The latest update of the Australian National Broadband Plan might suggest the financial risks fiber to the home networks represent, even in a scenario where there is a monopoly national wholesale network that sells capacity to all the country’s retail service providers. The plan now envisions a seven percent internal rate of return.
In other words, it is worth doing, if the underlying assumptions are correct, and IRR winds up being a positive integer, not a negative number. In principle, one might ask whether the opportunity cost is too high (would a higher return be possible from an alternative investment), but that is another issue.
The obvious danger would arise if the underlying assumptions are mistaken, such as costs being underestimated, or revenue overestimated, and by what magnitude.
The NBN will build a single national wholesale fiber to the home network between now and 2020, allowing all retail service providers to buy wholesale broadband and voice services.
The latest version of the business plan does suggest that the actual direct financial return from a fiber to home access network, built on a continental scale, is relatively small, at about a seven percent internal rate of return, despite its societal and economic importance.
A reasonable observer might simply note that there is little room for error where it comes to the base assumptions. Lower takes rates, lower average revenue per user or unexpectedly higher operating costs are some of the dangers embodied in the three decade assumptions.
Wednesday, September 19, 2012
Australian National Broadband Plan Doesn't Have Much Room for Error
Gary Kim was cited as a global "Power Mobile Influencer" by Forbes, ranked second in the world for coverage of the mobile business, and as a "top 10" telecom analyst. He is a member of Mensa, the international organization for people with IQs in the top two percent.
“Pipe” Services Will “Always” Drive Most Service Provider Revenue
Communications service providers dislike the phrase “dumb pipe” for obvious reasons, since it implies–often falsely–that a telecom supplier is “just” a provider of low-value, commodity access services. The notion is partly accurate, but has nothing to do with profit margin on “dumb pipe” services.
What, after all, is “best effort” Internet access but a “dumb pipe” service? The access is one thing, while nearly all the content and services are provided by third party suppliers. But profit margins on U.S. high-speed access are in the 40-percent range, hardly a low-margin, commodity service.
There are potential issues in the future, if prices and consumption are not better aligned, but service providers already are moving on that front.
Nor are service providers "just" providers of "dumb pipe" access; they also make most of their money on "services" or "applications" delivered over those pipes. In the best example, they use the network and the access to create "voice" service or video entertainment services or messaging.
And that always will remain the key way to create yet other applications and services that use the network, and access to the network.
What, after all, is “best effort” Internet access but a “dumb pipe” service? The access is one thing, while nearly all the content and services are provided by third party suppliers. But profit margins on U.S. high-speed access are in the 40-percent range, hardly a low-margin, commodity service.
There are potential issues in the future, if prices and consumption are not better aligned, but service providers already are moving on that front.
Nor are service providers "just" providers of "dumb pipe" access; they also make most of their money on "services" or "applications" delivered over those pipes. In the best example, they use the network and the access to create "voice" service or video entertainment services or messaging.
And that always will remain the key way to create yet other applications and services that use the network, and access to the network.
Gary Kim was cited as a global "Power Mobile Influencer" by Forbes, ranked second in the world for coverage of the mobile business, and as a "top 10" telecom analyst. He is a member of Mensa, the international organization for people with IQs in the top two percent.
Tuesday, September 18, 2012
New Wave of Internet Arbitrage Coming?
The International Telecommunication Union (ITU) plans to hold a treaty conference, the World Conference on International Telecommunications, in December 2012, which will revise a 1988 treaty, the International Telecommunication Regulations (ITR). At stake are the ways communication network owners compensate each other for terminating international voice calls through the payment of settlements.
But there are wider implications. The ITU proposes to change the way the Internet is governed, in ways that will harm the Internet by raising the cost and complexity of exchanging traffic, Analysys Mason researchers argue. Basically, the ITU wants to create a new Internet traffic “settlements regime” modeled on voice precedents that will be difficult to administer and raise overhead costs.
But there could be other significant effects. First, operators might be induced to maintain their customers‘ websites abroad. One of the significant benefits of establishing an internet exchange point is to make it attractive for domestic websites to be hosted at home, in order to increase their performance and lower costs, Analysys Mason notes.
However, given that foreign websites will generate a source of incoming settlements, the incentive to keep them abroad would increase.
At the same time, foreign operators, in order to compensate for the settlements, would likely raise the price of hosting websites serving countries with high settlement rates, which might lead websites to develop less content targeted at a particular country in order to limit their costs.
While this could be seen to increase the incentives to locate content in the target country in order to avoid settlements, that is often not efficient, particularly for small or undeveloped markets from which access to a regional server may be sufficient, Analysys Mason argues.
In addition, it is likely that infrastructure investment decisions would be affected, as providers would be reluctant to invest in providing infrastructure to a particular country to which it is expensive to deliver traffic. In other words, there will be financial reasons not to build more undersea links to certain countries, for example.
Also, huge volumes of Internet traffic could be artificially generated in order to arbitrage a rate-regulated model, to generate inbound payments, alter traffic balances, or otherwise unfairly leverage any accounting rate regime that may be applied to the Internet.
Entities that believe they would be net recipients of settlements, based on current projections of traffic flows, might find themselves net payers as a result of the manipulation of traffic flows by other players.
In summary, aside from the intrinsic difficulties of successfully imposing regulations on international flows of Internet traffic, there could be unintended consequences that would harm the internet if such a system were imposed.
If history, human nature and self interest is any guide, some service providers to try and lower settlement payments, while others will attempt to grow their share of settlement payments.
Consider the flows of traffic. The notion of settlements is that a carrier that terminates traffic incurs costs to deliver that traffic. So a sending carrier pays the terminating carrier. In many cases, the traffic flows should largely balance each other, so the net payments are relatively small in magnitude.
But there are scenarios where traffic is unbalanced, and that causes problems. In the voice settlement regime, carriers that accept more traffic than they send wind up paying money. Carriers that send more traffic than they receive make money.
Some of you will remember, or even be able to point to, instances where revenue arbitrage was possible precisely because of such asymmetrical traffic flows. Server farms and “free conference calling services” in the United States provide examples.
