Will Mobile Revenues Fall Below Costs Between 2014 and 2016?

Though not every mobile service provider will face such issues, many mobile executives will be facing huge profitability challenges between now and 2016, according to Juniper Research, which forecasts that mobile service providers face potential capital investment and operating costs that actually exceed revenues by about 2014, Juniper Research says. 



Separately, analysts at Analysys Mason concluded that carriers in many regions around the world face the risk of an "end to profit" in 2015 if not before.

A study carried out by mobileSquared surveyed 31 global mobile operators and found that one third of operators already see traffic and revenue decline, while 75 percent of are worried about losing revenues to mobile application providers.

The research confirmed that over-the-top apps already are affecting traffic and revenues. Some 32 percent of respondents thought operator traffic from messaging, voice and video calling would decline between 11 percent and 20 percent over the next five to 10 years. About 20 percent of respondents estimated revenue would fall 31 percent to 40 percent over the next five to 10-year period. 

My own framework calls for a decline of as much as 50 percent in the legacy lines of service over 10 years, based on price trends in long distance. 

The problem, according to Juniper Research, is that profit margins are running between 15 percent and 20 percent, which means many service providers are at about break even.

By 2015, costs will exceed revenues slightly, and fall below capital and operating expense by about 2016.


Separately, analysts at Tellabs also predict that revenue could fall below costs "within four years."

The Analysys study assumes a continuation of current cost and revenue trends, especially the current pricing of bandwidth. The findings also suggest the immediate need mobile service providers have for changes in retail packaging and pricing to keep revenues above cost. 

Coming Top 10 Uses for Mobiles

You don't have to be a believer or supporter of "mobile payments" to guess that, at some point, mobile devices will be used for many "commerce" applications that turn a "communications" device into a "transaction" device.

In 2011, Gartner analysts predicted worldwide mobile payment users would surpass 141.1 million, a 38.2 percent increase from 2010, when mobile payment users reached 102.1 million.
Worldwide mobile payment volume was forecasted to total $86.1 billion, up 75.9 percent from 2010 volume of $48.9 billion. Gartner forecast

Money transfers and prepaid top-ups clearly drove transaction volumes in developing markets. These are seen as the "killer apps" in developing markets, where people value the convenience of sending money to relatives and topping up mobile accounts. This is most obvious in Eastern Europe, the Middle East and Africa, where these two services were expected to account for 54 percent and 32 percent of all transactions in 2011, Gartner said.

It might take until 2014 before retail mobile payments really becomes a mass market behavior in developed markets, though.

The top mobile apps, though, will show the growing importance of commerce and payment-related mobile apps, whether in 2012, as Gartner originally projected in 2009, or by 2014, which seems a more reasonable scenario at this point.


The top 10 consumer mobile applications in 2012 were projected to include money transfer, mobile payment and mobile advertising. 

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PayPal to Expand Home Depot Retail Payments Test

PayPal is expanding its test of PayPal retail payments with Home Depot from the limited "friends and family" test it has been conducting, to about 50 Home Depot locations in the San Francisco Bay Area. PayPal expands Home Depot test 


Up to this point, the pilot customers (said to be PayPal employees, only)  have been able to pay for items using their PayPal account at Home Depot’s point of sale systems. 


They can either use a pin code on their mobile phone or a  PayPal credit card that can be swiped.


PayPal has been agnostic about actual transaction technologies, so the test is probably more oriented towards assessing end user demand and preferences, more than the particular payment technology.

The logical approach, no matter which technology is chosen, is to link an existing PayPal account with the mobile device. 

In-App or On-Site Commerce is the Ultimate Goal for Many Business Sites

Many observers would argue that the ultimate goal for providers of business and consumer voice services is to make voice and communications a feature of virtually every business application, and most consumer applications.


In the same way, many of us would argue that the ultimate goal for many business apps and sites is the ability to "sell things" directly from the site, which implies a payment mechanism.


Payment processing arguably is a lot easier when it is integrated with any application, rather than an external function. That is why the notion of "in-app" order and payment processing is so important. 


Card.io has created a new version of its software development kit that adds the payment feature to any mobile app.

Any app developer can download the SDK, integrate with their app (iOS or Android), and start accepting payments. There's no merchant account, and payments are deposited directly into a bank account or PayPal account. There are no monthly fees or setup fees, and app providers pay card.io only when a customer conducts a transaction.

The fee is 3.5 percent of the transaction amount, plus 30 cents.


The new feature means any app can accept credit card payments. The card.io feature could be used by any app to allow users to split the tab at lunch, pay a friend back for gas on that road trip, or make a craigslist purchase. Card.io introduces full payment system

Mobile a Work in Progress for "Prestige" Brands

Prestige fashion brands have been inconsistent in their adoption of mobile commerce and other mobile features, a study sponsored by L2 Research has found. That mobile remains a work in progress should not be surprising.

Mobile commerce and marketing encompasses a wide range of processes, channels and business objectives and functions. At this early stage, it might be unusual indeed if retailer programs and end user behavior were to produce an upheaval in terms of customer behavior or business results.

About 66 percent of prestige brands maintain a mobile-optimized site, and about 33 percent of these mobile development efforts do not yet support commerce.

Fewer than 20 percent of brands have created unique app content for the iPad and other tablets, a fact some will say is a missed opportunity as these devices register high usage among affluent consumers.

About 16 percent of brands have yet to develop a mobile-optimized site or mobile site, the study finds.

The study also suggests that mobile searches disproportionately are conducted by users with a higher than average propensity to buy luxury products, the study suggests.

