Intel, ARM, HP, Dell Forecast Lower Revenues: Why?

There are clear signs that PC-related and some leading semiconductor firms expect weakening sales for at least the coming third quarter. So the natural question is "why?" Some might suspect a shift of consumer buying demand in favor of tablets, and away from PCs. 

But others might say the slowdown is caused more by generally deteriorating economic conditions, in Europe and elsewhere. 

Intel expects its third-quarter sales to be between $300 million and $1.9 billion lower than previous forecasts. Many see this as a sign of the weakening PC market, especially after HP and Dell posted such disappointing results in part because of a slowdown in PC sales.

ARM, the company that provides the IP inside chips for virtually all of the smart phones and tablets out there, also warned that it anticipates slower sales ahead. 

ARM customersTexas Instruments and Qualcomm also have said they expect a slowdown in holiday sales of devices. Some might say that hints at buyer fatigue. 

Intel is saying demand is affected by several trends, including original equipment manufacturers reducing inventory in advance of the Windows 8 launch, weaker PC demand and slower sales in emerging markets. 

You might say that several trends all are pushing in a downward direction. 

Why Verizon Believes "Cord Cutting" is Real

Even though Verizon is a significant supplier of video entertainment subscription services, Verizon executives have in the past not been shy about video cord cutting being a "real," not just "potential" form of end user behavior. 

 In 2010, then Verizon CEO Ivan Seidenberg argued that young people in particular are "not going to pay for something they don’t need to.” You might argue that is an unusual thing for an executive with millions of video subscribers to say, especially since virtually all cable TV executives say video cord cutting is quite insignificant at the moment. 

“We take the over the top issue with video very seriously,” Seidenberg said. “I think cable has some life left in its model…but that it is going to get disintermediated over the next several years.” 

And Verizon's views apparently have not changed. That is one reason why Verizon has formed a joint venture with Redbox to create a streaming movie service able to be purchased by any U.S. household with broadband access. 

More recently,  Maitreyi Krishnaswamy, head of Verizon FioS TV, reiterated the belief that streaming behavior and receptivity to video cord cutting continues to grow. 

"No, that trend is not stopping. It's growing," Krishnaswamy said. "The question is, is it growing enough for us?" What Krishnaswamy means is that the absolute numbers of people willing to consider buying less-costly video tiers of service is the current issue, while fuller streaming behavior remains a bit off into the future. 

"Is the migration to a-la-carte enough that we can go that route?" she rhetorically asks. "It's not something we can do overnight, but definitely something we've been looking at."


Strategically, cable operators have much more to lose from cord cutting, as they have more share of the video subscription business. But cable operators already acknowledge that their future revenue prospects come in other areas, such as business services. 

And though Verizon's FiOS network is fast enough that less video revenue and more broadband revenue is a viable revenue opportunity, that might not be so true for other service providers with less-capacious networks, including satellite providers, telcos with digital subscriber line not reinforced with significant fiber trunking. 

Still, as a strategic matter, Verizon clearly believes streaming delivery is a real threat to the traditional subscription TV business. 

Moody's lifts U.S. Wireless Industry Outlook

Moody's Investors Service has raised its outlook on at least some parts of the U.S. wireless industry to "positive" from "stable," saying AT&T's AT&T Mobility and Verizon Wireless should see their free cash flow increase sharply in 2013. 

The completion of Long Term Evolution fourth generation network construction work will help both leading carriers. 

Free cash flow is expected to increase almost 11 percent in 2012 on a combined basis for all nine carriers Moody's follows. 

For 2013, that number should rise to between 12 percent and 14 percent. But that figure shows how misleading an "industry average" number can be, when just a few contestants have a disproportionate share of customers and market share. 

But the smaller carriers, including Sprint Nextel Corp., MetroPCS Communications Inc.and Clearwire Corp., should continue to struggle, Moody's says.

At Verizon and AT&T, customer churn is expected to stay low. That might not be so true for all the other providers. 

Landline losses continue to hit at service provider revenue, but Moodys etimates the impact will get smaller, in larger part because voice revenues will dip below 30 percent of total wireline revenues in 2014, down from 44 percent two years ago. 