In the proposed ITU framework, it is server farm traffic that could be troubling for some carriers.
Multimedia content, for example, might represent as much as 98 percent of Internet traffic. Right now, where those servers are located does not have implications for inter-carrier settlements.
For cost reasons, many of those servers are located in Africa. In 1999, 70 percent of international Internet bandwidth originating in Africa went to the United States. In 2011, less than five percent goes to the United States.
These days, content is stored at African server farms, for distribution largely to Africa, Analysys Mason notes. In some ways, that is helpful to African consumers, for quality and cost reasons. In other ways, high cross-border charges are unhelpful.
While it is true that IXPs are emerging to facilitate local exchange of traffic in Africa, the cost of cross-border connectivity between many African countries is still quite high, and this is hindering the emergence of regional IXPs to help exchange traffic and distribute content.
The bandwidth from Latin America presents the same broad picture. Between 1999 and 2011, the percentage of bandwidth going to the United States fell from just under 90 percent to 85 percent, replaced by more intra-regional traffic.
The main similarities between Africa and Latin America are that over 80 percent of their Internet bandwidth is connected to another region (Europe and the US respectively). At the same time, little bandwidth goes between countries within the region. Intra-Latin American traffic is 15 percent of total, while intra-African traffic is two percent.
The amount of cost-increasing overhead under any new settlement regime could be significant.
A recent study by the Packet-Clearing House analyzed 142,210 peering agreements representing 86 percent of global Internet carriers and 96 countries.
Only 698 of the peering agreements were based on written contracts, representing just 0.49 percent of all the contracts.
In other words, the vast majority of current international and domestic peering agreements are not just commercially negotiated, but are not even formalized in writing. If Internet settlements mirror voice practices, overall costs will rise, even if traffic flows can be accurately captured most of the time, and some say that will be very difficult.
Analysys Mason argues market-based mechanisms work, and are a better alternative to creating a new settlement regime modeled on voice principles.
But there are wider implications. The ITU proposes to change the way the Internet is governed, in ways that will harm the Internet by raising the cost and complexity of exchanging traffic, Analysys Mason researchers argue. Basically, the ITU wants to create a new Internet traffic “settlements regime” modeled on voice precedents that will be difficult to administer and raise overhead costs.
But there could be other significant effects. First, operators might be induced to maintain their customers‘ websites abroad. One of the significant benefits of establishing an internet exchange point is to make it attractive for domestic websites to be hosted at home, in order to increase their performance and lower costs, Analysys Mason notes.
However, given that foreign websites will generate a source of incoming settlements, the incentive to keep them abroad would increase.
At the same time, foreign operators, in order to compensate for the settlements, would likely raise the price of hosting websites serving countries with high settlement rates, which might lead websites to develop less content targeted at a particular country in order to limit their costs.
While this could be seen to increase the incentives to locate content in the target country in order to avoid settlements, that is often not efficient, particularly for small or undeveloped markets from which access to a regional server may be sufficient, Analysys Mason argues.
In addition, it is likely that infrastructure investment decisions would be affected, as providers would be reluctant to invest in providing infrastructure to a particular country to which it is expensive to deliver traffic. In other words, there will be financial reasons not to build more undersea links to certain countries, for example.
Also, huge volumes of Internet traffic could be artificially generated in order to arbitrage a rate-regulated model, to generate inbound payments, alter traffic balances, or otherwise unfairly leverage any accounting rate regime that may be applied to the Internet.
Entities that believe they would be net recipients of settlements, based on current projections of traffic flows, might find themselves net payers as a result of the manipulation of traffic flows by other players.
In summary, aside from the intrinsic difficulties of successfully imposing regulations on international flows of Internet traffic, there could be unintended consequences that would harm the internet if such a system were imposed.
If history, human nature and self interest is any guide, some service providers to try and lower settlement payments, while others will attempt to grow their share of settlement payments.
Consider the flows of traffic. The notion of settlements is that a carrier that terminates traffic incurs costs to deliver that traffic. So a sending carrier pays the terminating carrier. In many cases, the traffic flows should largely balance each other, so the net payments are relatively small in magnitude.
But there are scenarios where traffic is unbalanced, and that causes problems. In the voice settlement regime, carriers that accept more traffic than they send wind up paying money. Carriers that send more traffic than they receive make money.
Some of you will remember, or even be able to point to, instances where revenue arbitrage was possible precisely because of such asymmetrical traffic flows. Server farms and “free conference calling services” in the United States provide examples.
In the proposed ITU framework, it is server farm traffic that could be troubling for some carriers.
Multimedia content, for example, might represent as much as 98 percent of Internet traffic. Right now, where those servers are located does not have implications for inter-carrier settlements.
For cost reasons, many of those servers are located in Africa. In 1999, 70 percent of international Internet bandwidth originating in Africa went to the United States. In 2011, less than five percent goes to the United States.
These days, content is stored at African server farms, for distribution largely to Africa, Analysys Mason notes. In some ways, that is helpful to African consumers, for quality and cost reasons. In other ways, high cross-border charges are unhelpful.
While it is true that IXPs are emerging to facilitate local exchange of traffic in Africa, the cost of cross-border connectivity between many African countries is still quite high, and this is hindering the emergence of regional IXPs to help exchange traffic and distribute content.
The bandwidth from Latin America presents the same broad picture. Between 1999 and 2011, the percentage of bandwidth going to the United States fell from just under 90 percent to 85 percent, replaced by more intra-regional traffic.
The main similarities between Africa and Latin America are that over 80 percent of their Internet bandwidth is connected to another region (Europe and the US respectively). At the same time, little bandwidth goes between countries within the region. Intra-Latin American traffic is 15 percent of total, while intra-African traffic is two percent.
The amount of cost-increasing overhead under any new settlement regime could be significant.
A recent study by the Packet-Clearing House analyzed 142,210 peering agreements representing 86 percent of global Internet carriers and 96 countries.
Only 698 of the peering agreements were based on written contracts, representing just 0.49 percent of all the contracts.
