Square Near a Deal to Value It at $3.25 Billion

Square, the mobile payments supplier, is close to raising roughly $200 million in new funding, with an implied valuation of $3.25 billion, the NYTimes reports.


The funding represents the company’s third significant capital raising round in less than two years. In 2011, Square raised $100 million, valuing the company at $1.6 billion. Several months before that, Square had an investment at a $240 million valuation. All told, the company’s valuation has grown by 13.5 times in less than two years.


You can make your own determination about the appropriateness of the valuation. 

Apple: the Company that Used to Make Computers

These days, phones and other portable devices are what Apple makes and sells. The really surprising number, for some of us, is the dominance of "phones" in the revenue picture. 

Can 4G be Successful in India Even While 3G Isn't Established?

If India's Reliance Industries (Reliance Communications) does move ahead and build a national Long Term Evolution fourth generation mobile network, it will have to leapfrog third generation mobile networks just getting established in the Indian market.


By some estimates the total number of 3G subscribers in India is just about two percent of the total number of mobile phone users. India has 893.8 million cellphone users according to TRAI (Telecom Regulatory Authority of India).


So the big gamble is whether Reliance can leapfrog a whole generation of technology. Reliance's 4G network would be the largest of any outside the U.S. and Japan. 


India is expected to have more 4G wireless subscribers in four years—37 million—than Brazil, Russia or Indonesia, according to consulting firm Ovum. 

Looking at the broadband access market broadly, about nine percent of India's 1.2 billion people now have Internet access. Virtually everyone expects mobile to be the way most people in India get Internet access.


But what is unknown is whether 4G can leapfrog over 3G, at a time when even 3G is a very new service in the market, and such a small number of users (three percent, by some estimates) have smart phones. 


In May 2012, 3G adoption in India had reached perhaps 10 million to 12 million users. 





But some might argue the proper framework is not "3G" users but "Internet users." 

India has added 69 million Internet users between 2008 and 2011 and now has 121 million Internet users with a population penetration rate of 10 percent.

According to Mary Meeker, Kleiner Perkins  Caufield & Byers partner, India has 39 million 3G subscriptions as of the fourth quarter of  2011, with four percent penetration rate and 841 percent year over year growth. 

Reliance Communications has 3.2 million 3G subscribers(Q4 FY12), Idea has 2.6 million and Airtel has about 9 million 3G subscribers. Vodafone has 35 million data subscriptions including both 2G and 3G subscribers, including perhaps eight million or nine million 3G subscribers, Meeker estimates. 

She doubts that BSNL, MTNL, Aircel and Tata Tele have 15 million 3G subscribers between them.

But mobile Internet usage surpassed desktop Internet usage in India during the April 2012 May 2012 period. So it might not be unthinkable to argue that 4G could indeed leapfrog 3G, especially if the market is Internet access, not "mobile" Internet access. 

Netflix Sees Cable as Bioggest Competitor

Netflix believes its biggest competition comes from video entertainment subscription providers, namely cable, satellite and telco video providers. Lots of people would say Hulu Plus or Amazon Prime as Netflix's biggest immediate competitors, and that would be logical. 



Netflix notes that it competes for consumers’ viewing time with a variety of video services, including linear TV, DVRs, over-the-top (OTT) pure plays, and authenticated streaming offerings of the video entertainment providers and cable networks (cable operators, satellite TV and telco TV providers, and "TV Everywhere" offerings associated with those providers).


"We have yet to see HuluPlus or Amazon Prime Instant Video gain meaningful traction relative to our viewing hours, but as we continue to build a domestic profit stream they are likely to increase their efforts to gain viewing share," Netflix says. 


Netflix also believes "Redbox Instant" by Verizon will have a tough time breaking into the ranks of the top three providers. 


Still, Netflix believes its "biggest long-term competition for viewing hours will come from MVPDs and cable networks, both directly and through their TV Everywhere offerings."


The operant word is probably "long term."

300 Mbps Access is Great, But not a Consumer Offer

Comcast is readying a 305 Mbps high-speed access service to counter Verizon's 300 Mbps FiOS offer of 300 Mbps, costing $205 a month. Though some consumers might actually be willing to pay that much, most will not. 


