MasterCard, Everything Everywhere Announce NFC Mobile Payments Effort

MasterCard has signed an exclusive five-year deal to develop a mobile payments system for Everything Everywhere over the next half decade, using near field communications. 

After the initial payment capability, the plan is to then extend that platform into the usual mix of loyalty cards, money transfers and online payments using the smart phone as a point of sale device. 

Orange, one of EE's consumer brands, earlier had launched "Quick Tap," a mobile payments system that has had little success. 

One of the first products to launch through the partnership will be a co-branded pre-paid solution for mobile devices that allows customers to make payments using NFC at more than 100,000 retailer locations in the United Kingdom.

Strategically, the venture aims to enable consumers to have the same simple shopping experience whether they're paying in-store, online or using their mobile device. 

How Should We Regulate Declining Industries?

UBS researchers remind us of some salient facts about the U.S. fixed network voice business, namely that both the total number of lines in service, as well as profitability of voice services are dropping. 

Where at one point there were almost 100 million fixed network voice lines in service, there now are perhaps 50 million in service, about half of which are supplied by U.S. cable companies.

Mobile substitution accounts for much of the change. But the changes also should warn us about the growing risk of investing in the fixed network business. The issue is whether the evidence so far shows conclusively that investing in the fixed network at typical rates (14 percent to 19 percent of revenue) is sustainable and even rational in the long term if aggregate revenue does not grow. 

To be sure, up to this point telcos have added enough new revenue in the form of entertainment video and broadband access to basically offset voice losses. But telcos are reaching, if they have not already reached, saturation of the broadband access business. 

Telco share of video markets still is growing. But even there, there will be some upward limit on market share, and strategically, there is concern about the health of that business over the long term as well. 

It might have made sense to regulate telcos one way when the assumption was that they were spinning off large monopoly profits. That no longer is a reasonable assumption. 

Mobile, Cable Markets Destined to be Concentrated

There's a good reason antitrust regulation exists in principle, though we might disagree about when and how to apply it. The reason is that a robustly competitive communications market will resolve itself into a stable pattern over time, with few leaders.

If you think about it even casually, there is a reason for that pattern. Over time, people gravitate to products and providers they prefer. That's why Apple consistently gets 60 percent to 70 percent of tablet sales. 

In the fixed network communications or video business, there are slightly different dynamics, since the market originally was a highly-regulated monopoly business, with one authorized provider. Only since 1985 has the U.S. market been "competitive" in a legal framework sense,  to growing degrees. 

That highly unequal outcomes have been seen would not be surprising to anybody who studies market structure. In a highly capital intensive and competitive market, few entities really can risk the amount of capital required to compete. In a roughly $1.8 trillion global telecom business, annual capital spending of about $345 billion is typical. 

The U.S. cable industry alone invests about $13 billion a year in a business generating about $98 billion annually, or about 13 percent percent of revenue. 

AT&T and Verizon in recent years have been plowing about 14 percent to 16 percent of revenues back into capital investment. 

The point is that "not so many" contestants can afford to spend that amount of money, every year, on capital investment. There are genuine economies of scale in the telecom and cable TV businesses and those advantages manifest themselves over time. 

So whether you look at the India mobile communications business or the U.S. cable TV business, there are a few firms leading each industry. At some important level, that will "always" raise antitrust issues. 

It has been clear for a couple of decades that no U.S. cable TV company would be allowed to gain more than 30 percent installed base of video customers. Thinking roughly along those lines seems also to have driven antitrust thinking about the proposed AT&T purchase of T-Mobile USA, as well. 

At some point, at least in the U.S. markets, the leaders in mobile, video or fixed network services will be forced to diversify into other lines of business simply because they have reached the limits of success in their original businesses. 

Rank	MSO	BasicVideoSubscribers
1	Comcast Corporation	22,294,000
2	DirecTV	19,966,000
3	Dish Network Corporation	14,071,000
4	Time Warner Cable, Inc.	12,653,000
5	Cox Communications, Inc.1	4,756,000
6	Verizon Communications, Inc.	4,353,000
7	Charter Communications, Inc.	4,341,000
8	AT&T, Inc.	3,991,000
9	Cablevision Systems Corporation	3,257,000
10	Bright House Networks LLC1	2,079,000
11	Suddenlink Communications1	1,250,000
12	Mediacom Communications Corporation	1,059,000
13	CableOne, Inc.	622,000
14	WideOpenWest Networks, LLC1	460,000
15	RCN Corp.1	333,000
16	Knology Holdings	256,000
17	Atlantic Broadband Group, LLC	254,000
18	Armstrong Cable Services	239,000
19	Midcontinent Communications	229,000
20	Service Electric Cable TV Incorporated1	217,000
21	MetroCast Cablevision	169,000
22	Blue Ridge Communications1	168,000
23	WaveDivision Holdings, LLC1	159,000
24	General Communications	142,000
25	Buckeye CableSystem1	133,000

Advertising and Commerce are Business Models for Many Apps, Just not Facebook, at the Moment

For applications and services that do not envision a "subscription" revenue model, and assuming "donations" is not feasible, either advertising or commerce (selling things) consistently are viewed as the best alternatives. 