In other words, the vast majority of current international and domestic peering agreements are not just commercially negotiated, but are not even formalized in writing. If Internet settlements mirror voice practices, overall costs will rise, even if traffic flows can be accurately captured most of the time, and some say that will be very difficult.
Analysys Mason argues market-based mechanisms work, and are a better alternative to creating a new settlement regime modeled on voice principles.
Gary Kim was cited as a global "Power Mobile Influencer" by Forbes, ranked second in the world for coverage of the mobile business, and as a "top 10" telecom analyst. He is a member of Mensa, the international organization for people with IQs in the top two percent.
Asia-Pacific Service Provider Revenue Will be Driven by Wireless
Telecom service provider retail revenue in the Asia–Pacific region is predicted to grow at a compound annual growth rate of seven percent between 2011 and 2016, according to Analysys Mason.
But compared to past growth patterns, that growth now is driven by mobile services.
Total telecom service revenue will grow by 29 percent from $229.7 billion in 2011 to $323.7 billion by 2016. But notice the revenue components.
The voice market in the region will continue to be heavily dominated by mobile during the forecast period, with 90 percent of the voice connections being mobile by 2016, up from 84 percent in 2011 and from 73 percent in 2008.
Overall, the number of voice connections in the region will increase by 45 percent, to 3.9 billion connections, with most of this growth coming from China and India.
But average revenue per user is clearly declining. Where ARPU was $10 per month in 2008, by 2011 it had dropped to to $7.40 in 2011, Analysys Mason says. In part, that decline is caused by wide adoption of mobile services by people who spend less than early adopters. In part, the decline is caused by users who carry and use more than a single subscriber information module. Mobile ARPU across emerging APAC markets will average $6.5 by 2016.
Perhaps the most significant implication of the Analysys Mason forecast is that revenue growth now will be driven in the Asia Pacific region by wireless and mobile services.
Over the next five years, the key drivers will be 3G and 4G services, which will account for 46 percent of mobile connections in the region by 2016 and the growing demand for Internet access, driving mobile broadband.
China and India together account for 68 percent of the region’s population, 64 percent of its active mobile SIMs and 75 percent of its total retail telecom revenue. Revenue is heavily skewed towards China, where overall telecom revenue will grow from $138 billion in 2011 to $194 billion in 2016.
Analysys Mason also predicts that active mobile penetration rates in the region will rise to 95
percent by 2016, a 32 percent increase over 2011 levels. The number of active SIMs will increase from 2.33 billion in 2011 to 3.7 billion by 2016 as well.
Mobile and fixed wireless will account for more than a third of broadband connections in the emerging APAC region in 2016, and for the vast majority of connections in rural areas where fixed-line infrastructure is unavailable.
But compared to past growth patterns, that growth now is driven by mobile services.
Total telecom service revenue will grow by 29 percent from $229.7 billion in 2011 to $323.7 billion by 2016. But notice the revenue components.
The voice market in the region will continue to be heavily dominated by mobile during the forecast period, with 90 percent of the voice connections being mobile by 2016, up from 84 percent in 2011 and from 73 percent in 2008.
Overall, the number of voice connections in the region will increase by 45 percent, to 3.9 billion connections, with most of this growth coming from China and India.
But average revenue per user is clearly declining. Where ARPU was $10 per month in 2008, by 2011 it had dropped to to $7.40 in 2011, Analysys Mason says. In part, that decline is caused by wide adoption of mobile services by people who spend less than early adopters. In part, the decline is caused by users who carry and use more than a single subscriber information module. Mobile ARPU across emerging APAC markets will average $6.5 by 2016.
Perhaps the most significant implication of the Analysys Mason forecast is that revenue growth now will be driven in the Asia Pacific region by wireless and mobile services.
Over the next five years, the key drivers will be 3G and 4G services, which will account for 46 percent of mobile connections in the region by 2016 and the growing demand for Internet access, driving mobile broadband.
China and India together account for 68 percent of the region’s population, 64 percent of its active mobile SIMs and 75 percent of its total retail telecom revenue. Revenue is heavily skewed towards China, where overall telecom revenue will grow from $138 billion in 2011 to $194 billion in 2016.
Analysys Mason also predicts that active mobile penetration rates in the region will rise to 95
percent by 2016, a 32 percent increase over 2011 levels. The number of active SIMs will increase from 2.33 billion in 2011 to 3.7 billion by 2016 as well.
Mobile and fixed wireless will account for more than a third of broadband connections in the emerging APAC region in 2016, and for the vast majority of connections in rural areas where fixed-line infrastructure is unavailable.
Gary Kim was cited as a global "Power Mobile Influencer" by Forbes, ranked second in the world for coverage of the mobile business, and as a "top 10" telecom analyst. He is a member of Mensa, the international organization for people with IQs in the top two percent.
Harris Interactive to Use Google Consumer Surveys
Market research firm Harris Interactive announced that it is partnering with Google’s recently Google Consumer Surveys to develop and bring to market a new product that allows businesses, both large and small, to compare themselves to industry benchmarks at a fraction of the cost of traditional market research.”
It appears to offer an expensive new way for smaller businesses to benchmark their business performance against broader norms.
It appears to offer an expensive new way for smaller businesses to benchmark their business performance against broader norms.
Gary Kim was cited as a global "Power Mobile Influencer" by Forbes, ranked second in the world for coverage of the mobile business, and as a "top 10" telecom analyst. He is a member of Mensa, the international organization for people with IQs in the top two percent.
Is Cloud Computing Market Bigger Than We Thought?
It typically is difficult to estimate the size of a big a new market when that new market essentially cannibalizes existing businesses in the process. Unified communications has been that sort of market, since it logically includes or replaces many other ways of handling communications functions, ranging from fixed or mobile voice to email to messaging, voice mail, “presence” and call handling.
Something like that probably is going to happen with cloud computing. In a sense, cloud computing is part of the next generation of computing architecture. We don’t yet know what this next era will be called, but few question the assumption that cloud computing and mobility will be key foundations of the architecture.
