How a Business Loses 90% of its Value in 5 Years: Could it Happen to Telcos or Cable?

"Avoid zero" is a paramount bit of advice I recall hearing often at a streaming media start-up. That can be difficult.

After changing hands three times in six troubled years, the Philadelphia Inquirer was was sold for a tenth of the half-billion dollar price they fetched as recently as 2006, according to consultant Allen Mutter.

A decade or so ago, the Inky and the Philadelphia Daily News would have been worth the batter part of a billion dollars. The assets have sold for $55 million.

The broader implications, for any business facing disintermediation from Internet and Web alternatives, would seem to be clear enough. If a business, or an industry, faces sure decline of its primary revenue source, that business or industry has to find a replacement.

You might argue the telecom industry is in that situation. The difference is that the telecom industry already, at least once, has shown an ability to replace a key source of revenue and profits.

Globally, earnings growth at the largest public telecom companies over the last three years trailed revenue growth by an average of 50 percent over the last year, according to AlixPartners. This is especially the case in North America, where earnings before interest, taxes, depreciation and amortization trails revenue growth by a factor of ten, AlixPartners argues.

Overhead costs (sales, general and administrative) also are outstripping both earnings and revenue increases. And though carriers have pared capital investment where they can, postpoining projects that will need to be undertaken at some point, such restraint never can last indefinitely. The common pattern is three lean years followed by three to four where spending ramps up again, one might note.

Those findings are consistent with virtually all other studies of global telecom provider financial performance, and simply point out the structural changes occurring in the telecom business. Basically, older legacy products that underpin the bulk of total revenue are in a declining phase.

Until quite recently, robust growth of mobile services has compensated for the weaker fixed-line performance. But the wireless revenue growth engine now is peaking as well, at least in developed markets.

That means the largest global operators are entering a period of heightened danger and opportunity. The way some of us might describe the challenge is that carriers essentially must replace "half of all existing revenue within about 10 years."

And there are good reasons for making those sorts of predictions: it has happened at least twice in the past couple of decades. Most cannot now remember a time when "long distance" represented nearly half of all revenue for a large U.S. telco. But that once was the case.

And where local telcos once had nearly 100 percent of the market for fixed line voice, the only question now is whether the large providers will stabilize somewhere around 50 percent of the total market, or drop lower.

To be sure, mobile service revenue has been the run-away killer revenue source for most tier-one providers.

Broadband has helped a lot, and video helps a little. But mobile and broadband are mature, and video, though it will help, is a relatively lower-penetration, lower-margin service for most telcos.


Though it is likely mobile broadband will help preserve roughly the existing revenue contribution from mobile services, it is starting to appear as though even mobile broadband will fall short of fully replacing declining mobile voice revenues. So far, there is no clear industry consensus on what the new revenue "killer app" might be.

That suggests a period of continued experimentation with multiple new potential revenue sources, until something clearly emerges.

Of course, carriers can work at cutting  operating costs. But it is the "revenue enhancement" part of the strategy that is the toughest, as carriers have been cutting costs for nearly a decade already. 


And part of the problem is that it takes a fairly good-sized new revenue stream to make a difference for a tier-one telco or cable company. It isn't an easy thing to identify any new market, and execute well enough, to capture $1 billion in new revenue over a five-year period, for example.

Android, iPhone Wi-Fi Patterns are Different: Issue is "Why?"

A comScore analysis of U.S. Wi-Fi and mobile Internet usage across unique smart phones on the iOS and Android platforms reveals that 71 percent of all unique iPhones used both mobile and Wi-Fi networks to connect to the Internet, while only 32 percent of unique Android mobile phones used both types of connections.

If one assumes users are rational, how does one explain the difference in behavior? Also, the pattern of behavior in the United Kingdom is consistent with the U.S. results, as 87 percent of unique iPhones used both mobile and Wi-Fi networks for web access compared to a lower 57 percent of Android phones.

U.S. smart phones on the AT&T network were more likely to use Wi-Fi than those on other major operator networks, likely due to AT&T having both a greater iPhone market share and the largest Wi-Fi hotspot network in America.

