Will TV Double Apple's Share of Household Spending?

Morgan Stanley analyst Katy Huberty argues that average annual U.S. household spending on Apple products is likely to double from $444 in 2011 to $888 in 2015 if the company enters the television television set :market.

Facebook Goes Public

Mobile Data Consumption Will Grow 10 Times, Service Provider Revenue 2 Times, by 2016

Global mobile data traffic will grow from 3.89 trillion megabytes in 2011 to 39.75 trillion megabytes in 2016, amounting to a ten-fold increase, according to Informa Telecoms & Media.

In contrast, global mobile data revenues will grow from $325.8 billion in 2011 to $627.5 billion in 2016, amounting to a two-fold increase.

That is one key reason why service providers are moving away from “unlimited” usage plans. The growth in traffic will far outstrip the growth in revenues.

Mobile phone users will, in 2016, on average consume 6.5 times as much video, over eight times as much music and social media, and nearly 10 times as much games as in 2011 according to Informa Telecoms & Media.

And although the revenue pie will grow, the share earned by mobile operators will shrink. If you exclude simple access and text messaging, the percentage of revenue earned by mobile service providers from content or commerce operations will drop from 56 percent in 2011 to 41 percent in 2016, Informa Telecoms & Media argues.

In 2016, the average mobile user also will be browsing six times as many web pages and downloading 14 times as many megabytes of applications on their handset as in 2011.

Text (SMS) and picture (MMS) messaging traffic will continue to grow, but at a much slower pace than most other mobile data services. On average, mobile users sent 118 text messages and two multimedia messages a month in 2011, compared to the 146 text messages and four multimedia messages  in 2016.

But usage of over the top messaging services, namely instant messaging and email, will see higher growth. Compared to the global monthly average of 31 mobile instant messages sent in 2011, users will be sending 118 in 2016.

The services that put the greatest strain on mobile networks also won’t be the apps and services that bring the most revenue for mobile service providers, Informa says.

“The top three data guzzlers on mobile phones over the next five years will be applications, video streaming and web browsing, in that order of importance,” says Guillermo Escofet, senior analyst at Informa Telecoms & Media. “Yet, the top revenue earners in 2016 will be web browsing first, followed by P2P SMS and applications.”

Video streaming will represent less than one percent of mobile data revenue in 2016, despite representing a third of handset traffic, he argues.

"Social Proof" is Becoming Essential for Sales

There's one very good reason why all brands need to develop their online presence, make use of user product reviews and testimonies. By 2017, Millennials will be the single largest buying demographic in the United States. 


And Millennials require "social proof" when buying. That means they pay attention to what other people say about products. 

Tablet Traffic Will Exceed Smart Phone Traffic in 2013

Beginning with the launch of the iPad just over two years ago, tablets have been transforming the way consumers and brands interact on websites, Adobe says, after analyzing  23 billion visits to the websites of more than 325 brands across North America, Western Europe, and Asia-Pacific.

The share of website visits from tablets grew approximately 10 times faster than the rate of
smartphones within two years of market introduction and grew more than 300 percent in 2011.

Tablet share of website traffic will exceed smartphone traffic by early 2013 and reach 10 percent of total website traffic in early 2014.

Also, although consumers consider the tablet website experience to be nearly as engaging as with PCs, they use PCs to visit websites three times as frequently as tablets. Still, usage will migrate in the direction of tablets.

Perhaps the most shocking prediction is that tablet traffic will surpass smart phone traffic within 12 months. Within one year of the iPad launch, (second quarter of  2010 through first quarter of 2011), tablet visits represented one percent of total website visits, reaching 4.3 percent of total visits just one year later, an increase of 330 percent, Adobe says.

In contrast, within the first two years of the iPhone market entry, smart phones accounted for 0.4 percent of total website visits, taking nearly three years to reach one percent of total visits.

At this faster growth rate, tablet visits will surpass smartphone visits by early 2013 and generate
over 10 percent of website visits in 2014.

On the other hand, consumers use PCs to visit websites much more frequently, even though tablet and PC engagement levels are similar.

In December 2011, there were approximately six times as many PCs as tablets in
North America and Western Europe, but they generated 19 times as many website visits during the first quarter of  2012.

For every brand website visit made with a tablet device, 3.2 visits are made using a PC.