Consider the notion of “business process as a service.” What’s a business process? Business process management is said by IBM to include such functions as:
Others might see other building blocks such as email management, communications management or shopping cart services or catalog processes as similar inputs to create whole business processes.
As those processes all move to cloud delivery mechanisms, the logical question is whether such “outsourced” processes, supported by cloud delivery architectures, are part of the cloud computing business or not.
At some level, the answer has to be “yes.” Think of cloud-supported advertising systems, or retail operations outsourced to Amazon, both key business processes already often supplied to business partners that use cloud computing.
Still, you can see the problem. What counts as a business process “as a service?” Is it only the value of the contract to use a retail checkout system, a catalog or a fulfillment process? Is it partly the value of the transactions, or the value of the products traded?
For any cloud-supported mobile or Internet advertising system, what should be counted? Is it the value of the advertising, or only the commissions an exchange might earn? The same question can be asked for any cloud-based payment system.
The point is that it is possible cloud services markets might be bigger than currently envisioned, only partly depending on “what” gets counted.
The reason is that more and more business processes using software, processing and storage are shifting to cloud mechanisms, even though we traditionally have viewed software delivery, computing resources, storage and development environments are the primary cloud markets
Business process services (also known as business process as a service, or BPaaS, represents the largest segment of what analysts at Gartner now tabulate, accounting for about 77 percent of the total market, Gartner now argues.
BPaaS is the largest segment primarily because of the inclusion of cloud advertising as a subsegment. But you might also argue that BPaaS is so big because it basically represents a redefinition of the traditional outsourcing business. And that is a larger business than simple computing, storage and applications delivery.
“Businesses that leverage traditional outsourcing deals are looking to move off of inflexible contract and delivery structures,” says Robert McNeill, Saugatuck Technology VP. “Businesses are looking for more flexibility, innovation, and responsiveness from their outsourcers. BPaaS is providing that alternative.”
Something like that probably is going to happen with cloud computing. In a sense, cloud computing is part of the next generation of computing architecture. We don’t yet know what this next era will be called, but few question the assumption that cloud computing and mobility will be key foundations of the architecture.
Consider the notion of “business process as a service.” What’s a business process? Business process management is said by IBM to include such functions as:
- Web analytics
- Enterprise marketing management
- Business-to-business integration
- Supply-chain management
- Security governance, risk management and compliance
- Business service management
Others might see other building blocks such as email management, communications management or shopping cart services or catalog processes as similar inputs to create whole business processes.
As those processes all move to cloud delivery mechanisms, the logical question is whether such “outsourced” processes, supported by cloud delivery architectures, are part of the cloud computing business or not.
At some level, the answer has to be “yes.” Think of cloud-supported advertising systems, or retail operations outsourced to Amazon, both key business processes already often supplied to business partners that use cloud computing.
Still, you can see the problem. What counts as a business process “as a service?” Is it only the value of the contract to use a retail checkout system, a catalog or a fulfillment process? Is it partly the value of the transactions, or the value of the products traded?
For any cloud-supported mobile or Internet advertising system, what should be counted? Is it the value of the advertising, or only the commissions an exchange might earn? The same question can be asked for any cloud-based payment system.
The point is that it is possible cloud services markets might be bigger than currently envisioned, only partly depending on “what” gets counted.
The reason is that more and more business processes using software, processing and storage are shifting to cloud mechanisms, even though we traditionally have viewed software delivery, computing resources, storage and development environments are the primary cloud markets
Business process services (also known as business process as a service, or BPaaS, represents the largest segment of what analysts at Gartner now tabulate, accounting for about 77 percent of the total market, Gartner now argues.
BPaaS is the largest segment primarily because of the inclusion of cloud advertising as a subsegment. But you might also argue that BPaaS is so big because it basically represents a redefinition of the traditional outsourcing business. And that is a larger business than simple computing, storage and applications delivery.
“Businesses that leverage traditional outsourcing deals are looking to move off of inflexible contract and delivery structures,” says Robert McNeill, Saugatuck Technology VP. “Businesses are looking for more flexibility, innovation, and responsiveness from their outsourcers. BPaaS is providing that alternative.”
Gary Kim was cited as a global "Power Mobile Influencer" by Forbes, ranked second in the world for coverage of the mobile business, and as a "top 10" telecom analyst. He is a member of Mensa, the international organization for people with IQs in the top two percent.
63% of Australian Samsung Phone Owners Mulling Switch to iPhone 5
A new survey from MobilePhoneFinder.com.au suggests that 62.9 percent of current Samsung phone owners are planning to buy Apple’s latest handset.
Among the close to 1,400 Australians surveyed, 80.6 percent of them said they were planning to purchase the iPhone 5, the study suggests.
The report noted that 64 percent of respondents said they would buy the iPhone 5 on a plan and 59.4 percent indicated they would switch carriers.
Among the close to 1,400 Australians surveyed, 80.6 percent of them said they were planning to purchase the iPhone 5, the study suggests.
The report noted that 64 percent of respondents said they would buy the iPhone 5 on a plan and 59.4 percent indicated they would switch carriers.
Gary Kim was cited as a global "Power Mobile Influencer" by Forbes, ranked second in the world for coverage of the mobile business, and as a "top 10" telecom analyst. He is a member of Mensa, the international organization for people with IQs in the top two percent.
U.S. CLEC Business Hasn't Turned Out as Expected
The U.S. competitive local exchange carrier (CLEC) business has not worked out as many had expected. Initially, the stand-alone long distance carriers thought the way had been cleared for a re-emergence in the local access business from which they had been barred in 1984, with the divestiture by AT&T of its local facilities, leading to the creation of the Baby Bells.
For a time, that seemed to be happening. At one time, the two contestants with a majority of market share were AT&T and MCI Communications.
A 2004 report by Frost and Sullivan noted that a "majority of ILECs' retail access line loss is attributable to two consumer-focused CLECs, AT&T and MCI." You might argue that a subsequent change in wholesale pricing rules then destroyed that business strategy.