U..S. access speeds are about 5 Mbps, some studies have suggested. At some level, it might be useful to calculate "cost per megabit per second," though no consumer buys access using that metric, opting instead for an assessment of actual monthly recurring cost, and headline speed. 


At the moment, U.S. offerings, overall, cost about $3.33 per megabit per second, with huge differences between urban FiOS access and rural digital subscriber line price-per-megabit-per-second, for example. 


Over time, we should anticipate that users will spend more money, per month, on broadband, simply because speeds and caps are correlated. And as more entertainment video gets watched, users will need larger caps. 


Mobile access makes a difference, though, especially as more consumers might opt to use mobile broadband, either in place of fixed access, or as a complementary form of access. 


But one problem is that "nominal prices" are not "effective prices" when most consumers buy a triple play bundle including broadband access, voice and entertainment video.


In  2010, for example, Comcast reported a monthly total revenue per video customer of $129 a month. By correlating the number of revenue generating units (RGUs) Comcast had at the time, one might suggest that the video portion of the bundle cost about $71 a month; the broadband access about $42 a month and voice service about $36 a month.

• Video (22.8 million customers at $71.37/mo)
• High-speed internet (17.0 million customers at $42.07/mo)
• digital phone (8.6 million customers at approx $36.15/mo)

That rather suggests to some of us that most consumers are not likely to spend much more than $40 to $50 a month for high speed Internet access, with a tendency over time for higher prices. 

Content Consumption is Now the Top "Purpose" of a PC

"Games" now are the number two most popular tablet activity, surpassed only by accessing the Internet, a study by Frank N. Magid Associates has found.


In fact, the list of top activities conducted on tablets shows the evolution of the personal computer, one might argue. In the 1980s, when PCs first were adopted in significant value, it was the spreadsheet and financial analysis that created the driver for adoption by businesses.


A variety of other business uses then developed, including desktop publishing. PCs became useful for consumers for other reasons, but included the ability to work and communicate "at home."But the new consumer killer application seems to be content consumption.

Significantly, the top apps on smart phones aren't all that different from what is done on tablets, the study also found. 


Of course, mobile devices are multiple-function appliances to a greater extent than tablets or PCs. Even so, calling is only a percentage of total activities smart phone owners now conduct on their devices. 


The big change is that content consumption activities apparently had grown to represent about half of all the time spend interacting with, and using, a mobile device, in 2011, according to comScore. 


The point is that the "purpose" of using a computing appliance has changed. For the most part, people rely on "computers" for media consumption. 

European "Network Neutrality" Issues Different than U.S. Issues

Last year the European Commission concluded an initial study on the issue of network neutrality, with findings that suggest issues are different in the European market, than in the United States.


A subsequent Body of European Regulators of European Communications (BEREC) investigation of Internet traffic management practices found that the most frequently reported restrictions on EC networks were the blocking or throttling of peer-to-peer traffic on both fixed and mobile networks and the blocking of Internet telephony traffic on mobile networks.


The report estimated that between 20 percent and 50 percent of European Internet users have contracts that allow providers to restrict services.


That points up a key difference between U.S. and EC service provider practices. In the U.S. market, blocking of lawful Internet applications is prohibited by the Federal Communications Commission's "Internet Freedoms" principles. In other words, no service provider can block a user's access to a legal application such as VoIP or peer-to-peer apps.


That appears not to be the case in EC countries, where at least some service providers block mobile VoIP, for example. 


But network neutrality really is a complicated issue, including distinct issues such as blocking of legal apps, ability to manage traffic to preserve quality of service and whether managed services can be created. 


In the U.S. market, no outright blocking of lawful appllications, including VoIP or peer to peer services, is permitted. 


At the moment, different frameworks exist for U.S. fixed network broadband access and mobile access where it comes to traffic management. On fixed networks, no traffic grooming, even for purposes of alleviating congestion, is permitted. Mobile operators may do so.


