"Computers" Hardly Matter for Apple, Anymore

Apple doesn't call itself "Apple Computer" anymore for a very good reason. It makes its money, and profit margin, selling phones, as Wings of Reason illustrates. 

Is "Mobile First" Now Affecting Financial Returns?

Is "mobile first" now affecting application and device provider financial returns? You might argue so. 


 “What we’re seeing is that the non-mobile-centric Four Horsemen, Amazon and Facebook, aren’t seeing the same big profits as the two mobile-centric ones, Apple and Google," says  Yankee Group Research VP Carl Howe.  

Facebook’s overall revenue in the second quarter of 2012 hit U.S.$1.2 billion, up 32 percent and beating estimates, but the company posted a net loss of U.S.$157 million vs. income of U.S.$240 million posted a year earlier. 

Amazon, for its part, announced a 96 percent drop in net income, to U.S.$7 million, primarily due to investments in and subsidies for its best-selling Kindle Fire mobile device, 


But Google and Apple, which you might argue have head starts in terms of their "mobile first" strategies, are doing better, financially. 

In fairness, Amazon does, as a matter of strategy, emphasize big investments that provide strategic value, even if it hits quarterly earnings. You might argue that is simply what happened in the second quarter. 

Facebook frankly admits it has to create a mobile strategy, but has yet to do so in practice. 

Some People Just Don't Want to Buy Cable TV

Would lower prices-even prices 50 percent lower-convince you to buy a product you really did not want? That seems not to be the case for some 33 percent of survey respondents who have abandoned their video entertainment subscriptions, according to TechBargains. 


Prices arguably are getting to be a major irritant for most consumers who buy video entertainment services. But not for all. Some consumers simply do not see value in buying video entertainment services at all, no matter what the price. 

 

Global Handset Shipments Decrease for the Second Consecutive Quarter

As important and as robust as mobile subscriber growth has been over the last decade, it is not invulnerable to economic stress. In fact, on a global basis, mobile handset shipments have declined for two consecutive quarters. 


An economist, tracking any nation's economic performance, would say that set of data marks the beginning of a recession. 


“Handset shipments have not seen a sequential year over year decline since the global economic crisis of 2008-2009," says ABI Research senior analyst Michael Morgan.


Of course, handset purchases often are affected by consumers waiting for hot new models to be released, while some might also note that the second quarter is a seasonally slower quarter.


Apple, for example, experienced a 26 percent quarter over quarter decline in shipments in the second quarter, as consumers withheld purchasing an iPhone in anticipation of the new model to be released in the late third quarter. 


Research in Motion and Nokia experienced 14 percent and 30 percent quarter over quater declines respectively. To some extent, those dips might partially be explained by customers waiting for the next major product families from each of the suppliers, and in part by a shift of demand away from both suppliers. 

North American Mobile Capex to Grow in 2013

North American mobile operators will hike capital investment in 2013 to support fourth generation inetwork construction, ABI Research estimates. But some think 2013 might market a peak of mobile capital investment on a global basis.

Mobile capital investment fluctuates from year to year, based on network upgrade plans, economic conditions and competitive threats, and investment has been building since about 2008, partly because of 4G network constructiion and partly because operators were cautious during the Great Recession that began in 2008.

“North American mobile cellular capital expenditure is expected to hold its ground in 2012 year-on-year, with expenditure of around $10 billion”, says Jake Saunders, VP for forecasting at ABI Research. “In 2013, mobile capital expenditure is likely to surge 4.9 percent to $10.5 billion.

Service providers are in many cases also shifting investment from older networks to 4G. Verizon Wireless, for example, has announced an end to the  expansion and capacity enhancement of its 3G network, in favor of building out its 4G LTE coverage.

Mobile operators, as typically is the case, squeezed capital expenditure during the economic downturn in order to protect cash flows and maintain profits. What normally happens is a catch-up phase where deferred investment gets made.


Wireless Intelligence notes that total global mobile capex peaked at $204 billion in 2008, at the beginning of the financial crisis, accounting for 21 percent of total revenues.