Neither firm exists in its former form, as MCI assets now are part of Verizon and AT&T was bought by the former SBC.
Hundreds of billions of investment capital then flowed to lots of independent competitive firms run by telecom industry executives were seen as the logical beneficiaries. Nearly all of that capital ultimately was lost.
Cable companies were not widely thought to be the logical winners in the business.
These days, one might reasonably note that most consumer "CLEC" customers are served by U.S. cable companies, while a number of entities in a fragmented market serve most of the CLEC small business customers, with cable now turning its attention to the small business segment.
Similar sorts of trends have developed in the broadband access area, where 23 percent of all broadband connections were supplied by cable operators. DSL supplied about 15 percent of total connections. Fiber to the home represented about three percent of lines, while mobile wireless supplied 58 percent of connections, according to the Federal Communications Commission.
Basically, that means cable operators supply about a quarter of broadband connections and mobile service providers almost 60 percent. In other words, broadband access competition comes largely from wireless and cable.
Of the 146 million U.S. wireline retail local telephone service connections in service in June 2011, about 38 percent were provided by incumbent local exchange carriers, about 26 percent were ILEC business customers, while 20 percent of lines were supplied by non-ILEC residential service providers, while 16 percent were supplied by non-ILEC business service providers.
In addition to the cable companies, local telcos also have emerged as significant suppliers in the CLEC business, especially in business customer segments.
Revenues for U.S. CLECs were forecast to grow at a compound annual growth rate of 26.9 percent to reach $61.1 billion by 2006, Atlantic-ACM forecast in 2001.
In 2003, The Brattle Group estimated that U.S. CLECs held more than seven percent of the U.S. business market, and nearly 10 percent of the U.S. consumer market.
Neither of those figures has proven incorrect. A substantial amount of market share and revenue has indeed shifted to new providers. The Federal Communications Commission reported there were more than 206 million broadband access connections in service in mid-2011.
Assume an average revenue for each of those connections of $40 each (a blended rate assuming $35 for a mobile connection and $50 for a fixed connection, and including both higher-priced business connections and consumer connections). About 81 percent of those connections were supplied by cable or wireless providers. For the sake of argument, assume that every wireless line is functionally a competitor to an incumbent broadband line.
So 81 percent of 206 million connections would be 166.86 million accounts. At $40 a month, each of those lines might represent $480 a year worth of revenue. That would represent about $80 billion in annual revenue.
To be more strict, assume only cable modem and a quarter of "ILEC" broadband accounts are counted as "CLEC" revenue, for purposes of estimating CLEC broadband access revenue, eliminating all wireless lines.
That implies 27 percent of all fixed network broadband lines were supplied by "CLECs."
Of the 206 million broadband connections, 23 percent are supplied by cable operators and 18 percent are supplied using DSL or fiber to home technologies. That implies 37 million CLEC lines using telco platforms and 47.4 million cable high speed lines.
Assume 100 percent of the cable modem lines properly are counted as "CLEC" revenue, at an average of $50 a month. Assume that 20 percent of the DSL or FTTH lines are sold by CLECs at $80 a month.
That in turn suggests cable CLEC revenue of $28.4 billion and telco platform CLEC revenues of about $35.5 billion annually, for a total of about $35.5 billion in "CLEC" broadband access revenues.
Assume that the 36 percent of fixed voice lines represent $45 a month in revenue (a conservative estimate including both consumer and business lines). That implies $540 a year in revenue for each line in service.
The FCC says there were 146 million fixed voice lines in service in mid-2011. That would imply 52.6 million "CLEC" lines in service, or $28.4 billion in end user revenues, not including access or other carrier revenues.
So the "CLEC" revenue stream might be as little as $64 billion a year, or as much as $108.4 billion a year.
The point is that the overall "CLEC" business is reasonably estimated as being as large as it was earlier seen as becoming. The big difference is the role played by cable operators.
For a time, that seemed to be happening. At one time, the two contestants with a majority of market share were AT&T and MCI Communications.
A 2004 report by Frost and Sullivan noted that a "majority of ILECs' retail access line loss is attributable to two consumer-focused CLECs, AT&T and MCI." You might argue that a subsequent change in wholesale pricing rules then destroyed that business strategy.
Neither firm exists in its former form, as MCI assets now are part of Verizon and AT&T was bought by the former SBC.
Hundreds of billions of investment capital then flowed to lots of independent competitive firms run by telecom industry executives were seen as the logical beneficiaries. Nearly all of that capital ultimately was lost.
Cable companies were not widely thought to be the logical winners in the business.
These days, one might reasonably note that most consumer "CLEC" customers are served by U.S. cable companies, while a number of entities in a fragmented market serve most of the CLEC small business customers, with cable now turning its attention to the small business segment.
Similar sorts of trends have developed in the broadband access area, where 23 percent of all broadband connections were supplied by cable operators. DSL supplied about 15 percent of total connections. Fiber to the home represented about three percent of lines, while mobile wireless supplied 58 percent of connections, according to the Federal Communications Commission.
Basically, that means cable operators supply about a quarter of broadband connections and mobile service providers almost 60 percent. In other words, broadband access competition comes largely from wireless and cable.
Of the 146 million U.S. wireline retail local telephone service connections in service in June 2011, about 38 percent were provided by incumbent local exchange carriers, about 26 percent were ILEC business customers, while 20 percent of lines were supplied by non-ILEC residential service providers, while 16 percent were supplied by non-ILEC business service providers.
In addition to the cable companies, local telcos also have emerged as significant suppliers in the CLEC business, especially in business customer segments.
Revenues for U.S. CLECs were forecast to grow at a compound annual growth rate of 26.9 percent to reach $61.1 billion by 2006, Atlantic-ACM forecast in 2001.
In 2003, The Brattle Group estimated that U.S. CLECs held more than seven percent of the U.S. business market, and nearly 10 percent of the U.S. consumer market.
Neither of those figures has proven incorrect. A substantial amount of market share and revenue has indeed shifted to new providers. The Federal Communications Commission reported there were more than 206 million broadband access connections in service in mid-2011.
