Vivendi's SFR Reacts to French Mobile Market Competition

French mobile phone operator SFR, a unit of Vivendi, is in talks with unlisted cable company Numericable, a move many will attribute to an intensely competitive French mobile market, in the wake of the Illiad-owned Free Mobile pricing disruption. 

The move would diversify SFR's revenue base by adding fixed network customers and revenues to its mobile assets. 

Some think it is possible, perhaps likely there will be a similar attempt to disrupt U.S. mobile market pricing, if Softbank is able to complete its planned purchase of Sprint Nextel. The reason is that Softbank did precisely that when it entered the Japanese market.

And it worked. Softbank, within two years of its launch, was winning about 44 percent share of new customers or switchers in the Japanese market. 

Will Softbank-lead Sprint Try to Disrupt U.S. Mobile Pricing?

Is the U.S. mobile market about to be disrupted? Looking at the launch of the FreedomPop service and the coming Softbank purchase of Sprint, you might argue that a price disruption is coming.

Softbank will buy a 70 percent stake in Sprint Nextel Corp.for about $20 billion in the biggest-ever acquisition of a U.S. telecom firm by a Japanese firm. Softbank hopes it can replicate the success it has had in Japan in taking on dominant mobile service providers.

Some predict Softbank will launch a major price war to upend the U.S. market, as it did earlier in the Japanese market. That might lead some observers to speculate about whether the Softbank-owned Sprint will try to become the “Free Mobile” of the U.S. market.

In France, the Illiad-owned “Free Mobile” has disrupted the French mobile market. Already, FreedomPop is trying to disrupt mobile broadband pricing, as the Illiad Free Mobile effort already has done in the French mobile market.

In 2006, when Softbank decided to buy Vodafone KK  assets, it likewise was criticized in some quarters for undertaking a risky gambit.

Some will argue Softbank is taking another huge risk by entering a country where iit has no previous operating experience, and by assuming a huge new debt load, after only recently shedding a similar debt load.

Softbank argues it is a reasonable risk, and that its prior experience taking on NTT Docomo and KDDI show it can compete in a market dominated by larger service providers.

Softbank, many believe, will use the same strategy it used in Japan, which some would describe as providing a large number of complementary features or services to create a “sticky” relationship with the end user.

Others will point to the pricing strategy. In Japan, Softbank’s 2006 acquisition of the Vodafone unit was not universally considered wise. But in just one year, Softbank managed to boost its subscriber base from 700,000 in fiscal 2006 to 2.7 million.

By the beginning of 2008, Softbank had grabbed 44 percent of Japan’s new mobile subscribers, well ahead of KDDI’s 35 percent and NTT-DoCoMo’s 11 percent.

Some think Softbank will be willing to launch a price war.  In Japan, Softbank was willing to sacrifice voice average revenue per unit  to make market share gains.

Back in the 2006 to 2008 period, Softbank was willing to accept a $13 a month ARPU decline to build market share.

Softbank said it would acquire a majority stake in the U.S. carrier by buying $8 billion of shares directly from Sprint and then buying another $12.1 billion of shares in the market, completing the deal in 2013, assuming there are no regulatory snags.

Softbank probably is betting that it can make subscriber gains in the U.S. market by following its earlier Japan market tactics. Also, it likely is betting that the U.S. market is ripe for a bit of disruption, as it is, by some analysis, less competitive than many other markets.

"Revenue-Free" Minutes of Use?

Skype continues to generate a greater share of global cross-border minutes of voice use. Of course, Skype usage is not revenue. Microsoft's revenue from users of its Skype service comes largely from purchases of Skype Out minutes.



For traditional service providers, that means Skype is cannibalizing revenue-producing minutes of use. 

Isis Mobile Wallet Launch Will Require Use of Motorola "Incredible 4G"

The official “Isis ready” device is the DROID Incredible 4G LTE, which illustrates why early tests of virtually any mobile payment system using Near Field Communications will take a while to produce an appreciable amount of usage data. Google has had the same problem, basing adoption on just a few devices.