However, capex then fell to $197 billion (19 percent of revenue) by 2010, as operators reacted to the crisis. In developed mobile markets operators reduced capex by eight percent in 2008 and by six percent in 2009, increasing capex again in 2010 as many operators began investing in LTE.

The typical investment slowdown in tougher economic times boosts free cash flow, at least temporarily.

The reductions in capex over the last few years saw operating free cash flow grow to $200 billion (19 percent of revenue) by 2010, up from $133 billion (11 percent of revenue) in 2007.

This means that global operator cash flows are now roughly at the same level as capex. In 2011-12, Wireless Intelligence has predicted operator capex to remain stable at 16 percent of total revenue in developed markets and 23 percent in developing markets. OFCF will account for close to 20 percent of total revenues in both regions.

New Zealand Mobile Operators Eye December 2012 Decision on Mobile Payments Venture

New Zealand mobile service providers say they will decide by the end of 2012 whether to create a mobile payments joint venture. 


Bank-owned Paymark, Vodafone, Telecom and 2degrees had said they wanted to form a mobile payments business in April 2012, based on use of near field communications. 


Another mobile payments trial was launched in the spring of 2012. 

Google Fiber Could Get 20% Penetration of Some Kansas City, Mo. Neighborhoods, Quickly

Within just two days, more than 20 percent of the eligible neighborhoods on the Missouri side of Kansas City already have already reached Google’s thresholds for activating home drops. If all those households actually wind up subscribing, Techcrunch reports.


Each neighborhood can have a different threshold, ranging from five percent of homes to 25 percent of homes.


Google Fiber could hit at least 20 percent penetration relatively quickly. In the neighborhood with the highest rate of interest, Google Fiber has reached about 18 percent of homes. 


You can track progress online. 


Things apparently aren’t moving quite as fast in Kansas City, Kansas, though, where the median household income is significantly lower than on the other side of the city.

Twitter Users Disrupt BBC's cycling Coverage?

Oddly enough, given concerns about broadband Internet access in London during the Olympics, the first report of any disruption has come from BBC officials who say use of Twitter, a low-bandwidth application, apparently disrupted television coverage of the cycling road races.


Apparently, updates about cyclist timing and positions were blocked when fans sent updates to Twitter while watching the race, and apparently jammed transmissions of race information.


The BBC  blamed the Olympic Broadcasting Service (OBS) for the lack of information. But the International Olympic Committee said fans sending updates to Twitter while watching the race had in effect jammed transmissions of race information.


Precisely how that can happen is not entirely clear, unless timing information was being sent using Twitter. 

WyWallet Mobile Payment Launches in Sweden

WyWallet, the mobile wallet joint venture by the four largest mobile network operators in Sweden (Telia, Tele2, Telenor and 3), has launched. The mobile wallet service is said to be the first of its kind in Sweden and will from start cover 97 percent of the mobile users in Sweden. 


WyWallet supports person-to-person money transfer, payments using text messaging, online shopping and "prepaid card top ups."


WyWallet also supports retail payments using near field communications. 


Wywallet is available on Android, iPhone and will be available for Windows Phone later in 2012.

Content Owners Wary about New Distributors, But Need Them

Hollywood studios and video entertainment service providers understandably have a wary relationship with current distributors such as cable, satellite and telco video subscription providers, as well as new distributors such as Netflix, iTunes, Amazon and others.

But there are different tensions within the ecosystem. Video service providers realize they have reached a point where higher content payments to content owners cannot continue to rise indefinitely, since those higher fee payments mean retail prices must be increased. And there are growing signs of consumer frustration over the ever-growing retail prices.

In the home video market, previously driven by sales of DVDs, sales have been falling for about three years, for the most part, even as online sales (streaming services such as Netflix) have been growing. That causes a different kind of friction between distributors and content owners.

On one hand, online delivery of movie and TV content is seen as the future, and revenue trends show the potential. On the other hand, too swift an arrival of that new business could destroy a physical delivery business that, though challenged, remains important.

That is true both of the home video business, traditionally based on sales of DVDs and to some extent by DVD rentals, as well as the bigger video subscription business.