Access lines fell eight percent in 2011, but "as revenue from voice services becomes a smaller part of overall revenue, its drag on revenue growth will get easier for carriers to overcome – either by modest growth in data and TV revenue, or by cutting costs," said Moody's.

And that is not true just for service providers with big mobile operations. You might not be surprised that AT&T and Verizon generate 35 percent to 38 percent of landline revenues from voice services.

But even Windstream generates about that same percentage of revenue from voice services. Other fixed network service providers such as Frontier and FairPoint likewise obtain 45 percent of revenues from voice.

CenturyLink gets 40 percent of its landline revenues from voice services, the rest from other sources. 

How Do You Get to Nearly100% Broadband Adoption?

If you think about the matter only casually, it is obvious that people have no use for connectivity services for devices they don't own and use. Video entertainment subscriptions have not historically made any sense for people who do not own TVs. 

Likewise, buying broadband access has not historically made any sense for people who do not own computers. 

But all that is changing. These days, it can make sense to buy broadband access to support connected game players. In some cases, it can make sense to buy broadband to support Internet-connected TVs or Roku style boxes.

Increasingly, it also makes sense to consider the value of a fixed network broadband connection to offload smart phone traffic from a mobile network, or to support new devices such as tablets. 

Someday, it likely will make sense to buy a broadband access connection to view a substantial amount of entertainment television as well. 

The point is that making broadband available to people does not automatically assure adoption. In past years, there sometimes has been a tendency to conflate "availability" (can I buy it?)  and "adoption (did I buy it?)." 

In the U.S. market, we have gotten about as far we can get, in terms of adoption, based on the historic adoption drivers, namely computers that need Internet access. Leichtman Research Group says nearly 90 percent of U.S. households that use a laptop or desktop computer at home also subscribe to a broadband Internet service. 

Just five years ago, 65 percent of households with a computer also subscribed to a broadband service. You might argue that the growth to 90-percent adoption shows a change in the way computers are used. Where PCs once might  be useful in a non-connected usage mode, these days a PC is most valuable and useful when connected to the Internet. 

The rapid growth of tablet usage will represent another part of the change, namely that much of the value people derive from the use of computing devices and the Internet now revolves around content consumption. 

Also, over time, use of fixed networks to support tablet and smart phone connections will become more important as well. 

And all of those subsidiary device use cases are what will eventually drive fixed network broadband adoption above 90 percent, reaching perhaps 98 percent of households. 

Leichtman Research Group research also found that higher-income households are much more likely than lower income households to use computers at home, and to subscribe to residential broadband services, as you might expect. 

Some 91 percent of all households with annual incomes over $50,000 subscribe to a broadband service at home, compared to 68 percent of households with incomes of $30,000, $50,000, and 47 percent of households with incomes under $30,000

Some 41 percent of households with annual incomes under $30,000 do not have use computer at home, compared to three percent  of households with incomes over $50,000. 

The one caveat is that wireless broadband might be the way virtually every household is connected to the Internet. Already, a significant percentage of users find mobile broadband access and a smart phone satisfies enough of a person's Internet requirements to make mobile a practical alternative to buying fixed network broadband access. 

So the answer to the question of how to drive broadband adoption to virtually 100 percent of households is to assume a range of devices will provide the driver, not just PCs. 

Annual Household Income	Use a Computer at Home	Internet at Home	Broadband at Home
Under $30,000	59%	52%	47%
$30,000-$50,000	84%	78%	68%
Over $50,000	97%	97%	91%

Global Internet Backbone Traffic Grows 40% in 2012

International Internet capacity growth fell to the lowest pace in five years, decreasing from 68 percent in 2008 to 40 percent in 2012, TeleGeography says, though international Internet bandwidth continues to grow rapidly, more than doubling between 2010 and 2012, to 77 Tbps. 

That should not come as a terrible surprise. There is a "law of large numbers" at work here. Every new venture that gains end user traction shows high growth rates at first, from a low installed base. As the base of users or customers grows, growth rates naturally slow. 

With the installed base of capacity usage now a large number, growth rates are destined to slow, for the same reason. 

Average international Internet traffic grew 35 percent in 2012, down from 39 percent in 2011, and peak traffic grew 33 percent, well below the 57 percent increase recorded in 2011.