Some might argue the problem is just that Android users can't figure out how to use Wi-Fi on their devices.

In the U.K., smartphones on the Vodafone, Telefonica and Orange networks were more likely to use Wi-Fi than were others on other U.K. operators.

In the U.K., the scarcity of unlimited data plans and higher incidence of smart phone prepaid contracts likely contributes to the use of Wi-Fi.

In addition, the current lack of high-speed data networks in the U.K. might also lead users to seek out higher bandwidth capacity on Wi-Fi networks, comScore speculates.

In the U.S., the increased availability of LTE, 4G and other high-speed data networks doesn't explain the pattern of heavier iPhone usage of Wi-Fi as well as the preponderance of devices on the Wi-Fi-extensive AT&T network.


 

Apple Earns 80% of Mobile Handset Profits in 4th Quarter 2011

Apple and Samsung accounted for a stunning 95 percent of the handset industry's profits during the fourth quarter, according to a study Canaccord Genuity Canaccord Genuity.

By itself, Apple accounted for 80 percent of the profits in the period.  That isn't the first report showing similar results, only the latest.

Social Networking Displacing "Knowledge Management?"

Sometimes it isn't easy to understand how dramatically-new technology can be applied in a business setting. Consider "social" software and networking.

As it turns out, enabling workers to set up profiles, form groups and "follow" each other's status updates can provide direct business value. It isn't just the social connections. The new software increases productivity by making it easier for employees to identify who does what within an organization and to share their knowledge.

Some of you might instinctively recognize that these are the sorts of problems "knowledge management" was supposed to address, a couple of decades ago. 

Social networking might be providing some of that value in a new way.

That doesn't necessarily or primarily mean using Facebook, though. Tibco Software launched a service called tibbr that not only enables users to follow what colleagues are doing, it also allows them to follow data, such as the status of an order or invoice.

The 25 Brands Small Businesses Respect Most

A list of the 25 brands small business executives respect the most has Apple at the top, followed immediately by Google. The l;ist was developed as a part of surveys sponsored by the Business Journals.

The study was based on interviews with more than 2,000 small and medium business owners, CEOs and presidents. This year, 291 brands were included in the proprietary study conducted annually by the Business Journals.


The study shows increased business usage of mobility products such as tablets, smart phones and cloud computing. But no communications company appears in the top 25, though. 

Retina Display Appears to Drive New iPad Sales

If Changewave survey respondents are indicative of broader buyers, the new "Retina" display on the latest Apple iPad accounts for the buyer interest. The high-definition display far outweighs other attributes consumers indicated were their favorite attributes about the latest iPad.

The High-Resolution "Retina" display was cited by 75 percent of buyers as the attribute they liked best about the device. Battery life, processor speed or faster mobile broadband ranked much lower.

Mobile Commerce Seen as Biggest Transformation of Telecom Industry

Mobile commerce, mobile banking and mobile payments  will have more impact than converged services, next generation networks or Long Term Evolution, a survey of 137 global service provider executives suggests.

That might come as a surprise. Keep in mind the survey was largely of revenue assurance professionals, whose job roles and perspectives are different from those of marketing, operations or financial professionals, perhaps.


But the rankings might also reflect a clear recognition that new revenue sources from banking, payments and commerce will have new revenue leakage impact to account for.


Billing and security issues also will increase, and those also are issues revenue assurance personnel would be acutely aware of.

Will Google's New Tablet Store, and Tablet, Succeed?

The fact that Google is launching an online store to sell a new line of branded tablets is not as major a move as opening a line of retail stores, something Amazon apparently actively is considering. The bigger issue is whether Google can create a successful tablet.

Some might speculate that Google will have no more success than it did when it launched the Nexus smart phone, attempting to sell it essentially over the objections of the mobile service providers. Some would have suggested that would not work.

But selling PCs is different from selling mobile phones. Tablets are more like PCs, in terms of the "necessary" involvement of any third parties. PCs, tablets and other personal devices are bought at retail outlets, not just phone stores, where most mobile phones get sold. In principle, selling tablets online will not be as difficult as selling mobile phones online.