But Netflix and even video on demand continue to grow, meaning growing tension between the legacy and new channels.


 

The digital side of the business generated $2.4 billion in the first quarter of 2012, according to the Digital Entertainment Group, representing growth of  78 percent. Subscription video on demand grew 430 percent for the first six months to $1.1 billion.

Overall U.S. home entertainment spending rose 2.5 percent to around $4.45 billion in the first quarter, according to the Digital Entertainment Group. That means home video revenue has grown for two out of three of the last quarters, a welcome change from revenue trends that had been falling for three straight years.

Since peaking at around $21.8  billion in 2004, the U.S. home entertainment industry has seen steady declines, falling  to $18.4 billion in 2011.  

And the shift top online delivery keeps growing in importance. IHS Screen Digest has  predicted that the number of movies and TV shows legally streamed and downloaded in 2012 will for the first time surpass the demand for those films and shows on physical discs.

IHS predicts that online streaming services like Netflix and Amazon Prime, Vudu and iTunes, will conduct around 3.4 billion individual U.S. movie transactions in 2012. That would be a 135 percent increase in digital home entertainment transactions over 2011. It would also surpass the 2.4 billion DVD and Blu-ray sales and rentals predicted for 2012.

And despite studio unease about Netflix, Netflix U.S. streaming revenue of $1.04 billion in the first half of 2012 might be largely responsible for the growth of content owner revenues.

Will subscription VOD ever displace content sales, in terms of profitability? Not likely, given the vast difference between margins.

The overall disc business keeps declining, with sales of physical video media dropping 3.6 percent to $3.7 billion during the first six months of 2012, while disc rentals declined 26 percent to $2.3 billion.

However, the kiosk rental business, led by Redbox, is still expanding, up 23 percent to $990 million, according to DEG.

So, like it or not, Netflix and Redbox might continue to be important partners as the future unfolds.

Surprising Findings about Mobile Payments

You might not be too surprised if told that about a third of U.S. mobile phone users have used mobile payments of some sort over the last year or so. You might not be surprised if a significant percentage of those sales were of digital goods such as games, apps or music.

But a new study found surprising behavior. Despite the popularity of digital downloads, such as apps and music, more respondents reported buying physical goods with their phones than online services, digital goods, or virtual currency, IDC reports.

That would be a significant finding, indeed, at least for remote payments made from a mobile device.

The  IDC Financial Insights study  found that mobile payments have more than doubled in popularity, reaching over 33 percent of survey respondents. Of those that had made a mobile payment, more than half used PayPal Mobile (56 percent), with Amazon Payments and Apple's iTunes service statistically tied at about 40 percent.

The findings are important for mobile payments providers and merchants, as the behavior shows increasing adoption of the mobile payment habit for products not traditionally associated with mobile device content and application purchases.

O2 London Small Cell Network Will Offer Free Access After Olympics

U.K. mobile service provider has built a network of 100 free Wi-Fi hotspots in West London as part of the Olympics. As always is the case after an Olympic event is held, the purpose-built facilities are reused in new ways. That will be the case for O2's network as well. 


The Wi-Fi network, serving the West End, offers service at speeds up to 24Mbps.

Users will have to register, but unlike Virgin Media's network on the London Underground, O2's hotspots will remain free after the Olympics are finished. So you might well wonder what the revenue model will be.


O2 aims to support its investment by selling advertising to local businesses, probably adding location features to craft deals based on end user location. There is another difference.

O2 is using the 100 Wi-Fi hotspot deployments as the foundation for a future small cell network that will use O2's 3G network, reinforcing the macrocell network where it is most congested. 


As a matter of engineering, that has meant locating the Wi-Fi hotspots in locations where eventual conversion to a GSM small cell network will be compatible with the macrocell network. 

According to O2 Wi-Fi managing director Gavin Franks, the carrier is targeting the end of the year for the small cell conversion. 

Predictably, Dish Network alters AutoHop

Dish Network has made a series of software upgrades to its DVRs embedded with the "AutoHop" feature, that automatically removes all advertising from prime time broadcast TV network programming recorded using the DVR feature.


