Vodafone Spain Brings Back Device Subsidies

Vodafone's Spanish division is bringing back cut-price smartphones for new customers for a limited time, the firm said on Monday, prompted by a mass client exodus in recent months after scrapping handset subsidies in the recession-hit country, Reuters reports. 


The move illustrates the clear danger for any single service provider that attempts to break from established practices that consumers find helpful, such as selling hot new devices at subsidized prices, even if that means consumers need to sign a service contract. 


Vodafone says the policy is temporary, and will end September 15, 2012.  


Vodafone and Telefonica, with almost 70 percent market share between them, have suffered huge subscriber losses since they decided to use Spain as a test case for a new business model that cuts subsidies for smartphones.


Vodafone has lost over 600,000 mobile clients since April, when it stopped slashing prices on smartphones, while Telefonica's Movistar lost 572,000 in April and May, according to data from Spain's telecoms regulator.


It remains to be seen whether Vodafone actually will reinstate the "no subsidies" policy after September 15. Given the crushing recession in Spain, Vodafone probably needs to do everything it can to stem the subscriber losses, and boost uptake of smart phone services.


Mobile service providers have clear motivation to stop subsidizing smart phone sales, as such practices harm operating results. But, as Vodafone has discovered, such practices also can lead to high customer churn or slow smart phone adoption.


Subsidies might just be a necessary evil, from a service provider perspective, where it comes to encouraging adoption of high-end smart phones, with their associated boosts in recurring revenue.  

Small Cells Provide More 3G than 4G Value

Small cells deployed by mobile operators in areas of high traffic actually will provide more value, in the near term, for 3G operations than for 4G operations, Strategy Analytics argues. Small cells also cost significantly less than 3G macro cells for the same coverage area but slightly more than new 4G Long Term Evolution macro cells, says Sue Rudd, Strategy Analytics director.

“This is largely due to the ‘consumer electronics-like' vulnerability of very large numbers of small cell sites that require installation and ongoing maintenance," Rudd says.

"Cost is not the only reason to choose small cells since they offer faster installation for rapid upgrades in throughput” says Phil Kendall,  Strategy Analytics  director. "Estimates vary, but small cells will probably increase throughput by over 200 percent in legacy 3G hot zones, or at the edge of macro cells where data throughput is poor.”

Throughput improvements could reduce the cost per megabit by 30 percent, he argues.

AT&T Puts Breaks on Apple iPhone Sales

Regional retail sales managers at AT&T have been instructing store managers to put the brakes on Apple’s iPhone, as company executives had said they would do in 2012, it appears. The issue is device subsidies. It costs AT&T more money to subsidize iPhones than other devices. And those subsidies put pressure on AT&T earnings.


As reported by Boy Genious Report, customers seeking smart phones at AT&T retail stores are being steered away from Apple’s iPhone and towards Android phones or Windows Phone devices such as the Nokia Lumia, BGR says. 


Even when customers come into stores specifically looking for the iPhone 4S or iPhone 4, staffers have been instructed to make an effort to show people Android and Windows Phone devices as well.


In addition, AT&T retail staff in at least some locations are no longer permitted to get iPhones as their company-owned devices, and must instead choose an Android smartphone or a Windows Phone.


One source told BGR that Apple’s iPhone used to make up as much as 80 percent of smart phone sales at stores in his area, but that figure has dropped dramatically to between 50 percent and 60 percent. 

"Payments," As Such Are Not What Consumers Value

“Consumers do not have much interest in payments," says James Le Brocq, managing director at O2 Money. "They want to do things in their everyday lives conveniently: travel to work, buy lunch, buy a gift."

New Cloud-Based Google Wallet App Released

Google has released a new, cloud-based version of the Google Wallet app that supports all credit and debit cards from Visa, MasterCard, American Express, and Discover. Now, users can choose to pa with any of those card brands when  shopping in-store or online with Google Wallet.

The new version also allows users to remotely disable their mobile wallet apps. If a Google wallet user loses a phone, they can use the ‘Devices’ section in the online wallet to disable all cards used with the wallet.

When a user disables their wallet on a device, Google Wallet will not authorize any transactions attempted with that device. If the Google Wallet online service can establish a connection to your device, it will remotely reset your mobile wallet, clearing it of card and transaction data.