On the other hand, content delivery networks and local caching technologies do reduce the need for new long-haul capacity by storing popular content closer to the end-users. 

Apple TV is Not About the "TV"

Apple TV will succeed not as a "TV" or a "decoder" but only as a service offering the professional video people normally expect to see on a video subscription service, which makes Apple TV a tougher battle than creating a successful MP3 or smart phone ecosystem.

In creating the iTunes and iOS phone ecosystems, Apple faced a weakened music industry and a fragmented mobile service provider industry.

The video ecosystem is highly entrenched and used to dealing with potential disrupters. In addition, Apple faces formidable other viable contenders, including Amazon, Google and Microsoft, Bloomberg argues. But winning will require extensive licensing agreements with content owners and video distributors who are historically suspicious of interlopers that threaten to undermine the control content owners now exercise in the ecosystem. 

Without access to large amounts of that content, any effort to "change," "reinvent" or "disrupt" TV is destined to fail.

Cable and media companies are concerned that a better-designed Apple product will undermine their business model, says Walter Price, an investor with RCM Capital Management. 

“It’s a tough problem because the cable companies and media companies are not very enthusiastic about the prospect of Apple creating a better user interface,” said Price. 

Online "Oversharing" is a Global Problem

According to a recent multi-country study commissioned by Intel and conducted by Ipsos Observer, 60 percent of respondents believe  "oversharing" is an issue, meaning people divulge too much information about themselves online, with Japan being the only exception.

About half of adults around the world feel overloaded by the amount of information people share online. Yet, adults and teens across the globe are  online

While the survey revealed that digital sharing on mobile devices helps many people feel more connected to others, the tendency to share too much information can annoy others for various reasons. 

Adults and teens from each country had differing opinions on top digital sharing pet peeves. Constant complaining, posting inappropriate photos, using profanity and sharing too many life details and personal information were prominent responses.

Intel's 2012 "Mobile Etiquette" survey examined the current state of mobile etiquette and evaluated how adults and teens in eight countries share and consume information online, as well as how digital sharing impacts culture and relationships. The research was conducted in the United States in March and a follow-up study was conducted in Australia, Brazil, China (adults only), France, India, Indonesia and Japan from June to August.

Argentina Decides to Create its Own Mobile Company

Argentina's government apparently is canceling an auction for third generation (3G) spectrum that represents about a third of all potential 3G spectrum in Argentina.

Argentine President Cristina Kirchner has greatly expanded the state's role in the economy since she took office in 2007.

Kirchner shocked investors earlier in 2012 when she seized a controlling stake in Argentina's biggest oil company YPF SA  from Spain's Repsol SA.

Now telecommunications appears to be the next sector that will see an increased government presence, some would argue. 

Argentina boasts one of the highest rates of mobile-phone ownership in the world, with about 55 million wireless subscribers in a country of almost 41 million people.

Instead of licensing that spectrum, the Argentine government will go into business as a service provider itself using the state-owned satellite company ARSAT for backhaul and core network.  So far, it is not clear whether that means Argentina will operate the network directly, or have a business partner do so. 

Argentina's $14 billion mobile phone market is now lead by America Movil's Claro, Telecom Italia's Personal Telefonica's Movistar. The canceled spectrum auction is a blow to Argentina's four incumbent wireless carriers--Telecom Argentina SA and subsidiaries of Mexico'sAmerica Movil SAB de CV, Spain'sTelefonica SA  and U.S.-based NII Holdings Inc. that submitted bids.

Claro, owned by Mexican billionaire Carlos Slim, was the only company seen as having the resources to build a network using the new spectrum allocation, and letting Claro win "would have led to more concentration," Argentina says. 

The government also is studying other ways of reducing what it claims is "monopoly control in the telecommunications business," citing the dominant positions of Telefonica and Telecom as an example. 

The government was initially planning to award 30 MHz of spectrum in the 1,900 MHz band for an area covering the provinces of Entre Ríos, Corrientes, Misiones, Córdoba, Santiago del Estero, Chaco, Formosa, Catamarca, La Rioja, Tucumán, Salta, Jujuy and Santa Fe.