Additional devices will be made available at a later time, Droid Life reports.

Spectrum Sharing Will Heighten Security Risks

There’s a basic concept in computer network security: If you don’t want A to attack B, make it impossible for A and B to communicate. 

That’s why sensitive military communications systems do not have links to the internet. Experts realize that, even with the best firewalls and filtering, if a connection exists, the system is inherently less secure, according to Peter Rysavy, Rysavy Research president. 

That will have implications for proposals to open up some government spectrum to commercial sharing with mobile service providers. 

Long Term Evolution, iPhone 5 Seem to be Skewing Web Traffic Volume, Already

New data from Chitika suggests that Long Term Evolution, used by the Apple iPhone 5, already is affecting web traffic volume. The Galaxy S III has been available in the U.S. for nearly four months. 

At the time Chitika conducted its study, about 18 days since the release of the iPhone 5, the Apple iPhone 5 accounts for 56 percent of web traffic volume,  according to Chitika Insights. 

Other studies have confirmed the impact of faster networks and higher data consumption. The 4G LTE networks are up to 10 times faster than the older 3G network, and LTE will certainly use far more data than 3G users, says Rootmetrics. 

How Firms Cope When Prices Decline "Nearly to Zero"

The long distance part of the telecom industry was first to encounter pricing trends that first erased formerly healthy profit margins, then got worse and lead to lower gross revenue. Now that seems to be happening for other "local" telecom services, cross-border mobile roaming, mobile voice and mobile messaging. 

Sooner or later, the same could happen to video entertainment services as well, though the barriers are much higher. Looking at the mobile payments space, some of us would argue that the same trend is about to hit the payments business as well. As was the case with long distance pricing, the trend could take decades to play out. But the same set of pressures seem to be building.

Some of the pressure in the payments business is imposed by government edict, such as rules that unilaterally lower the permissible charge to a retail merchant for processing a debit card transaction. Retailers naturally prefer lower charges, so it is logical that new contenders are going to pitch their services by promising lower transaction fees.

Over time, as the revenue and margin from "transaction processing" drops, businesses that make a living from transaction fees will have to find other ways to generate their revenues.

More than 15 years ago, looking at global deregulation, privatization of formerly government-owned firms, Moore’s Law, Internet Protocol, optical fiber and signal compression, it was not too hard to make the argument that the declining “revenue per minute” trend in the telecom business was inevitable, and destined to continue. 

In the payments business, at least one firm, LevelUp, already is promising retailers "zero" interchange fees. The catch is that LevelUp still has to pay those fees to the card associations (Visa, MasterCard, American Express, Discover). So how will LevelUp earn revenue? By providing marketing services, earning revenue on a "pay for performance" basis.
Believe it or not, firms in such businesses--literally facing their per-unit prices under retail pressure--can survive such changes. It isn't fun, but it can be done. 

The question then was "what does a telco do" if its primary revenue stream (cents per minute of use) approaches zero?

Only over time has the “answer” developed. Telcos have not gotten out of the subscription communications services business. But mobile services, fortunately, have replaced fixed network services as the industry revenue driver, aided by the emergence of broadband access and video entertainment services.

It isn’t so clear which particular new revenue models will develop in the payment transaction business. The answer might even take decades to emerge. But it is coming.

Firms in industries whose primary products face pricing pressures so severe that they undercut the primary industry revenue stream can adapt. But not always. Sometimes they fail. Many newspapers and magazines have been unable to find replacement revenue streams and simply have gone out of business.

One might argue that the business of processing retail payments is not something likely to disappear. But how that function is provided, at a profit, might well change quite a lot.

Mobile is Changing Shopping

The web has changed buying behavior. Mobile, some would argue, is about to change it again.