Consumers consider tablets and PCs to be nearly interchangeable for media consumption and for repeated interactions with financial service providers. However, they are less likely to accomplish the purpose of these visits using smartphones. This suggests that consumers
consider tablets to be similar to PCs for visits that are repeated, routine and involve passive consumption of content.


In contrast, PC conversion rates are 30 percent to 60 percent higher than tablet conversion rates for retail and travel websites, suggesting that consumers prefer PCs for visits involving research, comparison of alternatives, and online purchasing.

"More Computers Than Cushions" in Livingrooms

A boom in spending on consumer electronics will continue, with most living rooms having more computers than cushions," says Giles Warner, a partner in Deloitte's UK Customer Management practice. 


Warner says people increasingly see spending on consumer electronics as essential rather than discretionary, and also as good value.


"We're predicting consumers will prioritize spending on technology," he said. Deloitte believes  "there'll be an explosion in the number of devices people use," as a result. 


In part, that is because digital appliances have assumed greater importance in consumer lives, but also in part because digital appliances are more affordable. The average US household spent only $1,200 on consumer technology in 2011, or less than 2.5 percent of median income. Consumer tech purchases start at the low tens of dollars for basic mobile phones, and rise to hundreds of dollars for high-end smart phones, tablets, laptop computers and televisions.



While a decade ago the average PC or big screen TV typically cost more than $1,000. Three decades back, the average television cost an inflation-adjusted $1,800. Today that $1,800 could
get you two large flat screen televisions, two tablets, two netbooks, three smartphones, and still leave change to take the family out for dinner, Deloitte argues. 

What's a "Service Provider" These Days?

Over the last couple of decades, it has become a common practice for the value of consumer electronics products to be supplied by services associated with products. Apple's iTunes and App Store provide a clear example. But service and repair contracts likewise have become an important source of revenue and profit for device sales.


Something like that also is happening in the enterprise information technology business as well. 
Steve Shalita, VP of marketing at NetScout Systems, says NetScout considers itself not a "network management" company, but a service delivery management company.


"Today in IT, they don't deliver applications any more," Steve said. Instead, they deliver services. Many consumer applications likewise also have been cloud-based services from the start. 


That has implications for telecom service providers and cable operators as well, even though they always have been service providers. With cloud computing and mobility, more software products are becoming network-accessed services. 


That means it is conceivable that communications service providers could become more important providers of IT services in the future. 

Facebook IPO Won't Be Good for Data Centers

Facebook's "Initial Public Offering"  will be good for Facebook, many of its employees, the banks underwriting the offering and many other social networking firms, as their valuations get a boost from Facebook's valuation. At some level, it will be good for firms selling products that many instant millionaires will be buying.


But the IPO probably won't be good for several data centers that currently sell services to Facebook, as Facebook is transitioning its hosting to its own facilities.


Facebook currently spends more than $70 million a year leasing “plug-and-play” data center space from Digital Realty Trust, DuPont Fabros Technology, CoreSite Realty and Fortune Data Centers.  


As a result of its new liquidity, Facebook will be able to migrate from  third-party space to its own facilities. 


Facebook is said to represent between four percent and 20 percent of total annual revenue for these providers, who might start to see the migrations in a couple to several years. 


Facebook is said to spend $30.1 million a year on four facilities it leases from Digital Realty in Silicon Valley and northern Virginia. That represents 4.6 percent of Digital Realty’s annual revenue. Digital Realty has leases with Facebook with an average of 86 months (about seven years) remaining, according to Data Center Knowledge. 


Facebook is the second-largest  tenant for DuPont Fabros, with annualized base rent of about $22 million, which is at least 20 percent of DFT’s annualized base rent. Facebook’s leases, primarily in northern Virginia, have an average remaining term of 6.5 years. (77 months).


Facebook is the largest single customer for CoreSite, paying $11.5 million in annualized rent for 74,112 square feet of space in three facilities, including an entire building in Santa Clara. Facebook represents 12.6 percent of CoreSite’s lease revenue. The Santa Clara lease expires in March 2016.

Could Nokia Go Bankrupt?

Nokia does not have much presence in the U.S. market, so few consumers will be concerned, no matter how the company fares globally. 


But some analysts point out that Nokia faces some danger of going bankrupt. Nokia had more than 10 billion Euros in free cash in 2007. In 2012 Nokia has less than half that on hand.


Nokia lost 2.1 billion Euros during the past five quarters. If this rate of erosion continues, then Nokia might run out of cash in about two years, according to analysts. 

