Severe competition between smart phone and tablet makers will intensify in the period leading up to the Christmas and holiday season, likely signaling a tougher earnings climate. Apple, Samsung and HTC gave cautious cautious guidance on their fourth quarter prospects. Major new device launches and the impact of a slowing global economy are seen as issues. Total worldwide handset shipments reached 410 million units in the third quarter of 2012, Strategy Analytics says. Overall global shipments of mobile handsets were virtually flat in the second quarter, rising only one percent to 362 million units, according to Strategy Analytics. But some might note that smart phone sales in some markets, such as the United States, have been slowing for years.
Clearwire plans to have 2,000 Long Term Evolution sites on air by the end of June 2013 and expects to start receiving Sprint prepayment installments in June 2013. That plan is a reduction in sites from the earlier plan to light about 5,000 LTE sites.
Clearwire has decided not to attempt to create a full national LTE network, but instead will focus on a smaller number of markets where Clearwire could hope to provide wholesale service to other carriers.
Researchers at MIT, the University of Porto in Portugal, Harvard University, Caltech, and Technical University of Munichhave developed, and have started to license, a new coding approach to TCP that they claim can improve mobile and wireless bandwidth efficiency by an order of magnitude. Testing the system on Wi-Fi networks at MIT, where two percent of packets are typically lost, Medard's group found that a normal bandwidth of one megabit per second was boosted to 16 megabits per second. In a circumstance where losses were five percent—common on a fast-moving train—the method boosted bandwidth from 0.5 megabits per second to 13.5 megabits per second. The technology is said to work by transforming the way packets of data are sent. Instead of sending packets, the system sends algebraic equations that describe series of packets. So if a packet goes missing, instead of asking the network to resend it, the receiving device can solve for the missing one itself. Since the equations involved are simple and linear, the processing load on a phone, router, or base station is negligible, The licensing is being done through an MIT/Caltech startup calledCode-On Technologies. As with all new technologies, it isn't clear whether similar results will be seen in the "real world," in commercial, mass deployments. But significant improvements should be expected.
Whether you think Sprint's latest third quarter earnings report was modestly good or modestly bad almost does not matter at this point. What matters is what Softbank is willing to do with the Sprint and Clearwire assets. Some believe, based on past evidence, that Softbank will try to disrupt the U.S. mobile market, probably using pricing in some way.
That was what Softbank 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 Vodafoneunit 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. Spectrum will among the assets Softbank will be able to leverage.
To the extent that Sprint is losing customers, those losses are attributable to Nextel, not "Sprint." As has been the case for some years, Sprint has been gaining subscribers, but those gains are offset by departing "Nextel" customers. In other words, net gains on the "Sprint" side are offset by declines on the Nextel side of the company.
The Apple iPhone is the top smart phone device, where it comes to mobile advertising performance, according to a new report from Opera.
The iPhone has an average cost per thousand of $2.85. Though it is closely followed by Android devices at $2.10.
Devices with larger screen size and touchscreen input, and those with features that allow more interaction between the advertisement and the device’s functionality (click to call, expand, play video) have better revenue potential than other devices.
OS Share
% of traffic
% of revenue
eCPM
iOS
46.53%
61.41%
$2.49
— iPhone
29.88%
43.54%
$2.85
— iPad
6.86%
14.26%
$3.96
Android
24.43%
26.56%
$2.10
J2ME / Other
21.27%
9.86%
$1.01
RIM OS
6.32%
1.79%
$0.64
Symbian
1.37%
0.37%
$0.59
Windows Phone
0.08%
0.01%
$0.20
The high CPM achieved by the iPad illustrates the principle that bigger screens matter. Delivering an average CPM of $3.96 across the Opera mobile ad platform.
In 2012, Apple iOS has delivered a clear majority of rich media ad impressions compared to Android devices. Image-based content also clearly boosts engagement and dwell time.