The Google Wallet app now stores user payment cards on highly secure Google servers, instead of in the secure storage area on your phone. A wallet ID (virtual card number) is stored in the secure storage area of the phone, and this is used to facilitate transactions at the point of sale.

This new approach also speeds up the integration process for banks so they can add their cards to the Wallet app in just a few weeks. Banks that want to help their customers save cards to Google Wallet, including their custom card art, can apply here.

The new Google Wallet app is available now on Google Play.

Olympics Streaming Seems to Hit Netflix Streaming

ISP technology provider Procera Networks reports that Netflix streaming was down a quarter from normal levels in the U.S. Sunday, even though overall streaming video traffic was way up, according to Procera Networks.

Procera Networks notes that Netflix streaming was down 25 percent on July 29, 2012, for example.

Netflix CEO Reed Hastings had suggested this would happen. “This quarter the Olympics are likely to have a negative impact on Netflix viewing and sign-ups,” Reed Hastings has said, in setting third quarter 2012 guidance at one million to 1.8 million domestic net adds.

U.S. Becomes Biggest Global Market for Mobile Internet Advertising in 2012

Spending on mobile Internet advertising in the United States will top all other countries in the world for the first time in 2012, helping drive mobile ad spending worldwide to $6.43 billion in 2012, according to eMarketer.

Until this year, Japan was the world’s largest market for mobile advertising, with spending reaching $1.36 billion in 2011, up from $1.01 billion in 2010, eMarketer also says.

Spending on mobile internet ads in Japan will grow 27.2 percent to $1.74 billion in 2012, versus 35.4 percent growth in 2011, eMarketer reports.

Mobile internet advertising spending in the United States, by comparison, will grow 96.6 percent to $2.29 billion in 2012, up from $1.16 billion last year, according to eMarketer.

North America also will surpass Asia-Pacific in 2013 as the world’s largest regional market for.

Comcast, European Cable Operator Growth Strategies Diverge

Virtually all existing communications and video entertainment businesses are in a time of transition from older revenue patterns to new business models that inevitably will include a mix of products, often sold to different customers than in the past.

Beyond that, it remains unclear what revenue contributions might in the future be made by entirely new lines of business. But Comcast’s second quarter 2012 earnings report suggests the upside potential and downside risks.

Also, the latest Solon Survey of European cable operators illustrates a couple salient points about the near term growth drivers for North American and European cable operators. Wireless appears to be a bigger factor for European cable operators, while Comcast’s approach now suggests content will be a bigger source of revenue for the larger U.S. cable providers.

In the near term, European cable operator growth now comes from broadband access, mobile services and business-to-business services.

The key trends are the importance of mobility and services aimed at business customers, which In the 2009 survey were not firmly embraced by cable operators in Europe.

By 2011, sentiment had changed, with operators across Europe highlighting the importance of
commercial and mobile segments in driving near term revenue growth.

On average, cable operators expect to double the share of revenues generated through mobile offerings, while the revenue contribution from business and wholesale activities is forecast to increase by approximately 33 percent. For a business historically serving the consumer segment, the expansion of services to business and enterprise customers is significant.

By 2014, a typical European cable operator will be earning 12 percent of its revenues from business customers. Some cable operators, though, already earn more than 30 percent of total revenues from B2B services.

European cable operators surveyed expect revenue growth of over five percent per year until 2014 and further EBITDA margin expansion by two percentage points up to 48 percent, on average, to 2014.

In large part, that is due to gains in broadband access revenue, which remains the main source of revenue growth for European cable operators, the report suggests. In fact, Solon attributes broadband access revenue for a rebound in operator average revenue per user, which had been dropping.

Revenue earned by offering or higher access speeds, at an average broadband access ARPU of approximately 20€ per month, is the primary reason ARPU now is stable, the Solon report indicates.

Comcast’s revenue, on the other hand, now has tipped towards content. Comcast video revenues have shrunk to about 52 percent of total Comcast revenue, while other access network services now contribute 48 percent, and are growing.

At some point, Comcast will earn less than half its revenue from its legacy video entertainment business. And that is to focus only on Comcast’s “local access” business.