The first shift, to online shopping and buying, largely was centered on some physical products like software, books and CDs. At least at first, many argued, with some evidence, that other soft and hard goods could not so easily be sold that way. 

But brands like Zappos and Amazon, which now represent significant sales of hard goods and soft goods, suggest change is coming. 

To be sure, some argue that "showrooming" now is among the reasons for growing online sales of soft and hard goods, since people can "touch" the merchandise in a store, and then order online. 

The latest change is that smart phone users are starting to compare prices and availability using their mobiles, and sometimes making a purchase from an alternate supplier while still in the retail store. So mobile in-store is part of a broader behavioral change that should shift more shopping online. 

FTC Ponders Google Antitrust Move

The Federal Trade Commission appears to be nearing the filing of an antitrust case against Google, Reuters reports. Though some had speculated that such action might eventually be brought based on the way Google ranks search results, that might not be the case. You can watch testimony here.

Without any commentary on the possible merits of the FTC case, it might be worth noting how often regulators jump in to solve a problem that the market is just about to fix. The point is that less end user activity in search is happening, anyway, with other ways of finding things. 

A New Meaning for "Second Screen"

There's a new meaning to the phrase "second screen," a term that once referred to the use of an additional content consumption screen, typically in a video context. In the older notion, the theater screen was "first," the TV screen was "second" and the PC screen was third (not in any particular order of use, but simply as an illustration of how people use various screens to consumer content). 

Some began to refer to the mobile as a "fourth screen." Now, with the advent of tablets, we might arguably be up to about five different screens that routinely are used to consume content. The difference now is that the range of content is no longer confined primarily to video, and now embraces text, image and other forms of visually-oriented content. 

So the issue is what roles and business strategies are possible in an era where people use multiple screens to consume content. 

Consider Twitter or other social applications. It hasn’t always been clear what Twitter wanted to be when it grew up. Did it want to be a news network or a complement to use of other media, consumed on multiple screens. 

Twitter CEO Dick Costolo now seems to argue that Twitter's role is to be a complementary “second screen” for existing media. That means enhancing and complementing the actual content delivery function of any other screen, not becoming an actual content provider. 

That, in many ways, is how people are using their multiple screens, in any case. They have a TV on, but use their mobiles and tablets while "watching TV." Actually "watching" sometimes is a misnomer. The TV is on, but people aren't actually watching; they are mostly listening, while watching some other screen. 

Multiple screens now are used by people to consume content. But people now also use multiple screens to complement what is consumed on other screens. 

U.S. Postal Service Plans To Test Same-Day Delivery Service

The United States Postal Service plans to launch a "same-day" delivery service called "Metro Post," in one U.S. city, for a year. The potential implications for online commerce, as you might guess, are rather intriguing. 

One big difference between "online" and "place-based" retailing is how it takes for a consumer to take possession of a product that has been purchased. Increasingly, it does not always "cost less" to buy online, after considering taxes and shipping costs. Shoppers tend to "get what they want" as "selection" always is better online than at any particular retail outlet. 

But buyers also have to wait to take possession of what they have purchased. With same-day delivery, the playing field is more nearly equal, on that front. 

But much will depend on how well USPS can execute, and how it manages pricing, volume (which will be limited) and the range of partners it can attract. Also, this is just a test. 

As with many start-up ventures, scale will matter. The service will potentially be most useful if a large percentage of U.S. residents can order from a wide range of popular merchants (online or physical retailers), at prices they are willing to pay. 

The daily cut-off time for making a purchase will likely be between 2pm and 3pm and delivery should occur between 4pm and 8pm. 

Initially, the test is specifically designed for e-commerce companies and will initially focus on a single (currently undisclosed) metropolitan area. The market test  for Metro Post is scheduled to begin around November 12 and run for at least one year.

Same-day delivery is widely viewed as a feature that could greatly change the amount of merchandise volume that can move through online channels, compared to physical retail channels. 

Carrier Billing Works for App Stores, Can it Work Elsewhere?

