Why U.S. High Speed Access Costs So Much

With the possible exception of Google Fiber's 1-Gbps symmetrical broadband service pricing in Kansas City, Mo. and Kansas City, Kan., few consumer customers likely would agree that retail prices for 100-Mbps or faster services are "affordable." 

Some business users, and to date it is likely that most buyer of 100-Mbps services are businesses, might say the price-performance of a 100-Mbps high speed access service is reasonable, though, especially compared with retail pricing of much-slower T1 services, for example. 

Still, many observers would point to prices for 100-Mbps services in other countries as examples that U.S. services are overpriced. 

Prices for residential gigabit service range from a low of $26 per month for Hong
Kong Broadband’s service to a high of $560 per month at network operator Turkcell, according to a study by Joe Savage, Telecom ThinkTank principal, and Michael Render RVA Market Research principal.

It is hard to ignore South Korean pricing of $27 a month for a gigabit per second service, even given the high density that characterizes most South Korean networks (higher density means lower per-dwelling cost).

But there are logical reasons for such price differences, namely that prices roughly correlate to the capital investment required to pass a subscriber in the serving area, the authors say. 

For example, it costs $200 per home passed in Hong Kong, compared to $1,000 to $4,000 per home passed in Europe and North America, the study notes. 

Population density might be the single most important factor determining the cost of any fiber to home network build. A related issue is average “loop length,” a metric that is roughly related to population density.

U.S. service providers have to supply service over much longer average loops than service providers in Europe, or in many “city states” that feature high-density housing. Basically, retail cost everywhere is related rather directly to network investment cost.

That has direct implications for retail pricing. In other words, based strictly on the costs of the infrastructure, consumer broadband "should" cost an order of magnitude more than in Hong Kong.

Google Fiber in Kansas City is among the first examples of a U.S. service provider trying to deliver an arguably disruptive level of bandwidth that is an order of magnitude or even two orders of magnitude faster than what most consumers can buy today (1 Gbps, not just a hundred megabits per second), at vastly lower prices, for such a service.

The issue is whether a cable company or telco, with different cost structures, can afford to replicate that level of retail pricing. Some would argue they cannot. Google might have a few advantages related to outside plant costs, but nothing significant enough to affect its costs of construction.

The potential long term advantage will be in the operating and marketing cost arena, plus the overall lower overhead. Google does not carry the huge pension obligations a telco does, for example.

The point is that there are clear reasons why retail pricing for high-speed Internet access is so different in different markets. Costs of construction, not to mention all other costs, can vary by an order of magnitude.

Turn an iPod Touch into a Mobile Phone

FreedomPop has just announced that its WiMAX-capable iPod touch cases are now shipping. The sleeve wraps around an iPod touch and uses the Clearwire network to create a local Wi-Fi connection for the touch that is nomadic. 

The sleeve costs  $99 and reportedly operates for six to eight hours on a single charge. FreedomPop also is working on a mobile VoIP app, allowing a FeedomPop-equipped iPod touch to function just like a mobile phone.

Smart Phones Drive Global Device Revenue

The global mobile phone market grew 2.4 percent, year over year, in the third quarter of 2012, lead by Samsung and Apple. Nokia dropped off the "top five" list of smart phone vendors. 

Vendors shipped a total of 444.5 million mobile phones in the third quarter of 2012,  compared to 434.1 million units in the third quarter of 2011,  IDC says. 

In the global smart phone market, suppliers shipped 179.7 million units in the third quarter of 2012,  compared to 123.7 million units in the third quarter of 2011. 

The 45.3 percent year-over-year growth was slightly above IDC's forecast of 45.2 percent for the quarter.

Top Five Smartphone Vendors, Shipments, and Market Share, 2012 Q3 (Units in Millions) 

Vendor	3Q12 Unit Shipments	3Q12 Market Share	3Q11 Unit Shipments	3Q11 Market Share	Year-over-year Change
Samsung	56.3	31.3%	28.1	22.7%	100.4%
Apple	26.9	15.0%	17.1	13.8%	57.3%
Research In Motion	7.7	4.3%	11.8	9.6%	-34.7%
ZTE	7.5	4.2%	4.1	3.3%	82.9%
HTC	7.3	4.0%	12.7	10.3%	-42.5%
Others	74.0	41.2%	49.9	40.3%	48.3%
Total	179.7	100.0%	123.7	100.0%	45.3%

"TicToc" Messaging App Going Global

Korea’s "over the top" messaging service TicToc has set its sights abroad with the international launch of TicToc Plus TicToc Plus on the Google Play store and an upcoming iPhone app.