Dwell time & interaction rates Monetization by site category
The United States and Canada generate the majority of ad requests, with 73 percent of the global total. U.S. CPM is also the highest ($1.98), closely followed by the EU5 ($1.94) — and both top the global average of $1.90.
Most people would accept the notion that retail prices for any product, good or service are related somehow to the costs of supplying those products. That does not always mean the actual retail price is directly related to the cost of supplying the product. Grocers commonly choose to price a few items at a loss to get shoppers into stores, on the assumption that they will make money on the other products shoppers buy while in the store. One might also observe that profit margins for products that use a shared platform are not always the same. Some products offer higher margins, while others have lower margins. The reason many grocers sell finished meals is that the margin and gross revenue for meals is higher than for the raw ingredients used to make those meals. Mobile service providers, in fact fixed network providers as well, will face those issues in the decade ahead as the mainstay voice product loses the ability to support the bulk of network and operational costs. The problem for the U.K.'s EE and every other mobile operator in a developed market is that voice revenue is static, or dropping, while data isn't contributing enough to fund the network, so something has to give, The Register reports. Network sharing and outsourcing support can cut costs a bit, but ultimately customers will have to pay more for their data, the argument goes.
Brand new markets are chaotic, and especially most new markets that involve the Internet, applications and mobile in a broad sense. That generally works out in practice to contestants trying to innovate "at Internet speed," a problem for telecom service providers. That might lead observers to suggest that it is possible mobile service providers already have fallen far behind the strides made by payment networks, retailers, banks and application providers in the mobile wallet or mobile payment space. "Not many ventures have demonstrated good success so far," says Sandy Shen, research director at Gartner. But the market, and the contestants, continues to get traction. For Western Europe as a whole, Gartner forecasts that in 2012 the number of near field communications users will be 22.8 million and the transaction value for mobile payments including text messaging, WAP and NFC will be $20.3 billion (€15.7 billion) in 2012. One might argue from history that it is unreasonable to expect telcos to "lead" any big new market, at first. That does not mean telcos will, or will not, ultimately carve out a role, or even a significant role, in the business It does mean that expectations of "immediate" success do not correspond to the way telcos historically have achieved success in any of their leading markets or product segments. Telcos tend to wait for emerging markets to clarify, typically only after others have shown a revenue opportunity of some size exists. Then they move. Nor do telcos always move "organically." Very often, they "buy their way into new markets" by acquiring other firms in the emerging markets. One would be on rather firm ground in suggesting telcos might wind up as major participants in mobile commerce, mobile wallets or mobile payments in ways they have not yet revealed or decided to embrace.
AT&T’s third quarter 2012 revenue was up by 6.6 percent year over year. Some might call that a modest growth. Others might call it an essentially "flat" performance. What is clear is that there were continued significant changes in the revenue contributors. AT&T considers mobile services, fixed network data and business services, particularly managed information technology services, its growth drivers, for good reason. Mobility, fixed network data and business managed services represented 81 percent of total AT&T revenues and grew 6.4 percent versus the same quarter a year ago.
Mobile services represented 53 percent of total revenues, up two percent, year over year. Fixed network data services, including both consumer and business managed services, represented 28 percent, up one percent, year over year.
Fixed network voice (and all other miscellaneous revenue) generated 19 percent of total AT&T revenues, down from 22 percent, year over year. Some might say those changes illustrate a common problem in saturated markets. Early on, the game in a new market is "scale," the getting of more customers. When a market is mature, the game shifts. When it is hard to get a new customer, the emphasis shifts to "scope," selling more products to the existing base of customers. In changing markets, the emphasis likewise shifts from selling legacy products to selling new products. AT&T is seeing both trends: scope instead of scale and product substitution.