On fixed networks, no managed services providing quality of service benefits are permitted, though such practices are lawful on mobile networks. 


But network neutrality rules often bump up against business model issues. There is not dispute about whether a TV or radio broadcaster, or a cable TV or satellite network, can optimize its content for delivery to end users. 


The new area of uncertainty is whether application and content providers should be able to do more, in the area of content delivery, for example, to optimize applications on behalf of consumers or application providers. 


As content delivery networks actually favor some content over others, so it is conceivable that either end users or app providers might want to pay for quality of service mechanisms. Though you might argue that is no different than app providers paying for content delivery services, such quality of service mechanisms pose competitive issues, some argue. 


Obviously, optimized content will have an advantage over non-optimized, "best effort" content. That isn't so much an issue for non-real-time services. But real time services suffer when there is network congestion. Any over the top voice or interactive video application, for example, is quite sensitive to congestion. 


At issue is whether any end user or application provider ought to be able to buy an over the top Internet application or service that uses optimization techniques to improve experience, just as app providers buy content delivery network services. 

Transparency is a contested part of thinking about network neutrality, the notion being that users are entitled to know what terms and conditions might affect their use of Internet access services. 


The other real complication is that virtually all networks now use Internet Protocol, and not just for "Internet" apps. Users and regulators accept that a managed service has to be "managed" for quality reasons. 


But such managed services might use IP mechanisms on either private or public networks. Precisely what a "managed service" is, or ought to be, is a growing area of contention. Users, suppliers and regulators might agree that a service provider ought to be able to use quality of service mechanisms when providing carrier voice, video or messaging services, for example.


What is more contested is whether over the top suppliers of such services should also have the ability to create quality of service mechanisms as well. 

How Important are Shared Data Plans?

Data revenue will grow to 65 percent of total U.S. wireless service revenue as voice declines to 35 percent in 2016, according to Hugues de la Vergne, principal research analyst at Gartner.


What might not yet be so clear is how the industry will get to that point, but different retail packaging likely will play a key role, even as more users adopt smart phones that almost automatically boost data revenue because devices have most value when an Internet connection is available, all the time. 


But nobody yet can be sure whether shared data plans offered by AT&T and Verizon Wireless will work as planned, namely lifting overall revenues while creating a usage-based data revenue model, while encouraging users to add tablets to their accounts for mobile broadband access. 


But some think the entire industry eventually will move in that direction, as was the case with some earlier packaging innovations, including the mobile industry's abolition of domestic long distance with AT&T's Digital One Rate, or the adoption of family plans for domestic voice and texting. 


As the number of devices with mobile network modems increases, consumers and small businesses in the U.S. will demand matching multi-device data rate plans, according to Gartner. 


The disagreement about adoption probably will not be decided, one way or the other, for some time. The reason is that the current structure of the shared data plans does not offer significantly better economics for users, compared to what they already can buy.


There are some marginal advantages and inducements to add tablet devices, for example, but the price advantage might not be so obvious to most users, or valuable. 


But Gartner believes multi-device rate plans will be a key driving factor in the expansion of U.S. data revenue from $81.4 billion in 2011 to $151.9 billion in 2016. 


One could get a rather robust argument at the moment about the importance of new shared data plans launched by Verizon Wireless and AT&T. Those two carriers clearly believe consumers want such plans, and also believe that the plans will boost revenue. 

Others are not so sure, or might even think the plans are unnecessary or less advantageous to consumers than more traditional plans. 

U.K. Customers of Three Increase Data Consumption 100% in 12 Months

In about a year's time, smart phone customers of U.K. mobile service provider Three have doubled their "average" data consumption to 1.1 Gbytes a month, Three says. 


That rate of increase is faster than for the U.K. audience as a whole, as Ofcom reports the overall volume of mobile data consumed in the United Kingdom has doubled in the 18 months to January 2012. 


By way of comparison, according to Nielsen’s June 2012 analysis of U.S. mobile phone bills for 65,000 lines, smart phone owners, especially those with iPhones and Android devices, were consuming about 435 Mbytes a month in 2011, roughly the same as in the United Kingdom.  