Assume an average revenue for each of those connections of $40 each (a blended rate assuming $35 for a mobile connection and $50 for a fixed connection, and including both higher-priced business connections and consumer connections). About 81 percent of those connections were supplied by cable or wireless providers. For the sake of argument, assume that every wireless line is functionally a competitor to an incumbent broadband line.
So 81 percent of 206 million connections would be 166.86 million accounts. At $40 a month, each of those lines might represent $480 a year worth of revenue. That would represent about $80 billion in annual revenue.
To be more strict, assume only cable modem and a quarter of "ILEC" broadband accounts are counted as "CLEC" revenue, for purposes of estimating CLEC broadband access revenue, eliminating all wireless lines.
That implies 27 percent of all fixed network broadband lines were supplied by "CLECs."
Of the 206 million broadband connections, 23 percent are supplied by cable operators and 18 percent are supplied using DSL or fiber to home technologies. That implies 37 million CLEC lines using telco platforms and 47.4 million cable high speed lines.
Assume 100 percent of the cable modem lines properly are counted as "CLEC" revenue, at an average of $50 a month. Assume that 20 percent of the DSL or FTTH lines are sold by CLECs at $80 a month.
That in turn suggests cable CLEC revenue of $28.4 billion and telco platform CLEC revenues of about $35.5 billion annually, for a total of about $35.5 billion in "CLEC" broadband access revenues.
Assume that the 36 percent of fixed voice lines represent $45 a month in revenue (a conservative estimate including both consumer and business lines). That implies $540 a year in revenue for each line in service.
The FCC says there were 146 million fixed voice lines in service in mid-2011. That would imply 52.6 million "CLEC" lines in service, or $28.4 billion in end user revenues, not including access or other carrier revenues.
So the "CLEC" revenue stream might be as little as $64 billion a year, or as much as $108.4 billion a year.
The point is that the overall "CLEC" business is reasonably estimated as being as large as it was earlier seen as becoming. The big difference is the role played by cable operators.
Gary Kim was cited as a global "Power Mobile Influencer" by Forbes, ranked second in the world for coverage of the mobile business, and as a "top 10" telecom analyst. He is a member of Mensa, the international organization for people with IQs in the top two percent.
Smart Phones Influence 6% of Retail Sales?
Almost half of U.K. smart phone owners have used their device to research product information before or during a shopping trip, according to new research from Deloitte Digital.
Those results might suggest that six percent of in-store retail sales are being influenced by smart phone use. That would be almost double the value of direct purchases made through mobiles, which are estimated at about £8 billion in 2012.
By 2016, more than 80 percent of consumers are expected to own a smart phone and Deloitte estimates that between 15 percent and 18 percent of in-store sales will be smart phone-influenced, equivalent to £35 billion to £ 43 billion.
Smart phone usage also appears to increase the conversion rates for retailers. Some 74 percent of shoppers that visited a retailer’s mobile website or app during their most recent shopping trip made a purchase.
Some might suggest that the results are "soft," since any number of shopping influences contribute to any retail purchase, and it always is wrong to attribute 100 percent of the influence to just the final input, or most visible input, or most easily measured possible input to any decision.
Mobile is particularly popular in the electronics sector, influencing 10 percent of U.K. store sales and is predicted to increase to 30 percent of sales by 2016.
Convenience stores and supermarkets are less affected, with only 2.9 percent and 3.8 percent of sales influenced, respectively.
There is a dramatic difference between use of mobile for bill payments, though, compared to retail, in-store payments, as you might suspect would be the case at an early stage of mobile payments development in retail settings.
Some 64 percent of smart phone owners have used their device to make a bank payment or pay a bill, but just one percent have used their phone to make an in-store payment, Deloitte Digital says.
These figures are mirrored by similar conducted by Deloitte’s retail practice in the United States. The Deloitte U.S. data suggests that mobiles influence about five percent of retail sales. Deloitte forecasts that by 2016, smart phones are likely to influence between 17 percent and 21 percent of U.S. retail purchases, equating to $628 billion to $782 billion in sales.
Those results might suggest that six percent of in-store retail sales are being influenced by smart phone use. That would be almost double the value of direct purchases made through mobiles, which are estimated at about £8 billion in 2012.
By 2016, more than 80 percent of consumers are expected to own a smart phone and Deloitte estimates that between 15 percent and 18 percent of in-store sales will be smart phone-influenced, equivalent to £35 billion to £ 43 billion.
Smart phone usage also appears to increase the conversion rates for retailers. Some 74 percent of shoppers that visited a retailer’s mobile website or app during their most recent shopping trip made a purchase.
Some might suggest that the results are "soft," since any number of shopping influences contribute to any retail purchase, and it always is wrong to attribute 100 percent of the influence to just the final input, or most visible input, or most easily measured possible input to any decision.
Mobile is particularly popular in the electronics sector, influencing 10 percent of U.K. store sales and is predicted to increase to 30 percent of sales by 2016.
Convenience stores and supermarkets are less affected, with only 2.9 percent and 3.8 percent of sales influenced, respectively.
There is a dramatic difference between use of mobile for bill payments, though, compared to retail, in-store payments, as you might suspect would be the case at an early stage of mobile payments development in retail settings.
Some 64 percent of smart phone owners have used their device to make a bank payment or pay a bill, but just one percent have used their phone to make an in-store payment, Deloitte Digital says.
These figures are mirrored by similar conducted by Deloitte’s retail practice in the United States. The Deloitte U.S. data suggests that mobiles influence about five percent of retail sales. Deloitte forecasts that by 2016, smart phones are likely to influence between 17 percent and 21 percent of U.S. retail purchases, equating to $628 billion to $782 billion in sales.
Gary Kim was cited as a global "Power Mobile Influencer" by Forbes, ranked second in the world for coverage of the mobile business, and as a "top 10" telecom analyst. He is a member of Mensa, the international organization for people with IQs in the top two percent.