The recently updated TicToc Plus Android app offers unlimited calls and messages, integration with Facebook photos and YouTube videos, stickers and group chat. The app is currently available in English and Korean with more languages planned soon.

Over the top messaging apps are anything but unusual these days. But what is more noteworthy is that Tic Top Plus is owned by Korean mobile service provider SK Telecom. 

Some service providers, such as Telefonica, have launched their own services. Others, such as Sprint, simply integrate with one or more favored over the top providers. Embrace or resist, every mobile operator has to have a strategy for dealing with over the top messaging and voice.

Text messaging (short message service, or SMS) still dominates the mobile messaging market in both traffic and revenue terms. 

SMS revenue is forecast by Portio Research to dominate worldwide mobile messaging to 2016. MMS is the second most successful non-voice mobile service, but generates less revenue than mobile e-mail.  Mobile IM generated the lowest revenue in the mobile messaging market in 2011, but it will surpass MMS revenue by end-2016.

SMS made the highest contribution to worldwide mobile messaging revenue in 2011 with a 63.5 percent share, Portio says. In 2016, SMS will continue to lead other messaging services, but its revenue share (of the then $310 billion market) will have eroded to sub-50 percent.

Vodafone to Launch its Own Mobile Wallet Globally

Vodafone is launching its own mobile wallet service in 2013, allowing Vodafone’s customers to use their smart phones to conduct a number of transactions, including paying for goods and services at the point of sale, during 2013 CorFire says. 

Near field communications seems to be the technology of choice for the global initiative. 

NFC remains a controversial choice of device to point of sale terminal communications in some quarters, but NFC clearly is the favored mobile service provider communications protocol. 

Vodafone has approximately 406 million customers in its controlled and jointly controlled markets and equity interests in over 30 countries across five continents and more than 50 partner networks worldwide. 

As is often the case, Vodafone also participates in other mobile wallet ventures, including Weve, the newly rebranded "Project Oscar" venture of a U.K. mobile operator consortium  including EE (Orange and T-Mobile), Vodafone and O2. 

New Nexus 7 Pricing

Though the official launch of the Google Nexus 7 tablet is delayed by Hurricane Sandy, pricing news is available because retailers already are advertising them.

The 32GB Nexus 7 is priced at $249 and the 16GB version is priced at $199 at Office Depot,  Droid Life reports. 

The prices are not terribly surprising, given trends in the broader market, especially pricing of Amazon devices in similar form factors. 

Tablet computers will see an explosion in sales over the next four years, selling 60 percent as many units as PCs by 2015, Gartner predicts. 



Most analysts predict that PCs will outsell tablets for quite some time. Forrester Research has estimated that in 2015, PCs, including notebooks and desktop units, still will outsell tablets in the U.S. market by a better than two-to-one margin. 

U.K. Mobile Operators Launche "Weve" Mobile Wallet

The United Kingdom mobile payments venture originally code named "Oscar," and operated by a consortium of U.K. mobile operators including EE, (Orange and Deutsche Telekom), Vodafone and Telefonica’s O2, have chosen the retail brand name "Weve."

Along the way, the consortium has modified its anticipated revenue model, as have others in the young market. Originally, the idea was that the consortium would provide a single network platform for all participating card issuers (banks, for example), and would take part of the transaction fee.

After a European Union investigation of potential antitrust issues, as well as stout opposition from Visa and MasterCard clearing networks, Project Oscar was refocused on mobile advertising and mobile commerce. 

Now "primarily aimed at advertisers looking to engage in mobile commerce," Weve has adopted the "mobile wallet" approach also used by Isis and Google Wallet. 

An Extensive Agent Network Needed for P2P Payments

An extensive agency network seems to be emerging as a fundamental requirement for a successful peer to peer money transfer service in Africa. For instance, Kenya’s M-PESA has more than 40,000 agents countrywide where customers can make and receive payments, payments can be made via Western Union from 70 countries and it has in excess of 900 paybill partners.

Interestingly M-PESA has never really gained traction in South Africa, where it was launched by Vodacom in 2010. Some would blame high fees and a tougher banking environment for that sluggish performance. 

