74% of U.S. Mobile Users 25 to 34 Have Smart Phones

U.S. smart phone penetration continued to grow in July 2012, with 55.5 percent of mobile subscribers in the U.S. now owning smartphones, according to Nielsen.  

This is a significant increase compared to July 2011 when only 41 percent of mobile subscribers owned smartphones. 

Overall, young adults are leading the growth in smart phone ownership in the U.S., with 74 percent of 25-34 year olds now owning smart phones smart phones, up from 59 percent in July 2011. 

Teenagers between 13 and 17 years old showed the most dramatic increases in smart phone adoption, with the majority of American teens (58 percent) owning a smart phone, compared to roughly a third (36 percent) of teens saying they owned a smart phone just a year ago.

What's Good for Apple Might be Doubly Good for Amazon

Many observers would note that Apple's registered iTunes users are a potential business asset. If so, Amazon is even better placed. Perhaps 31 percent of Amazon users have a credit cards on file with Amazon. 

In a Forrester survey of 4,650 US consumers conducted online in August 2012, 31 percent reported that they had a credit card on file with Amazon, compared with 18 percent that have one stored with Apple, and five percent with Google. 

Amazon and Apple approach the respective roles of content and devices in opposite ways. Apple merchandises content to sell devices, while Amazon merchandises devices to sell content, services and goods.

Amazon reports that in 2011, consumers that bought a Kindle read four times the books (print and digital) they did before they bought a Kindle; that's up from 2.8 times in 2008. 

Also, some 23 percent of consumers Forrester Research surveyed also said they'd be interested in purchasing an Amazon smart phone,  it were available.

60% of Viewed Online Video is "Long Form," Ooyala Video Index Indicates

Long-form video content such as movies, sports and TV shows accounted for more than 60 percent of the total time users spent watching video online in the second quarter, a study by Ooyala notes. The share of time tablet viewers spent watching long-form videos also grew 47 percent in a single quarter, Ooyala says. 

The Global Video Index, derived from the viewing trends of 200 million online viewers around the globe from April 1 through June 30, 2012, shows the lines between broadband and broadcast media continuing to blur as premium content shifts to a more mobile, multi-screen environment.

Long-form video running longer than 10 minutes represented more than half of all viewing for the first time in the second quarter of 2012. 

The growth of video consumption has been rapid. Tablet, mobile, connected TV video views doubled between the fourth quarter of 2011 and the third quarter of 2011, Ooyala says. 

Web Display Advertising Dropped 5.4% in 2nd Quarter 2012

Web display advertising declined in the second quarter of 2012 by 5.4 percent, Kantar Media says. The study did not track specific changes in advertising other than display formats, though. Search advertising and other "non-display" formats are not part of that specific finding. 

What the decline means is the issue. Some might speculate that mobile ads are leading to lower average selling prices. 

One can argue advertisers are shifting spending to non-display formats, or to TV or some other form of marketing. 

Whatever the reason, the declines are somewhat surprising. The continued weakness in print media is not surprising, nor is the growth of TV advertising. 

Sprint 4G LTE Coming to100 Additional Cities

Sprint announced today that its 4G LTE network build is under way in more than 100 additional cities within its existing nationwide 3G footprint. Some of the major metropolitan areas in which Sprint 4G LTE is expected to be available in the coming months are Boston; Charlotte, N.C.; Chicago; Indianapolis; Los Angeles; Memphis, Tenn.; Miami; Nashville, Tenn.; New Orleans; New York; Philadelphia; and Washington, D.C.,  Sprint says.

Broadband Connection Sharing Makes a Big Difference for HD Video Viewing Experience, Study Finds

After analyzing data from all its hosted video views in the United States over the course
of several weeks, Wistia found that about 18 percent of viewers cannot watch high definition video content without buffering. Wistia defines “HD capable” as a minimum of 2 Mbps per active user.

Wistia also gathered data from 25 companies and organizations including internet firms, universities, Fortune 500 companies, government agencies and technology companies.

Across these 25 organizations, the average percentage of non-HD capable views
was 25.6 percent. “In other words, a quarter of these viewers, some at Fortune
500 companies, could not watch streaming HD video,” Wistia says.