T-Mobile USA, meanwhile, reports that its users consumer about 760 Mbytes a month. 

Ofcom estimates that the average U.K. consumer now spends ninety minutes per week using a mobile to access the Internet, largely replacing their use of PCs and laptops for watching video clips and sending messages. 


Those of you with an engineering bent will realize what that means. Nothing stresses an access network like video.


Since mobile networks are more "bandwidth challenged" than the fixed networks, when users switch video viewing preferences to mobile access modes, mobile networks experience the "worst of all worlds" (the media type with the greatest bandwidth requirement is consumed on the networks with the least available bandwidth). 

And one might well expect consumption to keep climbing, as more users adopt smart phones, come to rely on mobile access to the Internet and as fourth generation networks are built, since faster access drives higher data consumption. 


A year ago, average consumption was about 450 megabytes. As you would expect, the growth has happened because of smart phone user behavior. About 95 percent of Three smart phone customers use data on a daily basis.



About 42 percent of respondents surveyed by Ofcom agree with the statement “my phone is more  important to me for accessing the Internet than any other device."


Levels of  agreement with this statement are highest among those aged 16 to 24 (51 percent) and 25 to 44  (48 percent). Levels of agreement have also increased over time, with 42 percent net agreement in 2012,  compared to 33 percent net agreement in 2011.


Ofcom reports that mobile broadband (data dongles or cards) now are used by about 13 percent of U.K. mobile users, while smart phone adoption grew from 27 percent in 2011 to 39 percent of U.K. adults,  representing 43% of mobile phone users.


Some 66 percent of U.K. users 16 to 24 and 60 percent of those aged 25 to 34 have a 
smart phone,

ATM and Frame Relay Gone by 2015

“By 2015, ATM and frame relay will virtually vanish, while private leased lines will be around a bit longer,” says  Michael Howard, co-founder and principal analyst of Infonetics Research. 


In large part, that is because replacement services such as Ethernet and IP VPNs are taking the place of frame relay and ATM.  “Despite some slowdown in Europe in 2011 and 2012, we see solid growth ahead for both IP MPLS VPNs and Ethernet services, together topping $81 billion worldwide by 2016,” Howard says. 


Global Ethernet and MPLS IP VPN service revenue grew a combined 13 percent in 2011 to just over $50 billion, fueled by surging data traffic, cloud services, and cost-cutting initiatives, Infonetics says.

Mobile Money Already is a Major Revenue Driver for Safaricom

If you want an indication of how big a deal mobile money services could be for some mobile service providers, consider that M-Pesa, operated by Safaricom, now accounts for 13.3 percent of Safaricom’s total revenue.

To give you some idea of how important that is, consider that, in 2008, business services accounted for about 14 percent of global service provider revenues. In other words, as a percentage of revenue, what Safaricom is making from mobile money services is as significant as business services were, in 2008.

For Safaricom, mobile money already is more significant than mobile messaging revenues were in 2008, more important than video services, more important than mobile broadband.



On the other hand, mobile service providers will have very-different opportunities in developing markets, than in developed markets. A simple way of putting matters would be to say that, in developing markets, where the mobile device and mobile service provider provide the functional equivalent of a banking service, the obvious value is “access” to banking.

In developed regions, where banking is well developed, that will not be the case. Instead, mobile service providers will have to create more complex new services, and the role of third party partners will be crucial. Some might even argue that, ultimately, mobile service providers will have to create applications that are highly integrated with core banking functions, for example.

In developed regions, “applications” are the value, and that will require rather more complex infrastructure and relationships.


In developing regions, the demand is for low-cost, low-speed, and infrequent transfers of money, often of small amounts.

In developed regions, the demand if for high speed, higher value transactions that might occur more frequently as well.

Broadband "Progress" Is Hard to Measure, These Days

Whether you are an end user, a service provider, an investor or a regulator, it now is harder than it once was to figure out what to buy, why to buy, where to invest, how much to invest or what the important metrics are, when trying to determine how well any nation or area is doing, in the area of broadband access.