Of course, what is necessary might not be sufficient. In other words, successful apps and services not using a "subscription" revenue model will mostly have to rely on either advertising, or commerce, or both. But not every firm that tries, will succeed.

So far, Facebook might be considered by some a firm that has not yet "succeeded" with its advertising or commerce models. That doesn't mean Facebook will fail, only that it has not yet clearly succeeded. 

According to the survey by youth marketing agency The Beans Group, 91 per cent of 16- to 24-year-olds in the United Kingdom say they are not interested in buying products or services directly through Facebook. 

The apparent  lack of confidence in Facebook commerce likely is a surprise to some brand marketers.  Ant Stone, content marketing manager at STA Travel, says: “We are making an assumption that everyone is on Facebook or Twitter and we want to provide the same sort of services that we provide outside these channels, so we are reflecting our retail space on Facebook.

“This study  might prioritize the areas we step into first. We might not go for the f-commerce route, we might spend more time and resource in the smartphone quarter,” he says. 

According to Vision Mobile, "purchasing,"  either in form of in-app purchases or an actual application purchase, are the two most popular revenue models for app store developers. 

iOS and Android Adoption Explodes Globally

The global smart phone business still appears to be a two horse race. In fact, the rate of iOS and Android device adoption has surpassed that of any consumer technology in history, according to Flurry.

In fact, smart device adoption is an order of magnitude faster than that of the 1980s PC rate of adoption, twice as fast as the 1990s Internet access adoption and three times faster than social network adoption.

Overall, Flurry estimates that there were over 640 million iOS and Android devices in use during the month of July 2012.

If Semiconductor Sector Contracts, Can Consumer Electronics Be Far Behind?

IHS iSuppli recently downgraded its outlook on the semiconductor market, from three percent growth for 2012 to a contraction of 0.1 percent. 

That would represent the first annual decline since 2009. “The expected decline in 2012 represents a major event for the global semiconductor market,” said Dale Ford, senior director at  IHS. 

Apple Patent Win Over Samsung: Only Slight Impact?

It might be too early to predict the actual impact of the largely successful Apple patent infringement suit against Samsung. Some think the whole Android ecosystem will be negatively affected; others think that is unlikely. Some think any Android supplier whose devices “look like” an iPhone will have trouble.

The win, for better or worse, is likely to maintain, if not intensify, the rate at which patent lawsuits in the mobile business are filed. Some might argue that could slow innovation in the handset business. Others thinks the desire to avoid such entanglements could increase the amount of innovation in the handset business.

Service providers might reasonably assume their exposure to Apple’s power in the ecosystem now is increased. That is likely to reinforce efforts by service providers to support rival operating systems, manufacturers and devices, a move that already is underway.

The cost of building many smart phones could increase, if Samsung and others have to start paying new royalties to Apple to avoid future patent infringement lawsuits.

Piper Jaffray's Gene Munster predicts "only minor impact" on Samsung and Google from the recent patent infringement win by Apple.

"We believe that Samsung is likely to make software modifications to devices to work around the patented software features in question," says Munster. "For devices that infringe on design patents, we believe those devices may no longer be sold in the US; however, it does not appear that newer devices, including the Galaxy SIII are impacted."

Other opinions span a range of predictions, some suggesting rather mild impact; others predicting more serious damage. JP Morgan is among firms that believe the patent infringement decision is a negative for the Android ecosystem as it likely puts more pressure on Android OEMs to clearly differentiate devices.

Barclays argues that “this event alone” will have a minimal near-term impact on Android’s global momentum in the smart phone arena. Samsung will face some issues, but most of the devices cited in the case are older models. Significantly, Samsung’s current flagship phone, the Galaxy S III, was not included in the infringing devices.

UBS thinks the decision could result in a royalty revenue stream of perhaps $250 million a year for Apple.

Macquarie Equities Research thinks the decision will negatively affect the search distribution arrangements between Google and Apple. But that testiness was evident even before.

YouTube will not be a native app on iOS 6, for example.

There also is the question of potential benefit for the hiccup will be beneficial for Nokia, Microsoft or others in the ecosystem that seem to significantly different from the Apple iOS “look and feel.”

Maybe Samsung's Patent Loss to Apple Won't Be That Big a Deal?

Piper Jaffray's Gene Munster predicts "only minor impact" on Samsung and Google from the recent patent infringement win by Apple.

"We believe that Samsung is likely to make software modifications to devices to work around the patented software features in question," says Munster. "For devices that infringe on design patents, we believe those devices may no longer be sold in the US; however, it does not appear that newer devices, including the Galaxy SIII are impacted."

But we still can speculate on whether the hiccup will be beneficial for Nokia, Microsoft or others. 