In fact, including the NBC Universal contributions, it already is true that Comcast earns less than half its total revenue from cable TV distribution. In fact, cable TV video distribution operations now account for only 33 percent of total Comcast revenue.

For anybody who has followed the U.S. video entertainment market for some decades, that U.S. cable operator video penetration is as low as 44 percent of TV homes is a shocking statistic. There was a time when penetration was as high as 70 to 80 percent of homes in some areas.

Competition from satellite and telco competitors is the reason for the sharp reversal.

Some 97 percent of U.S. homes own a TV, and about 90 percent of all U.S. homes buy a subscription TV service.

Telco IPTV penetration on a global basis, measured agains the installed base of worldwide broadband subscribers, reached 15 percent in the first quarter of 2012, representing  67 million subscribers and eight percent of the world’s 812 million video entertainment service subscribers, according to TeleGeography.

North American telcos, led by Verizon and AT&T, have succeeded in selling IPTV service to almost 40 percent of their broadband subscriber base. That is not to say telco TV now reaches 40 percent of homes. That statistic means the tier one telcos are selling video entertainment to 40 percent of their customers who buy broadband access.

Since telcos have almost half of all broadband customers, and since broadband is purchased by about 80 percent of U.S. households, you can roughly estimate that telcos now sell video services to perhaps 20 percent of U.S. households.

But keep in mind that telcos are not able to sell video to many locations, using their fixed networks, for technology reasons. Where they can do so, market share could be in the 30 percent range.

Generally speaking, getting a video customer means taking that customer away from a cable TV or satellite TV provider who already had the customer, as household penetration of subscription TV is over 80 percent. The market, in other words, is saturated.

There are some important implications. You might well argue that 40 percent video penetration of a service provider’s own customer base is “about as good as it is going to be,” when strong cable TV and satellite TV competitors own the rest of the customers, and when taking a customer therefore is tough.

In any market with three dominant and well-heeled contestants, you might expect an ultimate market share distribution that could easily be split three ways, with any single contestant getting 20 percent to 40 percent share.

If telcos have 20 percent share, could that share double? In principle, yes. If telcos get 30 percent share, could share then double again? Probably not, if the other two contestants (satellite and cable) continue to perform at a high level. 

But there is one big change in potential market share structure that long has been speculated, namely a purchase of both U.S. satellite companies by one of the tier-one U.S. telcos. That, in principle, could mean telcos then would have as much as 60 percent share of video service customers.

For the moment, telcos are doing about as well as they can, using only their fixed networks.

IPTV and Pay-TV Penetration Rates, Q1 2012

Source:TeleGeography

Vivotech to Abandon NFC Terminal Business

No new business lead by start-ups ever seems to reach fullness and fruition with some failures. So it is that contactless reader and NFC software vendor Vivotech has become an early casualty of the contactless mobile payment business.

NFC Times reports that the firm plans to cease operations and sell at least some of its assets. Sources say Vivotech is in talks to sell its reader business to PAX Global Technology, owner of Shenzhen, China-based PAX Technology, a maker of point-of-sale terminals. 


Vivotech’s software business, though, might be retained.

Some would argue that Vivotech simply was too early, a common problem when whole new industries are being born.

In part, the problem seems to have been that the original business was built around sales of NFC-capable terminals, but that point-of-sale business has suffered from margin compression.

Software and services used for payments and other features, such as tracking and redeeming mobile offers, now are viewed as adding more value.

Vivotech had shipped nearly one million terminals globally over the past several years.

Triple Digit Increases in Social Media, Video Consumption During Olympics

Social media traffic, including Twitter traffic, has grown two orders of magnitude during the London Olumpics, Allot Communications says.  


Twitter peaked at 137 percent of typical use during the opening ceremony and grew to 413 percent by day three of the games.

QQIM, the Chinese instant messaging service, grew over 300 percent by day three of the games.

Instant Messaging increased 182 percent, on average, during the opening ceremony, Allot says.

WhatsApp posted a 430 percent increase during opening ceremony.

Online video peaked at 217 percent during the first official day of competition, growing to 408 percent of typical levels by day three of the London Olympics.  

Facebook traffic posted an 87 percent increase during the first two days of the games and moved up to 162 percent by day three of the Olympics.

YouTube traffic grew 40 percent during the first official day of competition and moved up to 153 percent of typical levels by day three of the games, Allot says.  