Subscribers now have the ability to choose which channels to record among the "Big Four" networks, where previously they were all automatically recorded.

Subscribers also can choose to delete programming off the hard drive at a time of their choosing, as opposed to accepting a default-delete date.

A third change switches the cursor default from "yes" to "no" when presented with the option to skip ads.

All those changes presumably are intended to bolster Dish Network's defense of its technology, as it faces major lawsuits from broadcasters who claim the AutoHop feature is a violation of their copyrights and also a breach of affiliate contracts Dish Network has signed with the broadcasters. 

The broadcaster challenges were entirely predictable. Whenever an upstart has challenged the over the air broadcast business model, there have been legal and regulatory challenges. In the mid-twentieth century, for example, broadcasters successfully convinced the Federal Communications Commission that some core cable TV industry values, such as offering out of market TV signals, were impermissible. 

Broadcasters and movie makers also challenged the legality of such devices as the video cassette recorder. So the challenge to the lawfulness of AutoHop was inevitable. 

That incumbent legal and regulatory resistance always is predictable when new technologies or business models pose a challenge to either communications or entertainment industry business models. 

Dish Network presumably hopes the changes will bolster the Dish Network argument that AutoHop only provides consumer choice and convenience, and does not constitute any sort of copyright infringement. 

Some Parts of the Telecom Business Are Shrinking

Virtually all experienced observers of the global telecom business are familiar with the notion that, over time, there always is consolidation. In large part, that is because there are scale effects in the business, meaning that the more volume a supplier has, the lower its costs typically are, per unit delivered.


But there is something more at work, as well. Generally speaking, global service provider revenues, overall, are flat. Some regions are growing, while some are shrinking. But if you assume any public company must continually grow its revenues, acquisitions simply are the only way to grow revenue, long term. That leads to supplier consolidation. 

There are changes beyond the tier-one service provider level, as well. Smaller or more specialized service providers likewise are consolidating. And so is the channel. 


"The channel is shrinking," argues channel expert Dave Michels.  "Enterprises are buying less, prices are dropping, models are changing."


"There will be fewer dealers tomorrow than there are today," he says. "There is still plenty of channel opportunity, in fact huge."


"Just not as huge as it once was," argues consultant Dave Michels.


Some of us might argue that the revenue opportunity might not be so much "huge," as it is "significant." The reason is that distribution by channel partners historically has made sense in the medium-sized business segment. 


Consumers and small businesses are best reached using mass media and now the Web. Enterprises can be sold direct. In the middle is where the channel has made financial sense. 


But some of us would argue that cloud-based application delivery will shift more of the mid-sized business opportunity away from channel partners and towards direct delivery as used in the mass markets. Not all mid-market applications can be delivered that way, to be sure. But a significant portion will shift. And that means suppliers will "go direct" rather than using channel partners. 


Veritical specialities also are likely to become more important, once cloud deliver makes it easier for enterprises, mid-market firms and small businesses to "buy direct" and provision from the Web. 

12.5% of Western Europe Smart Phone Users Buy from Phone

Of smart phone users in France, Germany, Italy, Spain and the United Kingdom, about 12.5 percent have made a purchase from their devices during the last year, according to the comScore MobiLens service. 


The study showed that the mobile retail audience in those countries nearly doubled over the past year, with 1 in 6 smartphone users accessing online retail sites and apps on their device, comScore reports.  

Mobile Retail Activity Among Smartphone Owners 3 Month Average Ending May 2012 Total EU5 (FR, DE, IT, ES and UK) Smartphone Audience: Age 13+ Source: comScore MobiLens
	Target Audience (000)	% of Smartphone Audience
Total Smartphone Audience: 13+ yrs old	117,609	100.0%
Purchased goods or services	14,552	12.4%
Type of goods or services purchased
Clothing or accessories	5,036	4.3%
Books (excluding e-books)	3,806	3.2%
Consumer electronics / household appliances	3,698	3.1%
Tickets	3,639	3.1%
Personal care / hygiene products	2,452	2.1%