Why Telcos Will Go "Over the Top"

The main reason service providers do not like “over the top” services and applications is that they generally represent direct competition. In other words, over the top apps are substitutes for key products service providers sell.

But that is one key to how things will change in the future. If a major reason over the top apps and services are disliked is that they pose a threat to revenue, then a major reason for adopting an over the top approach is if doing so can create new revenue opportunities.

The business decisions are tricky. In some ways, over the top apps always will represent some danger of cannibalizing existing revenues. But service providers already understand and have embraced other ways of building new revenue streams by going “over the top.” They just haven’t used the term.

Instead, it has been more common for service providers to go “out of region,” as when acquisitions are made in areas where a given firm does not already provide service. European telcos buying assets in Africa provide examples. Cable companies buying other firms in different regions is another example.

The point is that buying assets out of region is similar in principle to some forms of over the top service. Incumbent local exchange carriers have created competitive local exchange carrier operations to sell services “out of region,” for example.

Over the top is trickier for the simple reason that customers and non-customers can use the apps or services, so there always is some risk of substitution for existing services a provider sells. But over the top also can represent an “out of territory” growth strategy.

Think of it as a shift of focus from “selling services to current customers, where we have network” to “selling services to non-customers who are out of territory.” That’s a big shift, as traditionally service providers have operated on a territorial basis, with licenses or franchises that specify where they can build networks and provide services.

Over the top changes all that. As Google apps can be used by any person with web browser and broadband access, so too can a telco-owned app be used by anybody with a web browser and broadband access, in territory or outside it.

Sooner or later, service providers will figure out how to do so on a broader scale. Telefonica, T-Mobile, Deutsche Telekom and others have invested in their own over the top apps. In part, that has been a defensive move in markets where use of over the top apps are a major part of consumer behavior.

But over the top also has been viewed as a way of creating new customers out of region or out of territory.

If you think about it, the Verizon and Coinstar joint venture to create a streaming version of Redbox is part of a pattern at Verizon and elsewhere, namely that over the top services increasingly are being viewed as a way to sell services to “non-customers.”

In essence, the new streaming service will reach beyond the footprint of Verizon fixed network customers and appeal to all 30 million Redbox customers who have been renting DVDs from the Redbox kiosks.

According to Verizon Communications CFO Fran Shammo, Verizon was looking to create a streaming service that would extend “outside of just the FiOS footprint, utilizing the content that FiOS has and bringing that into the rest of the United States.”

Some think something similar will happen as Verizon’s agency agreements with Comcast, Cox Communications, Time Warner Cable and Bright House Networks develop, as well. Those efforts so far have had each of the partners co-selling cable TV, fixed network broadband access and fixed network voice, plus wireless service, outside the Verizon fixed network footprint.

In essence, Verizon is using the agency agreements to sell services to “non customers” outside the Verizon fixed network footprint.

Likewise, T-Mobile USA has found much the same results with its “Bobsled” over the top VoIP service.

Since April 2011, more than 10 million calls have been made on the over the top Bobsled application made available by T-Mobile.

Of the millions of Bobsled calls made to phone numbers, 80 percent originate from outside the United States, though messaging seems to be a U.S. phenomenon. Although Bobsled Calling has seen significant international usage, Bobsled Messaging users are predominately U.S. based, with 90 percent of messages sent domestically.

Usage statistics also show one of the key present realities of over the top apps sponsored by communications service providers, namely that usage might often be by "non-customers."

Of the more than one million Bobsled Calling users, 95 percent are not T-Mobile wireless subscribers, T-Mobile says.

That should suggest one key strategic difference between a carrier-offered app or service, and an over the top app, namely that in some cases the OTT apps do not necessarily cannibalize current customer use of carrier services, but essentially are an "out of region" service that gets used by non-customers.

Verizon's New Plan to Wean Some Customers Off Device Subsidies

Verizon's plan to end all sales of "unlimited" service has another option that represents Verizon’s effort to wean customers off device subsidies.


Verizon says "customers will not be automatically moved to new shared data plans."  If a 3G or 4G smart phone customer is on an unlimited plan now, and they do not want to change their plan, they will not have to do so. That's a big clarification. 


But there is more. "When we introduce our new shared data plans, unlimited data will no longer be available to customers when purchasing handsets at discounted pricing," Verizon says. 