Is Google Fiber Planning To Expand Beyond Kansas City?

Though it might seem unlikely, a few observers might think Google Fiber really could be something Google wants to pursue, beyond Kansas City, Kan. and Kansas City, Mo.

So far, only Dow Drukker, senior vice president of CapStone Investments, has been willing to speculate somewhat seriously on the possibility.

“Initial Indications Google Fiber Is Likely Expanding Beyond Kansas City.
"We saw an ad for an Inside Sales position in Mountain View, Calif. for selling Google Fiber to small businesses," he says. The ad said the job would entail building a team to sell a national broadband network, Drukker says.

That indicates, at least to Drukker, that Google likely plans to build a 1-Gbps fiber access network in
additional cities.

Some of us continue to believe that would be a waste of capital on Google's part. More likely is an effort to sell Google capacity on its own backbone network, or an effort to resell local access capacity wholesaled from partners, if anything.

Tethering is Lawful, No Fee Can be Levied, FCC Rules

A new Federal Communications Commission consent decree with Verizon Communications settles a dispute about whether it is lawful for Verizon to charge a special fee for its users who want to use their Android smart phones as personal hotspots, using some of its 700 MHz spectrum.


The FCC decision concludes that tethering is a lawful end user activity, and no mobile service provider has a right to block access to mobile apps that turn an Android smart phone into a personal Wi-Fi hotspot, based on provisions relating to the acquisition by Verizon of 700 MHz spectrum.


The rules do not seem to apply to Sprint, T-Mobile USA or AT&T, though, as a practical matter, AT&T smart phone users, for example, can use their Android devices as personal hotspots, without additional charge, if they buy certain mobile data plans. Sprint continues to levy a discrete fee for the personal hotspot feature. 


The FCC also said that Verizon can charge an additional tethering fee for those customers who are on an unlimited data plan. 

How Can Cable and Telcos Replace 1/2 of Current Revenues in 10 Years?

One fundamental assumption I make about cable and telco service provider revenues in developed markets is that such firms must plan on replacing about half their current revenues over the next decade or so. The reason is simply historical observatiion.

In developed markets, that already has happened at least once in the telco business as well as the cable TV business. And it seems likely a second wave of revenue source replacement is underway.

That isn’t to say that both cable and telco service providers in developed markets will have to replace about half their current revenues every 10 or so years, “forever.” I just can’t see that far. But it might be reasonable to assume both telcos and cable will have to do so at least once over the next decade.

In 1977, U.S. telcos earned about half their revenue from long distance services. But as long distance revenues shriveled, mobile services arose to take the place of long distance revenue that was lost.

The most-recent quarterly earnings report from Comcast shows the same sort of trend in the U.S. cable industry, where Comcast video revenues have shrunk to about 52 percent of total Comcast revenue, while other access network services now contribute 48 percent, and are growing.

At some point, Comcast will earn less than half its revenue from its legacy video entertainment business. And that is to focus only on Comcast’s “local access” business.

In fact, including the NBC Universal contributions, it already is true that Comcast earns less than half its total revenue from cable TV distribution. In fact, cable TV video distribution operations now account for only 33 percent of total Comcast revenue.

Telcos already have been through one such transformation, as overall revenue now has shifted from “long distance” to wireless, at least for the tier one U.S. providers. The next set of transitions will see the revenue contributions from mobile voice and text messaging dwindle in favor of new sources.

One might also note that, of Comcast’s total access operations revenue, “dumb pipe” high speed Internet access now accounts for 24 percent of total revenue.

Assume for the sake of argument that half of the business revenues also are derived from dumb pipe high speed access. That would imply a total of about 27 percent of Comcast revenue earned from dumb pipe services.

That also illustrates another facet of cable operator strategy: dumb pipe services are a crucial foundation for 48 percent of Comcast’s total revenues.
Comcast’s second quarter 2012 financial results show revenue growth in the video segment, but also lost customer share. Though revenue was up 2.8 percent, Comcast lost 176,000 video accounts.

Overall revenue of $9.9 billion included growth of total revenue per video customer of eight percent, to $149 a month. But most of that increase was from services provided by voice, broadband access and business services.

