Apple Thinks Mobile Service Providers Will Not Cut iPhone Subsidies

Mobile service providers globally are unhappy about the impact to earnings and cash flow phone subsidies are causing. Most undoubtedly would prefer not to subsidize devices at all. But it is a complicated issue. How many consumers would be so happy to buy an iPhone if it cost $500 to $600?

We might soon find out as prepaid service providers start to offer Apple iPhones in conjunction with prepaid service, with no device subsidies.

Apple's CFO Peter Oppenheimer, and head of Internet services, Eddy Cue, don't believe carriers actually will cut subsidies for iPhones. They argue that iPhones are important reasons why customer churn is lower, among iPhone users, than among users of other devices.

And in a saturated market where gaining a customer essentially means taking that customer away from another mobile service provider, anything that measurably reduces churn is a very-helpful tool indeed.

Apple believes that the iPhone, which has the industry's lowest churn rate of under two percent is in part a result of customer affinity for the device, and also drives higher adoption of family service plans, which further reduces churn.

Though service providers might not agree, the typical iPhone $400 subsidy also is the foundation for service provider data revenues of about $1920 over a two-year period when signing up a customer to a typical $80 monthly plan.

Naturally, Apple argues that any carrier than abandoned subsidies would lose lots of customers to other carriers who do offer subsidies.

But carriers are unlikely to keep experimenting with ways to avoid the subsidies. Vodafone allows users to pay in installments for phone purchases, with zero interest charges, over a period of a year or two.

In fact, service providers now are effectively trying to dissuade consumers from upgrading phones, by adding upgrade fees of perhaps $30 to $35 when existing customers want to buy a new phone. That might seem counter-intuitive, but an existing customer who can be persuaded to continue service with a device that already has been amortized does improve a service provider's lifetime profit margin and revenue from that account.

Citrix Systems Buys Bytemobile to Go "Mobile First"

In yet another example of how cloud computing and mobility are essential parts of the new computing architecture now emerging, Citrix, a leading provider of cloud-based collaboration and virtualization capabilities, is acquiring Bytemobile, a leading provider of data and video optimization solutions for mobile network operators.

This acquisition gives Citrix a key strategic foothold in the core infrastructure of more than 130 mobile operators in 60 countries around the world, Citrix says.

By joining forces, Citrix and Bytemobile will be able to offer mobile service providers, globally, with  combined solutions that deliver a high quality user experience to mobile subscribers, while helping operators manage the growth of mobile network traffic.

The acquisition builds on a strategic partnership announced earlier this year that combined the Bytemobile Smart Capacity technology with the Citrix NetScaler line of cloud networking solutions.

It isn't yet clear what name eventually will be adopted for the next generation of computing, but beyond the "PC" or "Internet" area lies an architecture based on cloud mechanisms and mobile devices. In fact, many would argue that mobile computing and cloud computing are virtually inseparable.

Biggest Consumer Trend is Lower Discretionary Spending, but Video and Communications Products Could Still Gain Value

Among top trends affecting the consumer market, perhaps the most important, for providers of communications and entertainment products, is the reduction in discretionary spending, Gartner analysts say.

In mature markets, many consumers have cut back on discretionary spending in the wake of successive financial crises. But there is potential for service providers, globally.

Even as they generally practice restraint, consumers seem to put a higher value on media and communications products. In fact, that is congruent with traditional thinking within the U.S. cable industry.

The rationale is that, when other alternative forms of entertainment outside the home become relatively less desirable, video entertainment provided by a cable subscription offers quite a lot of value for a reasonable amount of money.

The Gartner survey would seem to confirm that sort of thinking about value and price.

Tough times create "buyer's markets," meaning that service providers might have an opportunity to protect or even gain market share and revenue, but must adjust their operations to accommodate changing consumer expectations.

This involves switching to more recession-friendly marketing messages, a greater range of "affordable" or "value" product options, more-strenuous customer engagement efforts, and improved customer experience, Gartner argues.

That sort of business climate might also provide benefits for application providers and services able to supply entertaining content that consumers deem to have a reasonable value to price relationship.