According to Organization for Economic Cooperation and Development statistics, there were 314.9 million fixed network broadband connections in use in the OECD countries in December 2011, for example.

There also were 667.4  million wireless broadband connections in use at the same time, for a total of 982.3 million broadband connections. That means 68 percent of all broadband connections in the OECD region are wireless.

That has obvious implications for service providers, investors, end users and regulators alike, as it means any effort to measure broadband subscribers, access speeds and prices is much more complicated than it once was.

That is not to say fixed and mobile broadband are full substitutes for each other. Potential bandwidth, price per bit and location are key dimensions on which mobile broadband and fixed broadband are distinct products.

As tablets show a historic shift in what people are doing, and want to do, using “computing” devices, so people are showing historic new patterns in terms of how they want to consume Internet applications and content.

Though the trend is most clear in developing regions, where a mobile device is the primary way people use Internet apps, it increasingly is the case that a “small screen” smart phone or feature phone is the way many people are choosing to use the Internet.

In China, for example, there now are fewer fixed broadband subscribers, compared to last year. Internet users reached 530 million over the past six months, but the  broadband subscriber base actually shrank as mobile became the most popular way for users to get online for the first time, a report by the Chinese government suggests.

Of those Internet users, some 380 million were fixed broadband users, down from 396 million in December 2011, and 388 million were mobile internet users, up from 356 million.

Instead of growing, as you might expect, fixed broadband accounts actually declined, as users apparently decided to spend their money on mobile broadband, rather than fixed broadband.

The point is that, though it is useful to measure how fixed network access bandwidth, usage or prices are developing, that does not offer a full picture of how people are using broadband, since two thirds of broadband connections in the OECD are of the mobile variety.

For example, though it is noteworthy that the Federal Communications Commission reports “striking across-the-board-improvements” in U.S. broadband access services in its July 2012 “Measuring Broadband America Report,” that describes improvements in connections that represent only about a third of total paid connections.

The study is important, as it suggests fixed network ISPs are doing much better, in a few key areas.

Five ISPs now routinely deliver nearly one hundred percent or greater of the speed advertised to the consumer even during time periods when bandwidth demand is at its peak, the report says.

In the August 2011 Report, only two ISPs met this level of performance. In 2011, the average ISP delivered 87 percent of advertised download speed during peak usage periods; in 2012, that jumped to 96 percent, the report says. .

Performance also is more uniform, across providers. The 2011 study showed wide variances between top performers and bottom performers in meeting advertised speeds.

On average, customers subscribed to faster speed tiers in 2012 than in 2011. This is a result of both upgrades by ISPs to their network as well as some migration of consumers to higher speed services.

During the testing period for the August 2011 Report, the average speed tier was 11.1 Megabits per second. In the latest report, speed increased to 14.3 Mbps, an almost 30 percent increase in just one year.

The actual increase in experienced speed by consumers was even greater than the increase in advertised speed. End user experienced speeds rose from 10.6 Mbps to 14.6 Mbps, an  improvement of about 38 percent over the one year period.

The report expresses optimism that the U.S. market is moving toward the goal of equipping at least 100 million homes with actual download speeds of at least 50 Mbps by 2015, and 100 Mbps by 2020.

The August 2011 Report showed that the ISPs included in the Report were, on average, delivering 87 percent of advertised speeds during the peak consumer usage hours of weekdays from 7:00 pm to 11:00 pm local time.

The July 2012 Report finds that ISP performance has improved overall, with ISPs delivering on average 96 percent of advertised speeds during peak intervals, and with five ISPs routinely meeting or exceeding advertised rates.

On average, during peak periods, DSL-based services delivered download speeds that were 84 percent of advertised speeds, cable-based services delivered 99 percent of advertised speeds, and fiber-to-the-home services delivered 117 percent of advertised speeds.

This compared with 2011 results showing performance levels of 82 percent for DSL, 93 percent for cable, and 114 percent for fiber.

Peak period speeds decreased from 24-hour average speeds by 0.8 percent for fiber-to-the-home services, 3.4 percent for DSL-based services and 4.1 percent for cable-based services. This compared with 0.4 percent for fiber services, 5.5 percent for DSL services and 7.3 percent for cable services in 2011.