The bigger issue is whether the Google tablet has developed, or can develop, the app ecosystem and cachet of the iPad, or create some new identity and niche in the tablet market.

Users of the Kindle Fire might note that the Amazon "content store" is so rich with book and magazine content that the relative availability of other mobile apps, compared to the iPad,  is not a real problem. One might argue the Kindle gets used frequently for reading and other Amazon purchases,  so has a distinct niche in the market. The Kindle Fire acts as a portal to Amazon content, to a large degree.

Google will have to find some role of its own, one might argue.


Some might argue that there is, functionally, no way for any other firm to "compete" with the Apple iPad. Instead, other distinct niches have to be discovered. 

Google's Android Doesn't Generate Much Revenue for Google: Maybe it Isn't Supposed To

Multi-product firms tend to sell products with varying profit margins, and different gross revenue contributions. Google doesn't appear to be any different. Most of Google's revenue is generated from advertising, and some from software licenses.

It appears the open-source Android effort has generated less than $550 million in revenues for Google between 2008 and the end of 2011.

The figures also suggest that Apple devices such as the iPhone, which use products such as its Maps as well as Google Search in its Safari browser, generated more than four times as much revenue for Google as its own handsets in the same period.

If correct, those figures would not be terribly surprising. The whole point of Android was to create a widespread mobile ecosystem that is the foundation for the actual revenue-generating activities, not a terribly important revenue creator in its own right.

Is Multimedia Messaging Service a Success, or Not?

Is $30 billion worth of revenue, on a global basis, a big deal or not? In a business that generates $2 trillion annually, perhaps not.

Still, expectations often are crucial when assessing the relative success of any new communications service.

Multimedia Messaging Service, for example, was viewed through a text messaging lens. Compared to some other services, MMS contributes a meaningful amount of revenue, though not compared to text messaging.

Portio Research thinks MMS to generate over $180 billion for the five-year period 2012-2016.
Such a demonstrable pedigree over the years has made it all the more baffling as to why such a valuable service never shook-off the industry misconception that it was a failure.

Some would say MMS launched with the unrealistically high expectations that it would mirror the success of SMS. It hasn't.

Why Developers Write First for iTunes App Store, Later for Google Play

Money talks. The rich get richer. The big get bigger. All three rules of thumb apply to mobile app stores. Using revenue per app at Apple's App Store as an index, developers ought to favor iTunes, as they will tend to earn more than four times as much revenue as the same apps created for Google Play, the Android app store.



Amazon Appstore revenue is 89 percent of iTunes App Store revenue, and Google Play revenue is 23 percent of iTunes App Store revenue, according to Flurry.

Are "Bits" "Just Bits?" Almost Never

What is the difference between Comcast selling cable TV service and Comcast selling a IP-delivered video service? Answer: potentially only the regulatory regime each service operates under. There are, to be sure, many important business ramifications. But video services regulation now is as broken as voice regulation has become, as virtually all services and all networks use Internet Protocol.

For purposes of engineering, it often is true that "a bit is just a bit." For business and regulatory purposes, that almost never is the case. It matters who sold a bit, who bought a bit, where the seller is located, where the buyer is located, what equipment was used to receive and use the bits, what sort of network the bits moved over, and any number of other distinctions.

These days, in the video entertainment business, a key distinction exists between a "managed network and service," and the "un-managed Internet," as different rules apply to treatment of bits in each bucket. Basically, entertainment bits delivered over a virtual "managed network" are exempt from "Internet" rules, even when delivered over the same physical network.

The reasons are largely because in the past legacy services including voice, TV, newspapers and data services were regulated in distinct ways, and those distinctions remain in place, even if the technology used for delivery now has largely converged.

There are many practical implications, though. Comcast can use a managed approach to deliver hundreds of gigabits worth of data, 24 hours a day, seven days a week, as "cable TV," without charging any of that usage against a customer's broadband access bandwidth allocation.

Data services purchased by business users likewise are exempt from the "Internet access rules."