Executives Expect Economic Downturn in 2012, But Still Invest for Growth

They might be wrong, but global executives think there will be an economic downturn in 2012, and the sentiment is pervasive. Some 85 percent of CEOs surveyed said they believe their enterprises will be affected by an economic downturn in 2012, according to Gartner analysts.

The Gartner CEO and senior business executive survey of more than 220 CEOs in user organizations from more than 25 countries was conducted in November and December of 2011, from organizations  with annual revenue of $500 million or more.

Concerns are less severe in the Asia/Pacific and North America regions than in Europe and Africa, it is the dominant point of view within each of the three geographies. But there is an important qualification.

“Costs are now the second biggest priority area, the highest ranking in our surveys since 2009,” said Mark Raskino, vice president and Gartner fellow. The number one priority remains growth.

That might be why CEOs said they will increase IT investment in 2012, rather than cut it.

What Might TV Business Look Like "After" the Collapse?

It is hard to ignore the potential danger to the traditional TV distribution business posed by Internet distribution. It is much harder to predict when Internet distribution will begin to disrupt existing business models, as the Internet has disrupted virtually every other form of media. As significant as the hurdles are, one probably would not bet that change can be forestalled forever.


Henry Blodget  apparently believes a change is imminent. "We still consume some TV content, but we consume it when and where we want it, and we consume it deliberately. In other words, we don't settle down in front of the TV and watch "what's on," Blodget says. 


Blodget isn't alone Consumer behavior has changed. Nor is Blodget alone in thinking something like a "wholesale collapse" of behavior already has occurred. What hasn't yet followed is a decisive change in content distribution business.


Earlier in 2012, for example, Accenture presented results from a new survey of consumer behavior indicating that that traditional television viewership is experiencing a "wholesale collapse."

The number of consumers who watch broadcast or cable television in a typical week dropped to 48 percent in 2011 from 71 percent in 2009, for example. Viewing on mobile devices are a major contributor.


In a typical week, 33 percent of consumers now watch shows, movies or videos on their
PCs, and 10 percent are watching such programs on their smart phones, Accenture found.


Blodget believes those changes will break the existing TV business. The prediction would not be unusual. That he believes a break is imminent is the news. At risk: affiliate fees paid by distributors to networks, network advertising, and revenue earned by just about everybody involved in creating content.

Also, "networks" will change. Netflix and iTunes will become virtual networks, displacing entirely many smaller specialty networks.

The cost of traditional subscription TV also will have to drop, he insists.


Users will have to get more for less, or they'll stop paying for much at all. The eventual price points aren't so clear. But a drop of half to 80 percent is not inconceivable.

Ultimately, the distinction between "TV" and other forms of video content will disappear, he argues. As other content industries already have found, that will wring all sorts of overhead out of the TV business. People in the business won't like it, but consumers likely will.

Is There a Social Media Bubble?

Whether you believe there is a social media valuation bubble, or not, here's a look at metrics. Run the other way if you hear people saying "it's different this time."
 

Faster Speeds, Clearer Plans Will Boost Mobile Broadband Usage, Ericsson Says

Some 40 percent to 45 percent of respondents from key global markets said they would use internet on their mobile phones more if they had access to better speed, a study by Ericsson ConsumerLab has found. 


The study also indicated that several issues, including 
1. network quality and coverage
2. data service pricing
3. how easy it is to understand the data plan


were key adoption factors, the study by Ericsson ConsumerLab, conducted in four countries and including more than 2,300 interviews in United States, United Kingdom, Indonesia and Brazil has found. 

Consumer Price Sensitivity Has Increased Over Last 12 Months

If the United States is in an economic recovery, it is an odd one, a study by Parago suggests. 


Consumer spending has not rebounded and price sensitivity remains a key behavior, the study found. In fact, shoppers’ sensitivity to price has actually increased in the last 12 months. Some 66 percent of those surveyed said price was the primary factor in deciding what to purchase, up from 60 percent last year.