Europe Cloud Adoption Not Following Classic Pattern
Technology diffusion often follows a pattern. In the past, innovations were born in university computer labs, then commercialized for large enterprises, before migrating into the mid-market, and finally small business.
At some point innovations would move into the consumer market.
That pattern has been upended. These days, innovations still tend to be born in universities, but then tend to be commercialized first in the consumer market, before being adopted by business users.
There also are geography patterns in technology diffusion, as well. In the past, early tech adopters in Europe tended to cluster in the United Kingdom and the Scandinavian countries, with innovations then moving to other countries.
But cloud computing seems not to be following that pattern. “Normally the path leads from the UK to the Nordic countries and then goes south to the Mediterranean countries,” said IDC Research Director Mette Ahorlu. “That’s not clear in cloud."
Southern Europe is struggling economically but we see some indication that they see cloud as a way to catch up,” she said.
In other cases, the lower investment hurdles might be driving the interest. Given the financial and economic troubles in Spain, Greece and Italy, for example, users might prefer the lower cost profile for cloud solutions that obviate the need for capital investments. Geographically, the United States will remain the largest public cloud services market, followed by Western Europe and Asia/Pacific (excluding Japan),IDCsays.
But the fastest growth in public IT services spending will be in the emerging markets, which will see its collective share nearly double by 2016 when it will account for almost 30 percent of net new public IT cloud services spending growth.
Perhaps something of the same trend is at work in those regions, where access to high-end computing services, without the need to invest capital, is proving attractive.
At some point innovations would move into the consumer market.
That pattern has been upended. These days, innovations still tend to be born in universities, but then tend to be commercialized first in the consumer market, before being adopted by business users.
There also are geography patterns in technology diffusion, as well. In the past, early tech adopters in Europe tended to cluster in the United Kingdom and the Scandinavian countries, with innovations then moving to other countries.
But cloud computing seems not to be following that pattern. “Normally the path leads from the UK to the Nordic countries and then goes south to the Mediterranean countries,” said IDC Research Director Mette Ahorlu. “That’s not clear in cloud."
Southern Europe is struggling economically but we see some indication that they see cloud as a way to catch up,” she said.
In other cases, the lower investment hurdles might be driving the interest. Given the financial and economic troubles in Spain, Greece and Italy, for example, users might prefer the lower cost profile for cloud solutions that obviate the need for capital investments. Geographically, the United States will remain the largest public cloud services market, followed by Western Europe and Asia/Pacific (excluding Japan),IDCsays.
But the fastest growth in public IT services spending will be in the emerging markets, which will see its collective share nearly double by 2016 when it will account for almost 30 percent of net new public IT cloud services spending growth.
Perhaps something of the same trend is at work in those regions, where access to high-end computing services, without the need to invest capital, is proving attractive.
Gary Kim was cited as a global "Power Mobile Influencer" by Forbes, ranked second in the world for coverage of the mobile business, and as a "top 10" telecom analyst. He is a member of Mensa, the international organization for people with IQs in the top two percent.
Monday, September 17, 2012
Tablet Shipments Up 56% by End of 2012
Booming tablet shipments of devices in several form factors will drive a robust 56 percent annual increase in shipments for the tablet display market in 2012, according to IHS iSuppli.
Shipments of tablet displays in 2012 are projected to reach 126.6 million units, up from 82.1 million units in 2011.
Gary Kim was cited as a global "Power Mobile Influencer" by Forbes, ranked second in the world for coverage of the mobile business, and as a "top 10" telecom analyst. He is a member of Mensa, the international organization for people with IQs in the top two percent.
U.S. Fixed Network Broadband Adoption is 90%
New consumer research from Leichtman Research Group suggests that nearly 90 percent of U.S. households that use a laptop or desktop computer at home currently subscribe to a broadband Internet service.
Five years ago, 65 percent of households with a computer subscribed to a broadband service. That is a functionally reasonable indication that the fixed network broadband access business is saturated.
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.
The obvious implication for many will be that lower-income households want, but cannot afford, fixed network broadband. That is only partially true.
Keep in mind that 41 percent of households with annual incomes under $30,000 do not have use computer at home, compared to just three percent of households with incomes over $50,000. In other words, many lower income households simply do not use computers, so naturally demand for fixed network broadband is lower than it is for higher-income households.
Five years ago, 65 percent of households with a computer subscribed to a broadband service. That is a functionally reasonable indication that the fixed network broadband access business is saturated.
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.
The obvious implication for many will be that lower-income households want, but cannot afford, fixed network broadband. That is only partially true.
Keep in mind that 41 percent of households with annual incomes under $30,000 do not have use computer at home, compared to just three percent of households with incomes over $50,000. In other words, many lower income households simply do not use computers, so naturally demand for fixed network broadband is lower than it is for higher-income households.
| 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% |
Gary Kim was cited as a global "Power Mobile Influencer" by Forbes, ranked second in the world for coverage of the mobile business, and as a "top 10" telecom analyst. He is a member of Mensa, the international organization for people with IQs in the top two percent.
Is Mobile Payment Window of Opportunity Closing? If so, Where?
Some might argue that mobile service providers in emerging markets could relatively easily capture much of the the $120 billion to $130 billion mobile payments opportunity.
There is legitimate reason to believe the potential is there. In many emerging markets, where the banking infrastructure is undeveloped, the ability to use a mobile device as a virtual “branch bank” location is a winning and obvious proposition.
According to Gartner, the total value of mobile payments transactions will reach $600 billion by 2016, up from $170 billion in 2012.
Delta Partners argues that the market potential is about $12 trillion. Total fee revenue, some believe, could reach $250 billion, but banks and payment networks will capture most of it, Delta Partners argues.
“We estimate the global revenue that all mobile payments service providers can achieve is approximately $120-130 billion,” Delta Partners argues.
But 90 percent of this revenue will be generated in sophisticated and developed markets. That implies a developing market opportunity for mobile operatorsof about $40 billion to 50 billion, which is equivalent to four percent to five percent of total mobile operators’ revenues.
The point is that the window of opportunity for most mobile service providers is either closed or closing fast. Banks, Visa and MasterCard now are driving electronic payments growth across the world, Delta Partners argues.