Up to this point, U.S. video programmers have largely resisted moves to shift delivery channels for their content away from video service providers for one simple reason. Doing so serves their financial interests. So what observers will continue to watch for are any developments that weaken the revenue stream generated by the video service distributors. Up to this point, it looks as though the "premium" channels, not supported by advertising and requiring an incremental charge, are likely to be early bellwethers. Netflix certainly believes that will happen. The reason is that such channels are most similar in fundamental ways to the value provided bu product substitutes such as Netflix, featuring heavy amounts of movie and other prerecorded material, rather than "live" events and content such as sports, news and weather. "Cord frayers" are those customers who have downgraded their cable TV packages instead of cutting the cord completely. And it makes sense that adoption of Internet streamed video might have a correlation with such behavior, if in fact online-delivered video is a functional product substitute. According to an October 2012 study by company Market Strategies, 25 percent of U.S. Internet users have dropped premium channel service in the past two years. The Market Strategies survey found that 46 percent of respondents cancelled one or more premium channels and, to save money, 44 percent downgraded to a less expensive TV package. As you might guess, "cord frayer customers" watch slightly less live TV than other viewers. That makes sense if Netflix and other services are largely substitutes for pre-recorded content, rather than live content. When asked if they watched less regularly scheduled TV or pay per view because of streaming, 33 percent of cord frayers said “yes,” compared to only 20 percent of other video customers. All of that suggests that the premium channels ultimately will be among the first major programming suppliers to make a major move to embrace "direct to consumer" distribution using streaming.
The number of U.S. telco video subscribers will rise from 8.8 million in 2011 to 18.6 million in 2017, according to Parks Associates now forecasts. That gain by telcos will come from share presently held by cable TV customers and satellite providers.
Satellite's share of the subscription video market will drop to 30 percent by 2017, while cable's share will fall to 52 percent, while telco IPTV share will rise to 18 percent. Cable video subscribers will decline from 60.7 million in 2011 to 56.1 million in 2017. But forecasts of market share vary, and at least part of the reason is differing views about the impact of cord cutting. A new ABI Research study suggests that nearly 20 percent of online video consumers consider online video as a replacement for entertainment video subscriptions. That obviously represents “significant risk” to the traditional video entertainment business.
ABI Research suggests the magnitude of potential revenue loss could range as high as $16.8 billion in the U.S. market, for example. Telcos won’t face those issues, as they are predicted by virtually every study to continue taking market share, as cable TV operators and satellite providers continue to lose market share over time.
But at least one analysis has satellite providers overtaking cable TV providers in revenue in 2017.
So the near term trends might not be “linear,” as some forecasters still project cable TV operator and satellite provider video revenues growing for a period. Digital TV Research forecasts.
But a change that shaves as much as $17 billion from U.S. providers would seem to be a longer-term danger, as ABI Research also suggests U.S. video entertainment penetration is dropping at a rate of about 0.5 percent per year through 2017.
"As proud as I am that a billion people use Facebook each month, I'm also really happy that over 600 million people now share and connect on Facebook every month using mobile devices," said Mark Zuckerberg, Facebook founder and CEO. "People who use our mobile products are more engaged, and we believe we can increase engagement even further as we continue to introduce new products and improve our platform." That, as much as anything, tells you the importance mobile now represents for Facebook, Google, Yahoo, Microsoft, Amazon, eBay and scores of other formerly "online" or "PC" companies.
Gross revenue and profit margin are the reasons virtually all telco executives globally worry about the business impact of over the top applications. In the past, telcos have sold "applications" tightly bundled with a network access, network transport and switching function. In a broad sense, that still is true. High speed access services actually is an application (Internet access) bundled with the network access and transport functions. Video entertainment likewise is a video app delivered using the network, while text messaging also involves a text-based communication app bundled with use of the network. And no matter what telcos do in the future, it will always be true that most of the revenue will be earned from apps that integrate use of the network.
“Revenues from those new streams will be small in the short term and the medium term, too,” Informa& Media principal telco analyst Thomas Wehmeier says. Wehmeier forecasts such services accounted for just 0.7 percent of global carrier revenue ($7.7 billion) in 2012.