Since Comcast lost 176,000 video units, the overall growth of revenue generating units of 138,000 came from broadband and voice additions.

To be sure, video revenue remains crucial, at $5.1 billion in quartterly revenue. But high-speed broadband access now contributes $2.4 billion in quarterly revenue, and revenue from that segment grew 8.9 percent.

Comcast added 156,000 net high-speed access  customers in the quarter, for penetration of 36 percent. Consider what that statistic means, though. In the past, a telco or cable services provider would build a network that would have, as customers, perhaps 75 percent to 98 percent of all households passed by the network.

These days, no service provider gets more than a fraction of that, from any single service. That is why the triple play has become so important. The only way to earn enough revenue from a much smaller base of customers is to sell each remaining customer a wider range of services.

At the moment, it also is correct to note that, although revenue from voice and business services is growing, broadband remains the driver for most of Comcast’s revenue. Together, high speed access and video account for 76 percent of Comcast’s revenue in the quarter.

Voice revenue contributed $889 million in revenue, and Comcast added a net 158,000 accounts, to reach 18 percent penetration.

Business revenue increased 34.2 percent to $582 million, while advertising generated $552 million, Comcast reported.

But you might say the specific revenue components are fairly close to “noise,” in the broader strategic picture. The big challenge is the need to replace half of current revenues in a decade or so.

As Comcast already has shown, the way forward likely depends on “getting into new lines of business” might be the only viable strategy.

Internet Connected TVs to Reach 650 Million by 2017

The number of residential TVs connected to the Internet using Blu-ray players, set-top boxes and consoles or using native TV connections, will reach almost 650 million by 2017, Juniper Research argues. 


That is among the underlying changes that will eventually help change the attitude of content owners about many forms of "Internet direct" content distribution, as potentially unsettling as that prospect now appears. 


In fact, some might even argue that Internet-connected TV sets will be only the second most important change in consumption habits. There is an argument to be made that tablets could emerge as an even bigger enabler. 


Though the ability to view desired content on a TV will remain a mainstay of the professional entertainment video business, the ability to consume video on tablets already is clear.


In fact, if one assumes that user experience with video consumption on smart phones, PCs and tablets is becoming widespread, and in some instances a preferred consumption mode, then Internet connected TVs might be only one mode among many.


Forrester Research, for example, estimates there will be two billion PCs in use by 2016, excluding tablets. 


Forrester expects total tablets sales will growfrom 56 million in 2011 to 375 million in 2016. Given that a majority of tablets will be retired within three years of purchase, Forrester forecasts that there will be 760 million tablets in use globally by 2016. One-third of these tablets will be purchased by businesses, and emerging markets will drive about 40 percent of sales.


In other words, if a supplier wanted to reach Internet-connected users with a video entertainment product, it will make as much sense to focus on tablets, PCs and smart phones as it does to include TV set viewing, as users of those non-traditional TV screens will vastly outnumber users of traditional TV sets. 

Why Does Google Care So Much About "Speed?"

The primary reason Google has such a fundamental interest in promoting faster deployment of higher-speed access services of all types, such as the 1-Gbps symmetrical fixed network access Google Fiber is getting ready to deploy in Kansas Ctiy, Mo. and Kansas City, Kan., is that Google has a vested business interest in the speed with which Web pages get loaded.

Simply, speed means more ad inventory gets viewed. Google’s research shows that if search results are slowed by even a fraction of a second, people search less (A 400 millisecond delay leads to a 0.44 percent drop in search volume).

And this impatience isn’t just limited to search: Four out of five internet users will click away if a video stalls while loading. The average web page takes 4.9 seconds to load, and in a world where fractions of a second count, that’s an eternity, Google has argued.

So speed makes a difference for use of some applications, perhaps most. Speed makes a difference for ad-driven and commerce-driven revenue models, as well.

When Edmunds, a leading car review destination, re-engineered its insideline.com site to reduce load times from nine seconds to 1.4 seconds, ad revenue increased three percent, and page views-per-session went up 17 percent.

When Shopzilla dropped latency from seven seconds to two, revenue went up seven-12 percent and page views jumped 25 percent. Shopzilla also reduced its hardware costs by 50 percent.)

With faster access, people become more engaged, and when people become more engaged, they click and buy more, Google argues.