But here's another important clarification. "Customers who purchase phones at full retail price and are on an unlimited smart phone data plan will be able to keep that plan."


It appears Verizon has several related moves underway, all at once. It will try a new method of reducing phone subsidies, with a mobile data "carrot." Buy a phone at full retail price and a user can buy an unlimited plan.


Verizon will be adding new multiple-device mobile data plans as well. That will shift Verizon's revenue metrics from "revenue per customer" to "revenue per account." 


Presumably all the moves have been modeled for revenue impact, potentially allowing Verizon to reduce operating expense (phone subsidies) and boost revenue (moving most customers to capped plans and creating incentives for adding additional devices to a mobile broadband account. 

Level 3 Tests of Comcast Xfinity Traffic "Are Consistent" with Prioritiztion

With the important caveats that there is a history of conflict between Comcast and Level 3, and with the caveat that "there are a number of factors that can influence download performance for Internet traffic," two Level 3 engineers say it might appear that Xfinity packets delivered to Xbox terminals "consistently" get good performance in both the congested and uncongested tests, while Netflix traffic is significantly impaired when the home connection is congested.


"These results seem to be consistent with the practice of prioritization," says Andrew Dugan, Level 3 Communications SVP of Network Engineering & Architecture, and Nasser El-Aawar, Level 3 Principal Network Architect.

4G LTE Makes a Difference

Long Term Evolution, the fourth generation mobile network air interface that has become the global choice for 4G, makes a big difference.


In the Kansas City market, which RootMetrics last tested in August 2011,  AT&T's average download speed was about 4.1 Mbps. In the latest test, after AT&T launched its LTE network, average speed rose to 16.3 Mbps in the downstream direction.


The average upload speed jumped from 1.5 Mbps to 5.9 Mbps, according to RootMetrics. 


Verizon’s average download speed, boosted by its LTE network, grew from from 1.2 Mbps to 17.1 Mbps. The average upload speed increased from 1 Mbps to 10.7 Mbps.


T-Mobile USA which has not launched an LTE network saw average download speed increase from 2 Mbps to 4.3 Mbps, while  average upload speed moved from 0.5 Mbps to 1.3 Mbps.


Sprint, which likewise has not yet launched its LTE network saw average downstream speeds decrease to 3.1 Mbps from  4.6 Mbps in August 2011.

Dish Network Gambles with "Hopper"

Dish’s "Hopper" is a digital video recorder that allows Dish customers to automatically hop past all the commercials on some prime-time network TV shows. Understandably, the TV networks aren't too happy about that, even if Dish customers might like the feature.


It's a gamble, to be sure. Consumers never claim to "like" commercials, but generally would rather view commercials if that means they get "no incremental cost" access to content they want. DVRs have been a threat, in that regard, and Hopper is one of the biggest threats so far, at least for major broadcaster prime-time fare, which Hopper will record automatically.


Dish Network therefore is gambling that it will gain more than it loses. The gains might come in the form of more subscribers and higher satisfaction. The losses will come if the networks retaliate against Dish in some significant ways. 


The growing tensions between programmers and video distributors are not going to end, and Hopper provides only one example of the building tensions within the video ecosystem. In a sense, Dish is gambling that the "surgical" approach, allowing users to skip virtually all commercials on broadcast network prime-time programs, will please customers more than it irritates the few affected networks.


Hopper would have faced across the board opposition had it proposed eliminating all commercials from all programming, automatically. Of course, that also is a theoretical impossibility, since the Hopper hard drive actually could not store all programming, in any case. 


But Hopper poses a threat to broadcaster advertising streams, depending on how popular it becomes. 

Comcast to Boost Bandwidth Cap to 300 Gbytes

Comcast is going to test new metered bandwidth plans, with a boost in the basic usage cap from 250 Gbytes a month up to 300 Gbytes a month, with incremental changes for consumption above the cap.


The 300 GByte usage allotment will be tested for Internet Essentials, Economy, and Performance tiers, with additional gigabytes costing$10 for 50 GBytes, Comcast says. 


In markets where Comcast is not trialing the new plans, Comcast will suspend enforcement of its current usage cap. 


To be sure, streaming media providers would prefer to have no caps at all. Netflix is an example. 


But the new plans will strike many as a fair way to allow users to make their own choices about how much bandwidth they want to consume, while still allowing Comcast to better match consumption to its costs of providing bandwidth.