life cycles





Another way of visualizing PC lifecycles

International Long Distance Prices Decline 5% in 2011

"Prices in international long distance only go down," says Telegeography VP Stephan  Beckert. The only issue seems to be the rate of decline.

But that wasn't anything unusual in 2011. International long distance rates have been dropping since about 2000, though there are regional variations.

The declines are a serious issue for retail service providers, who are seeing increasing amounts of traffic "growth" siphoned off by Skype.

As a percentage of overall global bandwidth, though, video and Internet traffic now is what drives capacity requirements, not enterprise data or voice.