For the southern provinces of San Juan, San Luis, Mendoza, La Pampa, Neuquén, Río Negro, Chubut, Santa Cruz, Tierra del Fuego, parts of Santa Fe and certain areas in Buenos Aires, the government planned to award 35 MHz in the 1,900 MHz band.

For the greater Buenos Aires area, the government was looking to award 7.5 MHz of spectrum in the 850 MHz band and 30 MHz in the 1,900 MHz band.

"This is not a state takeover," the Argentine government says. 

Smart Meter Shipments Grow 34% in Second Quarter 2012

Global smart meter shipments in the second quarter of 2012 grew 33.6 percent over the previous quarter, and were up nearly 51.3 percent year over year, according to  IDC Energy Insights. By the end of 2016, IDC expects worldwide annual meter shipments to surpass 130 million units.

The U.S. market continues to recede, after receiving an artificial bounce with the "American Recovery and Reinvestment Act of 2009, with growth in the smart metering market now shifting to Europe, Asia, the Middle East, and Latin America.

In Europe,  many European Union member states have signaled their comitment to embrace smart metering in compliance with the European legislation mandating deployment of smart meters where economically feasible. These states are now in the process of finalizing the regulatory framework for their respective national rollouts, which are to be completed by 2020.

Apple iOS Devices Consume 8 Times More Web Content Than Some Samsung Devices

Though the comparison is in some ways unfair, Apple iOS users consume about eight times as much Web content as users of eight older Samsung models, including the Galaxy S 4G, Galaxy S II AT&T, Galaxy S II Skyrocket, Galaxy S II T-Mobile, Galaxy S II Epic 4G, Galaxy S Showcase, Droid Charge, and Galaxy Prevail. 

On the Chitika ad network between August 18^t and August 24^t, 2012,  iPhone users generate nearly eight times the Web traffic. 

Some of us might argue that the comparison in many ways pits heavier users (iPhones) with lighter users (the eight older Samsung models), and devices with low share against a single device with leading market share. 

EU Might Reduce Support for Broadband Deployment

To the extent that European Union broadband plans for 2020 rely on financial support from the European Commission, it now appears those plans might slow, as the EC itself now says infrastructure funding is shifting to transport and energy projects. 

It appears that funding levels originally foreseen now cannot be provided at the original levels. "The Presidency recognizes that it is, therefore, inevitable that the total level of expenditure proposed by the Commission, including all elements inside and outside of the MFF, will have to be adjusted downwards."

Translation: less money for the EC broadband plan. 

Users 10 to 19 Drive Telekomunikasi Indonesia Growth

PT Telekomunikasi Indonesia operates in a market where there are 250 million mobile subscribers out of a population of  240 million, and its fortunes illustrate the gradual shift to wireless modes of communications among users of virtually all ages, with significant growth form users 10 to 19 years old.

PT Telekomunikasi Indonesia operates fixed wireline, fixed wireless and mobile networks, serving about 130 million subscribers for the year ended 2011.

At the end of 2011, the company earned about 16 percent of revenue  from its fixed wireline business, but total wireline revenues dropped by almost seven percent, largely due to increased smart phone use and a rising mobile penetration in Indonesia.

That is not too surprising, as most fixed network operators face increased product substitution from mobile alternatives.

The company's fixed wireless revenues also declined significantly in the financial year ended 2011. An intense competitive environment in the region, as well as deterioration in voice revenues, led to the 31 percent decrease in fixed wireless revenues. The company is facing competition from local telecom companies, with every company introducing new and cheap packages for its respective text messaging and voice call services.

The company's mobile business also experienced a slight deterioration in 2011 as well, despite the increase in its mobile subscription base, at least partly because prepaid revenue contribution is less predictable than provided by postpaid accounts.

Total subscribers grew by almost 14 percent in the year as compared to 2010.

Mobile data was largely responsible for offsetting the drop in revenues from other segments, growing by almost 21 percent in the financial year ended 2011.

Overall, mobile customer base grew almost 15 percent in 2011, reaching 117 million subscribers with total additions of 10 million, according to Seeking Alpha.

1/2 of all Humans Will Use Internet by 2017

Broadband, computing and Internet access now have taken the place of the older concern about access to voice communications. In fact, almost nobody worries about whether most humans will be using voice communications. These days, it is access to the Internet and computing that occupies policymakers.