This is due to the collaborating perception that their  purchasing power has decreased in the last 12 months, the study suggests.  "Consumers are digging further into the recessionist mentality and are fortified for a long winter of seeking out savings," the report says. 


Not every product is being viewed that way, though, one might conclude from Apple iPad sales. 

Can Regulation Actually Help Special Access Outcomes?

The Federal Communications Commission recently has been looking at regulation of special access prices, as always with a view to promoting competition. But economists at the Phoenix Center for Advanced Legal & Economic Public Policy Studies say in a paper that if the Commission continues to adhere to a geographic market that is “location specific,” which is consistent also with the position of those calling for renewed regulation of the services, then price regulation reduces economic welfare in all instances.

In other words, regulation cannot actually improve outcomes for the economy as a whole, even if it benefits buyers of wholesale special access from the underlying carriers selling that access. 


The basic problem is that in local markets, both sellers and buyers effectively are monopolists. The effect of regulation in such settings is mostly to transfer profits from seller to buyer, but every $1 of transfer costs more than $1 to society, so price regulation of special access services in location-specific markets unambiguously reduces welfare.


Obviously, the question of market definition will be critical in determining the path forward on regulating special access services; in fact, far more critical than the extent of competition, the Phoenix Center argues. 

Mobile Banking Faces "Chasm" After Early Adopters

Crossing_the_Chasm, Geoffrey Moore's book about the technology diffusion process, makes the point that there is a chasm between the early adopters of the product (the technology enthusiasts and visionaries) and the early majority (the pragmatists) whose adoption is key for any new technology to take hold in the mass market.

Essentially, Moore argues that technology adopters have very different values, requiring a shift of marketing emphasis at each stage of additional adoption.

Crossing the Chasm is closely related to the technology adoption lifecycle where five main segments in turn must be won over: innovators, early adopters, early majority, late majority and laggards.

That same process is at work in the mobile banking business as well. Fiserv argues that many banks and credit unions are on a mobile  adoption path that attracts the early adopters within  a year of offering the service, but the trajectory  stagnates to include just a small additional percentage  of adopters over the next two years.

That’s the “chasm” Moore talks about. Early adopters have embraced mobile banking because it is cool. The next wave of adopters actually will not see that as an advantage, and will resist.

To break through the “glass ceiling” of 20 percent  mobile banking adoption, Fiserv argues,
financial institutions must convince customers outside the pool of early adopters  that mobile banking will provide both convenience and benefits that cannot be experienced through other channels.


In other words, consumers must decide if mobile banking is: 1) useful, 2) accessible, 3) secure, 4) familiar and 5) easy to use. 


How consumers answer these questions will impact the adoption outcome.

Global Mobile Phone Shipments Slow, Economy the Reason?

The worldwide mobile phone market is forecast to grow slightly more than four percent year over year in 2012, the lowest annual growth rate since 2009, due to a sharp decline in the feature phone market and sluggish global economy.


According to IDC, vendors will ship a total of nearly 1.8 billion mobile phones this year, compared to 1.7 billion units shipped in 2011. By the end of 2016, IDC forecasts 2.3 billion mobile phones will be shipped to the channel.


The slow growth in the overall mobile phone market is primarily due to the projected 10 percent decline in feature phone shipments this year. Many owners of feature phones are holding on to their phones in light of uncertain job and economic prospects.


That is not to say consumer behavior always is a leading indicator. Often, consumer behavior is a lagging indicator. In this case, the lower demand for feature phones probably is more a response to declining economic growth.


Since the global recession ended in 2009, the world economy has been fueled powered by rising powers in the developing world led by China, India and Brazil.Now, all three are running into trouble. But Europe's obvious slowdown, threatening to become a renewed official recession, also is matched by similar concerns about the U.S. economy. 

How Will Mobile Service Providers Cover Fixed Costs as Voice Usage Drops?

There will be predictable griping if U.S. and other mobile service providers change retail packaging of voice services in the future, perhaps dropping the "buckets of minutes" plans of various sizes with "one size fits all" unlimited plans.

From a service provider perspective, the ways revenue is offered at retail include both a usage and a fixed cost recovery component. In that sense, how much consumers get charged for a bundle of features and services is partly a matter of traffic sensitive and fixed costs that basically don't change much.