Average peak period download speeds varied from a high of 120 percent of advertised speed to a low of 77 percent of advertised speed. This is a dramatic improvement from last year where these numbers ranged from a high of 114 percent to a low of 54 percent.

In 2011, on average, ISPs had a six percent decrease in delivered versus advertised download speed between their 24 hour average and their peak period average. In 2012, average performance improved, and there was only a three  percent decrease in performance between 24 hour and peak averages.

All of that is good news for end users. But those improvements reflect changes to about a third of all U.S. broadband connections. And it remains very hard to measure “value” in the broadband access business.

Raw speed is a good thing. But if raw speed were the only consideration, people wouldn’t pay for and use mobile broadband. Nor is any measurement of fixed network broadband access the full story, in any nation within the OECD, or arguably outside the OECD, as well.

Is "Wi-Fi-Only" Really a Tablet Shortcoming?

For some observers, a tablet that supports only Wi-Fi connections is defective. Maybe not. At least so far, the overwhelming percentage of tablet usage occurs at home, with the balance of usage at public hot spots or at work. 


If 88 percent of tablet use occurs in a living room, where Wi-Fi is assumed to be present, there are only 12 percent of other locations where a tablet might conceivably be used, and one might argue that a smart phone will suffice for most of those use cases.


Some 24 percent of tablet users say they likewise use tablets at work, where Wi-Fi reasonably also can be presumed to be available.


The point is that the hope mobile service providers have of more consumers adopting mobile broadband for their tablets remains largely an expectation.


Of course, some will argue that the current usage pattern is shaped by the fact that most people have purchased devices without native mobile network support. What people cannot do, they do not do. 


But that seems to ignore the more obvious conclusion, which is that tablets get used mostly in situations where Wi-Fi is available. In that case, lack of direct mobile connectivity is not such a big problem. For users who normally carry a smart phone with personal hotspot service, there is virtually no problem at all. 





 

Wireless Now Leads Global Broadband Growth

The focus of global broadband adoption now has shifted to the wireless domain, a dstudy suggests. Wireless broadband subscriptions showed growth of over 13 percent in the last six months and Korea (100.6) and Sweden (98.0) have wireless penetration above or near 100 percent. 

The global number of wireless broadband subscriptions in OECD countries totals 667 million, up from 590 million in June 2011, according to the Organization for Economic Cooperation and Development (OECD). 

Switzerland tops for the first time the Organization for Economic Cooperation and Development (OECD) fixed broadband rankings for fixed broadband "density,"  with 39.9 subscribers per 100 inhabitants, followed closely by the Netherlands (39.1) and Denmark (37.9). The OECD average is 25.6, according to new OECD statistics.

Fixed wired broadband subscriptions reached 314 million in the OECD area at the end of 2011, although growth slowed to 1.8 percent in the second half of 2011, the study suggests.

OECD Fixed (wired) broadband subscriptions per 100 inhabitants, by technology, December 2011

The overall share of DSL subscriptions continues to decrease (55.8 percent), to the benefit of cable (30 percent) and, especially, fibre-to-the-home subscriptions that now represent 13.7 percent of the total number of fixed broadband subscriptions.

Data and charts for the December 2011 broadband statistics are available here. 

China Shows Broadband is a Product, Like Any Other, and can Mature

For more than a hundred years, fixed network voice seemed to be a product that defied the "product life cycle." Demand only seemed to grow.


As it turns out, fixed network voice now is behaving as a normal product. Demand in some markets is declining, while substitute products arguably are taking share.


The question therefore is whether fixed network broadband access also will turn out to be a product, with a life cycle. In China, the answer already might be "yes."


Internet users reached 530 million over the past six months, but its broadband subscriber base actually shrank as mobile became the most popular way for users to get online for the first time, the study suggests.


Of those users, some 380 million were fixed broadband users, down from 396 million in December 2011, and 388 million were mobile internet users, up from 356 million, according to the report by the Chinese government. :