T-Mobile USA Expects 50 U.S. LTE Markets in Service by End of 2013

T-Mobile USA plans to have its new 4G Long Term Evolution service up and running in the vast majority of the top 50 markets in the United States by the end of 2013. T-Mobile USA will launch LTE on Advanced Wireless Services (AWS) spectrum next year and move its "High-Speed Packet Access-Plus (HSPA)" service, which is marketed as "4G," to 1900 MHz.

People Spend 35 Minutes on Social Networking, Consumers 40 Minutes Each Day

Business users spend an average of 35 minutes each day on business-related social networking sites, while consumers are spending an average of 40 minutes a day on social media sites, according to the Radicati Group.

The number of Social Media users worldwide is expected to rise from 1.6 billion users in 2012, to 2.3 billion by 2016, Radicati predicts.

Typical Business User Sends 36 Emails, Gets 78 Each Day

The typical person at work sends 36 email messages each day, and receives 78 email messages a day, with roughly 19 percent of emails received considered spam by the recipient. Business users average 5.5 malware incidents each month.


Despite the growing popularity of social media most business users, 60 percent of survey respondents said they are sending and receiving less email because of social media. 

Instant Messaging (IM) is also widely used for business communications, with 73 percent of survey respondents reporting they have an average of 8 IM conversations per day with an average of 5 different contacts.


The Radicati Group lsurvey was conducted with respondents from 67 business organizations of all sizes worldwide, representing a total of 957,786 business users.

FCC Ponders HigherTaxes on Broadband Access

The Federal Communications Commission is considering a proposal to impose a new tax on broadband Internet service, to support the Connect America Fund. 

Consumers already pay a fee on their landline and cellular phone bills to support the FCC's Universal Service Fund. The fund was created to ensure that everyone in the country has access to telephone service, even if they live in remote areas.

Last year, the FCC overhauled a $4.5 billion portion of the Universal Service Fund and converted it into a broadband Internet subsidy, called the Connect America Fund. The new fund aims to subsidize the construction of high-speed Internet networks to the estimated 19 million Americans who currently lack access. 

The FCC issued a request for comments on the proposal in April 2012. 

Mobile Data to Grow 18 Times Over 2011 Levels

What Happens to Samsung Now?

By winning its patent infraction lawsuit against Samsung, Apple has "won," nearly every observer likely would say. Though it remains unclear precisely what could happen, there is another hearing scheduled for Sept. 20, 2012, on whether there should be a U.S.ban on sales of all 25 Samsung products that infringe Apple patents. 

Those devices include the Galaxy line and the Galaxy Tab, as well as 23 other devices. 

Since Samsung is the second most profitable manufacturer of smart phones, that would be a big problem. Few think that is the most likely outcome, though. The $1.05 billion damage award, if it stays at that level after certain appeals, will transfer a chunk of cash to Apple.

But Apple has lots of cash. The longer term outcome is some licensing royalty stream paid by Samsung to Apple, which will raise Samsung's manufacturing cost. Samsung also will have to create some work around processes. 

In all likelihood, the patent verdict also means other Android manufacturers will wind up paying royalties to Apple, as well. That will have the effect of raising manufacturing costs for all competing Android devices. 

Some believe the decision only highlights the broken nature of the current patent system that allows the patenting of operations and processes that should not be patented, but leave that aside, for the moment. 

Some optimists might argue that the long term damage to Samsung is containable, if Samsung can avoid draconian bans on importation of its products. Consider the lawsuit, the damage payment and future royalties as an alternative to Samsung having purchased all those patents directly. 

Consider that Microsoft paid $8 billion to buy Skype, and become a player in VoIP and messaging. It's hard to say right now how much the future licensing royalties might be. But consider the alternative: Samsung might alternatively have had to create a global, branded operating system, user interface and form factor of its own. 

Android, and the software and hardware tweaks it now will likely have to make, still will allow Samsung and other smart phone manufacturers to compete at far lower costs than would otherwise have been the case. Consider all the money spent on the Palm OS, Symbian or RIM OS. 

That is probably small consolation to Samsung. The tragedy would be if Apple's patent winnings were to somehow destroy Samsung's smart phone business at a time when Samsung has been able to win consumer allegiance, while making a profit, at levels no other supplier has achieved so far. 

Apple Wins Big in Patent Infringement Lawsuit Against Samsung

A U.S. jury has found that  Samsung acted willfully to infringe at least three of Apple's patents; found the  Apple patents valid and awarded Apple $1.051 billion in damages. 

The jury found the Galaxy tablet did not, however, infringe any Apple patents.

The jury also found that Apple did not infringe Samsung wireless standards or features patents

Separately, a South Korean court has ruled that Apple and Samsung violated each other's patents, has prohibited the companies from selling the infringing devices in South Korea, and has awarded both companies fairly insignificant damages, the Wall Street Journal says.

The three-judge panel in the Seoul Central District Court also ruled that there was "no possibility" that smart phone buyers could confuse devices from the companies.

Full details still are being released, and we must expect perhaps years of subsequent litigation, but Apple seems to have a big victory against its most potent competitor in the smart phone business.