While emerging markets operators may consider bypassing the banks, the developed and sophisticated markets operators need to build partnerships with financial-sector players in order to offer the full value proposition and to comply with commercial banking regulatory requirements.
“Sophisticated markets” account for close to one billion people, Delta Partners says. The key value in such markets is replacing the traditional wallet.
“Developed markets” have a population of around four billion. Cash is still the main means of payment although payment card penetration is increasing. There the opportunity to drive electronic payments becomes a key objective for M-Payments providers. This cluster is represented by sizeable nations such as Brazil, Russia, India, China, South Africa, South Korea, Turkey, Poland, Malaysia, Indonesia, Thailand, Kazakhstan, Colombia and Saudi Arabia. These countries have 1.4 billion adults with bank accounts, 0.25 billion credit card owners and more than 1 billion Internet users.
“Emerging markets” have a population of around two billion. In these markets, less than 40 percent of adults have bank accounts. There are 0.4 billion people with bank accounts, less than 0.1 billion with credit cards and 0.4 billion Internet users.
Actual cash transfers are the big oportunity is markets such as Mozambique, Tanzania, Kenya, Uganda, Ghana, Nigeria, Angola, DRC, Pakistan, Ethiopia, Sudan, Syria, Iraq, Iran, Bangladesh, Mexico and Philippines.
There is legitimate reason to believe the potential is there. In many emerging markets, where the banking infrastructure is undeveloped, the ability to use a mobile device as a virtual “branch bank” location is a winning and obvious proposition.
According to Gartner, the total value of mobile payments transactions will reach $600 billion by 2016, up from $170 billion in 2012.
Delta Partners argues that the market potential is about $12 trillion. Total fee revenue, some believe, could reach $250 billion, but banks and payment networks will capture most of it, Delta Partners argues.
“We estimate the global revenue that all mobile payments service providers can achieve is approximately $120-130 billion,” Delta Partners argues.
But 90 percent of this revenue will be generated in sophisticated and developed markets. That implies a developing market opportunity for mobile operatorsof about $40 billion to 50 billion, which is equivalent to four percent to five percent of total mobile operators’ revenues.
The point is that the window of opportunity for most mobile service providers is either closed or closing fast. Banks, Visa and MasterCard now are driving electronic payments growth across the world, Delta Partners argues.
While emerging markets operators may consider bypassing the banks, the developed and sophisticated markets operators need to build partnerships with financial-sector players in order to offer the full value proposition and to comply with commercial banking regulatory requirements.
“Sophisticated markets” account for close to one billion people, Delta Partners says. The key value in such markets is replacing the traditional wallet.
“Developed markets” have a population of around four billion. Cash is still the main means of payment although payment card penetration is increasing. There the opportunity to drive electronic payments becomes a key objective for M-Payments providers. This cluster is represented by sizeable nations such as Brazil, Russia, India, China, South Africa, South Korea, Turkey, Poland, Malaysia, Indonesia, Thailand, Kazakhstan, Colombia and Saudi Arabia. These countries have 1.4 billion adults with bank accounts, 0.25 billion credit card owners and more than 1 billion Internet users.
“Emerging markets” have a population of around two billion. In these markets, less than 40 percent of adults have bank accounts. There are 0.4 billion people with bank accounts, less than 0.1 billion with credit cards and 0.4 billion Internet users.
Actual cash transfers are the big oportunity is markets such as Mozambique, Tanzania, Kenya, Uganda, Ghana, Nigeria, Angola, DRC, Pakistan, Ethiopia, Sudan, Syria, Iraq, Iran, Bangladesh, Mexico and Philippines.
Gary Kim was cited as a global "Power Mobile Influencer" by Forbes, ranked second in the world for coverage of the mobile business, and as a "top 10" telecom analyst. He is a member of Mensa, the international organization for people with IQs in the top two percent.
Small, Medium Business Remains a Fragmented Opportunity
Telcos are not the top choice of small and medium businesses for information technology solutions in Western Europe, but as always, no single supplier segment dominates. That means the SMB market will continue to be contested, with any number of logical suppliers.
Granted, communications service suppliers are viewed as more logical suppliers for "communications" services, but with the shift to cloud, mobile and managed services, it is logical to argue that the potential for access providers is growing, not decreasing.
Granted, communications service suppliers are viewed as more logical suppliers for "communications" services, but with the shift to cloud, mobile and managed services, it is logical to argue that the potential for access providers is growing, not decreasing.
Gary Kim was cited as a global "Power Mobile Influencer" by Forbes, ranked second in the world for coverage of the mobile business, and as a "top 10" telecom analyst. He is a member of Mensa, the international organization for people with IQs in the top two percent.
AT&T Still Has to Do Something About its Rural Fixed Line Assets
AT&T senior executive VP and CFO John Stephens says AT&T could have a solution for what to do with its rural wireline assets by the end of the year.
The T-Mobile USA acquisition presumably would have helped AT&T "fix" its rural broadband problem by allowing greater use of wireless broadband access to augment fixed network access.
Fundamentally, the two options are to upgrade the rural lines, probably using new digital subscriber line technology, or divest the lines. Some might argue AT&T would rather divest, but the issue is what entity could be a willing buyer, with the desire and the cash to do so.
Some might argue that AT&T would be better off simply divesting, if that can be done.
The T-Mobile USA acquisition presumably would have helped AT&T "fix" its rural broadband problem by allowing greater use of wireless broadband access to augment fixed network access.
Fundamentally, the two options are to upgrade the rural lines, probably using new digital subscriber line technology, or divest the lines. Some might argue AT&T would rather divest, but the issue is what entity could be a willing buyer, with the desire and the cash to do so.
Some might argue that AT&T would be better off simply divesting, if that can be done.
Gary Kim was cited as a global "Power Mobile Influencer" by Forbes, ranked second in the world for coverage of the mobile business, and as a "top 10" telecom analyst. He is a member of Mensa, the international organization for people with IQs in the top two percent.
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