But Comcast cannot, on its "high speed access" service, discriminate between different bits, meaning all services are "best effort" only. And usage of bits in that manner have a physical cap, each month.

So the reality is that some bits on Comcast's network are treated one way, other bits get treated differently, from a regulatory point of view. That means users are not "charged" usage for watching television bits sold as part of Comcast's Xfinity video service.

Users are charged for using any "Internet" apps, though. In the same way, Verizon's users are not charged for use of IP voice services as part of their high-speed-access services, even though, increasingly, every service Verizon delivers uses IP and flows over the same facilities.

PayPal, Gas Station Chain use GPS to Launch Mobile Payment

Regional gas station and convenience store chain Cumberland Farms has launched a new "SmartPay" mobile app that uses GPS to launch a PayPal account transaction and offers a five-cent-per-gallon discount for doing so.

The app can be launched at a supported Cumberland Farms location, and then GPS is used to determine where the user is. Once the user enters the pump number, the app automatically makes the payment and emails a receipt.

Some might argue that is perhaps a more-interesting use of "location-fixing" technology than near field communications.

Cloud Computing Will Drive Revenue, But What Types, How Much?

Service providers widely believe cloud computing will be an important source of new revenue, and there is truth to that belief, but possibly not the way many are thinking about the business. Cloud computing includes a number of discrete potential revenue streams, ranging from direct retail sales of applications to end users, either consumer or business. There is the rental of computing cycles and storage capabiltiy, as well as "platform" as a service, where a customer might rent an applications environment, often for purposes of developing new apps, for example.

By most current projections, SaaS will represent the biggest business, representing the most revenue. IaaS might be the next biggest, while PaaS will remain the smallest business, in terms of revenue. One forecast by the Yankee Group has SaaS representing perhaps 70 percent of total revenue in 2013.

North America, specifically the U.S., currently represents the largest opportunity for SaaS, and it is the most mature of the regional markets, Gartner argues. SaaS software revenue is forecast to total $9.1 billion in 2012, up from $7.8 billion in 2011, Gartner says. But that is revenue earned by software suppliers, not directly by hosting companies, data center providers or telcos.

North America shows the highest SaaS deployments in expense management, financials, email and office suites, for example. It might be prudent to discount the notion that cloud computing revenues for service providers running data centers will capture very much of that sort of revenue.

Verizon Promises Mobile Video Service

Mobile video is the benefit for end users if the Federal Communications Commission allows Verizon Wireless to buy spectrum from several U.S. cable operators. Though it is not formally linked to the spectrum sale, Verizon has agreed to provide its products to Comcast, Time Warner, Cox Communications and Bright House Networks under “agency” agreements, in return for Verizon rights to sell cable products under similar agreements.

The agency agreements allow the cable companies to sell existing Verizon products, under the Verizon brand name and retail packaging, and allow Verizon to sell existing cable products, likewise under the existing cable names and packages. If the deal is approved, the partners would, in five years, be able to buy wholesale from the other partners and then “rebrand” them for retail sale.

One suspects there will be a tie-in with the new online video venture Verizon has created with Coinstar, the owner of the Redbox DVD rental kiosk business, though that has not been formally talked about, in public, by Verizon or Coinstar.

One suspects there are other implications, if Verizon’s spectrum buy is approved, and as plans for mobile video are developed. One clear problem is the amount of bandwidth any mobile video service would represent. Many users would find their monthly data caps are reached after watching just two movies, for example.

That suggests something will have to be done that removes that threat. Many have speculated that one solution is to exempt the viewing of such video from user data consumption caps. That also implies, though, that the video service providers and content owners can agree on some reasonable formula for “paying for” the use of such bandwidth.

Proponents of “network neutrality” might have problems with such deals, but that is one reason some have argued against confusing “no blocking of lawful applications” with separate policies to manage networks for performance, or to create different charging mechanisms for different applications and use cases.

Entertainment video has been the poster child for such differential pricing. Other real-time services such as voice and conferencing have been similar examples of applications that virtually demand packet prioritization to maintain quality of experience, at times of network congestion.