Wistia’s data on HD viewing capability at 100 hotels, ranging from national chains to luxury
establishments, indicates that 61 percent of the time, users could not view high definition video.

What is not clear is what percentage of the video views were attempted from mobile devices, on mobile networks, compared to fixed network connections.

The data does indicate that the degree of connection sharing makes a difference in user experience, whatever the aggregate total bandwidth at any location might be.

Can Wi-Fi Compete with Mobile? How Much?

Whether Wi-Fi can be a functional substitute for mobility networks was a subject of serious contemplation a decade and a half ago. The speculation might rise again. Cable operators in the U.S. market are cooperating to build bigger Wi-Fi networks that customers of any member cable TV company can use, out of market. 

Broadcom expects most major U.S. cable operators will have vast networks of public Wi-Fi hotspots activated in their respective subscribers’ homes in 12 to 18 months, according to Jay Kirchoff, Broadcom VP.

As a simple historical matter, hopes that municipal Wi-Fi networks really could provide a functional substitute for mobile service proved to be false. 

But the original thesis was based on an assumption that phones could use a municipal or commercial Wi-Fi network as a network substitute for mobile networks. 

It is at least possible that new lead applications and devices, especially tablets, plus a greater range of smart phones that can use a Wi-Fi connection, could create at least some new deployment scenarios.

Tablets, unlike mobile phones, mostly are used in "untethered" mode, not "mobile" mode. So it is at least possible that untethered applications and device usage modes could create a different and viable role for "public" Wi-Fi networks. 

In many ways, a new lead device, the tablet, could underpin new rationales for public Wi-Fi. 

Pandora Faces Monetization Issues

Pandora faces a scale problem very similar to that of Free Mobile in France, which is disrupting the French mobile market by attacking retail prices, but has to keep scaling paying customers at a high rate to reach the breakeven point. 

Where Free Mobile's problem is the rate at which is can keep growing its subscriber base, Pandora's problem is to scale ad revenue to keep pace with its rate of subscriber additions. 

Pandora already is probably one of the five biggest mobile ad businesses  in the United States, some would argue. 

Pandora mobile ad revenue has increased by 86 percent to $60 million in its fiscal second quarter of  2013. Total revenues were $101 million. Pandora also saw a 112 percent increase in the number of ads delivered. 

But  the average price per ad declined 27 percent. Both Pandora and Free Mobile have common business problems, namely the task of reaching scale in its operations and, at the same time, matching that scale to revenue growth and operating costs. 

What Apple and Netflix now Have in Common

With the news (or rumors) that Apple is going to launch its own streaming music service to rival Pandora, Apple now joins Netflix in contemplating a major expansion, possibly a repositioning, of core content services.  

The issue is the difference between real time services and pay per view. There is a market for non-real time, pre-recorded content. That's what CDs, pay per view and movies on demand are all about. But that is only part of the video business. 

Perhaps the bigger part of the business is "linear" or "real time" content, including radio, sports content, news and other real time content. 

That's why the recent Netflix moves into original "TV series" content are important. Up to this point, Netflix has been a good vehicle for enjoying pre-recorded content. In the future, Netflix will start to emulate the value of a TV network, offering a mix of pre-recorded and ultimately "live" programming. 

For similar reasons, Apple wants to sell "radio" or streaming experiences, not just pay per view or pay per listen or a different way to buy pre-recorded content. 

Video Production in the Cloud

Aframe is a cloud-based solution for video creators. The potential implications for service providers are fairly clear. Cloud-based solutions require Internet connectivity that is fast enough to compensate for the lack of local storage and processing.

Also, at least in principle, there are new requirements for cloud storage and processing services.

The cloud-based video asset management system was built with production people in mind, especially the ability to share content straight from the camera. 

Challenges in this field include moving huge amounts of data and so Aframe has worked on storage solutions so that files can be saved in the format they are created in and without compression.

On the other hand, the solution also suggests that solutions for the movie production ecosystem require universal connectivity and an understanding of business requirements, more than any specific "tweaking" of connectivity services as such. 

J.D. Power Confirms What You Thought: People Love Their iPhones

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%