The potential shift of voice calling to unlimited plans is a response to the "fixed costs" part of the cost recovery issue. One can debate whether all network and other fixed costs are appropriate or not. But those fixed costs don't change much based on which services--ranging from text messaging to voice to broadband data--users decide to use.

The simple fact is that the sunk costs of running the network must be recovered, no matter what the usage-sensitive patterns are. And if users are shifting from voice to Internet apps, or from text messaging to over the top messaging, the fixed costs still must be covered.

So a shift to "unlimited" calling is simply one way of recovering the fixed cost portion of providing the full package of features people associate with mobile phones, especially smart phones.

Precisely how those charges are levied will vary from time to time and carrier to carrier. The point is that fixed costs don't change because usage of some apps, services or features changes over time.

Not everyone will be happy with how retail features are priced. Some will complain that profit margins on some products are "too high." That doesn't actually matter much, either. All multi-product retailers sell products with varying margins, some high, some low, some in between. From a mobile service provider's perspective, the main issue is ensuring that the fixed costs get covered.





 

InMobi Says Tablet Ad Impressions Grew 88% Last 6 Months

Tablet ad impressions on the InMobi North American ad network grew 88 percent over the last six months, illustrating the way the new device is creating a new market for mobile advertising.

In fact, tablet impressions have been growing nearly twice as fast as smart phone impressions in North America.  Anne Frisbie, InMobi VP and Managing Director, North America, attributes the tablet growth in part to the appeal of larger screen sizes and growing tablet ownership.

The report finds that Apple clearly dominates, with iOS tablet devices currently commanding 71 percent of the overall impression share, followed by Android with 29 percent. Since those percentages roughly correspond to the installed base of devices, the findings are not unexpected.

North America Tablet OS ad impressions
OS	Q4 2011	Q1 2012	Pt. Change
iOS	81.6%	70.8%	-10.8%
Android	18.2%	28.9%	10.7%
Others	0.2%	0.3%	+0.1%

Despite entering much later to the market than many of its competitors, the Amazon Kindle Fire performed second (9.2 percent) to the Apple iPad (70.8 percent) in the first quarter of 2012.

North America Top Performing tablets, total ad impressions
OS	Q4 2011	Q1 2012	Pt. Change
Apple iPad	81.6%	70.8%	-10.8
Amazon Kindle Fire	N/A	9.2%	N/A
Asus Eee Pad Transformer TF101	2.7%	5.2%	2.5%

Are Mobile Platform Wars Just About Over?

It's a provocative question, but looking at adoption of mobile operating systems, you have to wonder whether the smart phone platform wars are just about over. Microsoft would argue otherwise, and lots of people seem to think that is not an empty boast. Research in Motion might say the same thing, but more people are skeptical about a RIM comeback. 




 

85% of Mobile Users Will have 3G by 2017

Though fourth generation Long Term Evolution networks tend to get most of the attention these days, third generation GSM will, by far, be the dominant network for most people who use mobile networks or mobile broadband.

By 2017, 85 percent of the world's population will have 3G coverage, Ericsson says.

About 75 percent of the HSPA networks worldwide have been upgraded to a peak speed of 7.2 Mbps or above and around 40 percent have been upgraded to 21 Mbps.

And though, by 2017, 50 percent of the world's population will be covered by 4G networks that doesn’t mean that most people who have access to LTE actually use it. It takes time for new handsets, working with the latest air interface, reach critical mass in any market.

For many people around the world, the mobile phone also will be the only means of accessing the internet. According to Ericsson, 85 percent of the world's population will have internet coverage from a  3G network by 2017, and there will be close to nine billion mobile subscriptions in use, compared to six billion by the end of 2011.

Smart phone subscriptions expected to reach three billion in 2017, about a third of all users globally, and global data traffic to grow 15 times by the end of 2017, Ericsson also says.

Mobile broadband subscriptions, meanwhile, are forecast to reach five billion in 2017, compared to one billion by the end of 2011.