Keep in mind that, just a few years ago, five of the the six billion people on Earth did not have access to computing or the Internet. But that is changing very rapidly, as well.

Although Africa, for example, lags in terms of other forms of computing and communications usage with an estimated 100 million Internet users, between 2000 and 2011 the growth of Internet usage in Africa exceeded 2,000 percent, which is more than five times that for the rest of the world.

Some 2.4 billion people across the world now use the Internet on a regular basis, at least once a month, from home, school, work, or any other location using a PC or a non-PC (mobile) Internet access device, Forrester Research says.

This is expected to grow to 3.5 billion by 2017, representing nearly half of the 2017 overall world population of 7.4 billion.

In some countries — mostly developed economies, such as the US, the UK, Japan, Germany, Sweden, and the Netherlands — Internet penetration as a percent of the overall population is very high; more than 80% of the population are regular Internet users.

In other, mostly emerging markets — such as Brazil, Russia, India, China, Mexico, Indonesia, the Philippines, and Nigeria — Internet penetration ranges between 10 percent and 50 percent.

A key point to note is that while higher PC penetration has driven the adoption of Internet in developed economies during the past two decades, faster mobile penetration in the emerging economies is helping increase the Internet population, thanks to “mobile-only” Internet users.

DOCOMO buying Guam Cable Operator

The proposed purchase of Guam's cable TV service provider by NTT DOCOMO, the parent company of Guam-based DOCOMO Pacific, illustrates a couple of themes in the global telecom  business. First, expansion often must come from "out of territory" assets, as most "home markets" are intensely competitive and offer relatively tough growth prospects.

So expansion out of market is a logical step. The other theme is the choice of network platforms out of market that are different from those of the home market. Most out of market expansion tends to rely on wireless, rather than fixed network facilities, for example.

The proposed purchase of MCV Guam Holding Corp., which does business as MCV Broadband, might seem to be out of character. It isn't. MCV Broadband has the largest mobile market share on Guam. Nor is NTT unfamiliar with the Guam market. 

NTT DOCOMO's entry into the Guam market began when it bought GuamCell, SaipanCell and HafaTel for about $71 million in 2006.

Nor is competition in the Japan domestic market unrelated. Many would say MCV Broadband's main competitor is GTA TeleGuam. 

The principal owner of GTA TeleGuam is Advantage Partners LLP, the largest private equity investment firm based in Japan.

Telco Venture Arms are Quite Traditional, in Some Ways

It is not a secret that tier-one telcos have not been the fastest-moving firms where it comes to rapid creation of new services and applications. In fairness, very large organizations built on global standards, with many legacy systems to support and lots of government and regulatory oversight, have lots of reasons to move more slowly when making changes, only to avoid the danger of inadvertently “breaking something” that was not planned.

Historically, telcos have essentially outsourced technology and services innovation to third parties, be they AT&T Bell Laboratories, Bell Communications Research, leading industry suppliers and global standards groups.

So the recent trend of large telcos creating new venture capital organizations is not out of character.

T-Venture, the venture fund owned by Deutsche Telekom, has a total budget of about 450 million euros ($566 million) for investments.

Deutsche Telekom's T-Venture so far has assets worth 750 million euros invested in about 80 companies. But Deutsche Telekom now wants T-Venture to make faster decisions and take majority stakes in firms.

Aside from any internal discussions about the speed with which any of the larger telcos is “getting to market,” there always are going to be questions about how any smaller app or service is going to “move the revenue needle” for any entity that routinely books scores of billions in annual revenue.

In Spain,Telefonica runs a program dubbed “Wayra,” which nurtures companies in Europe and Latin America. Telefonica receives a 10 percent stake in each business and a preference right to buy a successful product.

Telefonica has also started Amerigo, an international network of technology venture capital funds, supported by the governments of Spain, Colombia, Chile and Brazil, as well as financial institutions, the company said in a statement today.

Though it certainly is correct to note that telcos might do better by insulating venture efforts from the day to day operating units, it also is correct to note that this is the traditional way larger telcos have innovated in the past.

The perhaps growing issue, as more such activity occurs, is how fast the innovations will have a significant revenue impact for the sponsoring telcos.