This observation underscores the urgency to adapt search engine optimization, email marketing, and other digital efforts for mobile platforms, the study suggests.


As a product class, tablet devices have proven a boon to m-commerce. Tablet shoppers demonstrate a conversion rate of four to five percent compared with three percent on a PC.

Even when compared directly to smart phones, 25 percent of “dual owners” surveyed by Ipsos demonstrate a preference to purchase on sites while using a tablet.

Although 37 percent of all prestige brands have a presence on both the iPhone and iPad, only 16 percent have created a unique experience for iPad users rather than simply replicating the same app across both devices. Given the dramatic difference in screen sizes, that will not continue to be the case, one might argue.

“Location” also is the defining and unique smart phone capability. But we are early in the process of adapting marketing and commerce to user location in real time.

Only five percent of Americans use geo-local apps (check in services, for example) at least once a month, but these active users represent a high-value demographic. They skew younger, register higher income, and are twice as likely to share product information.

Also, 14 percent of global monthly Google searches for prestige brands originate from mobile devices, which is significant given that non-computer devices account for less than seven percent of traffic in the U .S. and less than five percent of traffic in France, Germany, Italy, Spain, and U.K. markets.

Mobile efforts often also are marketing or commerce “silos,” isolated from other marketing channels. Only 28 percent of the brands in the Index are developing mobile apps promote them on their main sites. But 82 percent of the brands link to their Facebook pages and 66 percent to their Twitter accounts.

Nor are older communication channels unimportant, compared to the newer tools. During the second half of 2011, mobile email open rates increased 34 percent, with consumers opening 23 percent of all emails on their mobile devices.

About 78 percent of the surveyed prestige brands engage in email marketing, only 24 percent have links to mobile-optimized versions of their email content, and 55 percent opt to provide
links to plain HTML versions.

New Mobile Payment Firms Will Not Displace Banks Easily

Some genuinely believe that banks are in danger of serious displacement by mobile payment and mobile banking competitors. It will be harder than many believe. Banking executives will respond; many already are doing so. 


Beyond that, it is difficult to dislodge "trusted providers" in just about any business you can think of. Observers have been predicting the imminent demise of traditional TV distributors or creators for a decade or more. It has failed to materialize, if the measurement is revenue, rather than viewing hours.


Many veterans of the U.S. competitive local exchange carrier business will agree that upending the leading suppliers in the telecom business has proven to be devilishly hard. Some would argue it has proven difficult for all contenders except the cable companies, at least in the consumer market. 


There arguably has been more success in the business customer segments. 


In the emerging mobile payments and mobile wallet businesses, even players as large as Google and Isis (AT&T, Verizon Wireless and T-Mobile USA) are working with banks, rather than trying to displace them. 


PayPal and Square are more directly threats to banks in the ecosystem, but only to a certain extent. 

Banks will be harder to dislodge than many believe.

Don't be Surprised if Google 1 -Gbps Network Gets Low Buy Rates

There is some uncertainty about the construction time table for Google's 1-Gbps fiber access network being built in Kansas City, Kan. and Kansas City, Mo.


That is a relatively trivial issue, though. The bigger issue is whether any significant number of users actually will buy the service.


With a small handful of exceptions, fiber to home uptake globally seems relatively restrained, suggesting that, for most consumers, what they can buy on the older networks provides a value-price relationship that is good enough. 


Under Google's deal with the Kansas City Board of Public Utilities, the municipal power and water provider that owns the utility poles, the company has the option of attaching fiber either in the space reserved for telecommunications for the standard pole-attachment fee or in the electrical supply space for free (although the latter is costlier because it requires more highly skilled technicians). Kansas City Fiber on Track 



Google and officials in Kansas City, Kan., said Google remains on schedule to go live for the first customers for Google's 1-Gbps network in the first half of 2012.


The Kansas City Star has reported that negotiations over pole attachment rates have slowed the build. Those of you familiar with fixed network construction projects will not be surprised by that report.

Disagreement about rates and conditions for pole attachments are an old, and possibly recurring, issue when new providers want to build new communication networks.

The bigger issue will come when Google actually unveils its prices and products. Some will note that other fiber to home services, in the United States and elsewhere, have not universally been met with high consumer demand.

In Germany, for example, FTTH take rates are just 0.4 percent, though one million homes are able to buy the service. Low take rates

Will Enterprise "Consumerization" Be More than a Device Issue?

Enterprise workers have been bringing their "consumer" tools and apps into the workplace for some time. Enterprises have started to respond by approving use of such devices, such as Apple products in the phone, PC and now tablet areas. 


Longer term, the issue is how much other movement will be seen in the applications area. Skype is among the best current examples of a consumer tool that is widely used within enterprises. So is LinkedIn. Also, Facebook and other social networks now are being adapted for enterprise purposes. 


For the moment, devices seem to be at the forefront, though.

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Google Fourth Quarter Results Disappoint

Google reported revenues of $10.58 billion for the quarter ended December 31, 2011, an increase of 25 percent compared to the fourth quarter of 2010, and a record for Google.

Though a revenue record, investors were expecting more, primarily on the earnings front, putting pressure on Google's equity price. Google Results

Some think investors are worried about the growing regulatory scrutiny Google is facing, or the implications of its ownership of Motorola Mobility.

But most executives would probably love to have such problems. Consider Google's share of display advertising, which probably will pass Yahoo early in 2012.


Long criticized as being a revenue one trick pony, Google's display ad business now amounts to about 10 percent of total revenues, which continue to be lead by search advertising. 

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