In past decades, it has been possible for third party merchants to offer customers payments billed directly to a phone bill. The capability was necessary after 1984, in the U.S. market, since long distance services had to be billed by a third party, as the breakup of the old AT&T "Bell system" separated the "local telcos" from the "long distance" provider, originally just AT&T. 

Up to this point, such transactions have been small ($50 or less) and relatively expensive. In past years, it might have been common for a merchant using carrier billing to pay a fee of perhaps 30 percent of the transaction amount for the privilege. 

In recent years, with volume, those fees have declined to perhaps 12 percent of gross, in some cases. That is a charge substantially above the fees charged to merchants for use of Visa-branded, MasterCard-branded or other payment network cards issued by banks or brands. 

The new surge of interest in carrier billing has been driven by sales of content and virtual goods, beginning with ring tones, but now more generally important for sales of other content and virtual goods. The prevailing wisdom is that sales of virtual and content goods will likely remain the primary use for carrier billing.

But there is at least some thinking now about ways carrier billing could have application in sales at retail locations. The amount of the transaction fee remains an issue. So is the limitation on purchase amount. And while PayPal, for example, is using prepaid mechanisms to make its foray into retail payments, carrier billing does not obviously and intuitively lend itself to that approach. 

A carrier could issue prepaid cards that are refillable, then link the prepaid card to the phone bill. But then there is no obvious need for use of the carrier billing mechanism. 

The ability to use a mobile phone as a payment vehicle does present new opportunities, of course. Conceivably, a mobile could be used to "carrier bill" transit fares, bridge tolls, parking fees or other generally small transactions. The issue now is how many of those scenarios might be adaptable to carrier billing mechanisms using the mobile phone, compared to other approaches. 

Why Maps Matter to Apple

Apple's recent introduction of its own "maps" app didn't go as well as Apple, or its users, would have preferred. 

The reasons why Apple wanted to control its own app are clear enough, though. 

Most people use map apps (about 89 percent of respondents to a Yankee Group survey say they have done so). 

More important, though, are the potential advertising implications. Mobile ads associated with maps or locations are estimated to account for about 25 percent of the roughly $2.5 billion spent on mobile ads in 2012, according to Optus Research, up from 10 percent in 2010. 

That is expected to grow as the number of location-aware software apps grows. But more than ad revenue, Apple is going after the map market to have more control over a key asset in the widening smartphone war. 

Maps are related to "location," and location is the key to the value of mobile advertising and promotion. 

Google Maps is used by more than 90 percent of U.S. iPhone users. So engagement is an issue as well. 

Many Telcos are Delveraging, Softbank Will Have to Load Up on Debt to Buy Sprint

Most leading telcos in Western Europe now are attempting to delverage and clean up balance sheets. But Softbank, which had debt load issues of its own, and cleaned them up, now faces the possibility of taking on a bigger debt load again to buy Sprint and control Clearwire.

It's a risk Softbank appears to be willing to take in pursuit of growth Softbank cannot find in its home market.

Mobile Service Providers Will Lose $54 Billion Worth of Text Messaging Revenue by 2016

Ovum forecasts that by 2016 mobile operators will have lost $54 billion in text messaging (short message service, or SMS) revenues from over the top social messaging services on smart phones.

That would be more than double the $23 billion mobile service providers are expected to have lost by the end of 2012. 

Ovum analysts believe that collaboration with handset manufacturers is imperative if operators are to remain relevant and competitive in the messaging industry.

Service providers in Europe and Asia-Pacific will be affected the most, Ovum says. What remains unclear is whether Rich Communication Suite (RCS) will allow operators to slow the rate of displacement. 

About 75 percent of Dutch smart phone owners have WhatsApp installed on their device, with more than 80 percent of these using the app at least once per day, Ovum notes. 

This translates into a presence of more than 5.5 million smart phones in the Netherlands. Among iPhone users, WhatsApp has about 90 percent penetration.