Still, it stands to reason that convenience, in form of lots of places where people can deposit and redeem cash, would be crucial for success. 

Xcel's "Smart Grid" Fails in Boulder, Colo.

The idea of a "smart grid" is sexy. A growing number of communications service providers think "smart grid" projects offer lots of revenue potential for machine to machine communications services. And a recent failure by Xcel Energy in Boulder, Colo. shows why communications service providers should be optimistic. 

Xcel Energy planned to launch "the world's biggest project" in Boulder, Colo., and got started in 2007.  

Xcel's "SmartGridCity" was supposed to manage power flows, allow more wind and solar on the grid, and enable consumers to control electricity consumption.

Among other things, Xcel spent $21 million to build its own broadband fiberoptic network linking homes, substations and central control in Boulder. Xcel it won't do that again. 

Five years later, costs have nearly tripled to $44.5 million, and Xcel wants its Colorado customers to pay for the cost overruns. 

That experience might suggest the advantage access providers have: they can provide the communications network function at a fraction of the cost of a power company building its own network. 

Economic Development Officials Think Broadband Helps

It is not a surprise that economic development executives think broadband helps their local economies. That is not too surprising. Most people probably think so, as well. It is probably quite accurate to say that broadband doesn't hurt. What really is hard to say is how much it helps. 

Consultant Craig Settles conducted a survey in partnership with the International Economic Development Council (IEDC) about what 365 economic development professionals think about broadband. The survey was sent to 7,000, so an order of magnitude more officials declined to say whaqt they thought. 

The respondents clearly see upside to broadband, both wireless and fixed. The problem always is that correlation is not causation, and it is impossible to analytically separate all the other factors that contribute to economic growth, from the particular impact of broadband. 

You might say broadband is "hygenic," a precondition for business decisions, but not a sufficient economic driver, on its own. As clean water, waste disposal, air service, rail connections and electricity are likewise necessary, so is broadband. But electricity does not "cause" economic development.

The lack of electricity clearly inhibits potential development, but the converse is not true: electricity does not, by itself, cause development to occur. 

Are We All Becoming Geeks? Is Technology Adoption Curve Shifting?

The ways products are adopted usually are depicted as a bell-shaped curve. The notion is that, at first,  "geeks and nerds" adopt new technology because they like technology.

Only later do people who value the benefits start to adopt. Technology features matter most to the early adopters. Value, ease of use and price matters most to the great majority of adopters. Price matters quite a lot to late adopters. 

But there are signs the curve might be shifting, with more consumers than before paying attention to technology aspects of the products, some might argue. 

Instead of the traditional bell curve, there is a sort of "smooshing" in the direction of earlier adoption. 

Does New Technology Create Net Jobs, or Destroy Them?

Most of us believe that technology creates net jobs. But history might suggest the net impact is more mixed. Agricultural automation allowed farmers to do vastly more work with vastly less people, for example. 

And it is possible that, on a net basis, software and hardware businesses, while creating new jobs, might displace more jobs, overall, than they create. 

Some might argue the same also is true of broadband access, which virtually all of us might suggest is essential for learning and working in the 21st century. But some studies suggest the answer is quite nuanced. 

One study suggests there are clearest benefits to "high technology" firms, fewer benefits for other firms, and limited benefits for consumers. Other studies also suggest there is a nuanced or subtle mix of benefits. 

Consider the example of "rural" broadband, a seemingly clear case of how high speed Internet access can boost economic activity. The argument is that businesses will not locate in areas where high speed access is not available. 

That arguably makes sense. But think about it: places where high speed access is best tend to be places where there are lots of people, lots of economic activity, the best transportation facilities, the closest distance to big markets, the biggest pools of skilled workers and the largest populations of consumers. 

For that reason, one might argue that the best high speed Internet access follows people, rather than people following high speed access. It is an observation that cannot be scientifically tested, but correlation is not necessarily causation, in other words. 

Some also might argue that the ability to work from home also has a negative impact on potential job creation in a particular rural area, since the connectivity might allow a job to be created remotely, even if the employee lives in a remote area and telecommutes.

Any many would argue that the impact is hard to discern, either way. That is not to say promoting broadband is wrong. We all agree it is important infrastructure. What is not so clear is whether spending too much on areas where broadband delivery is not so good will actually change very much in those areas. 

Social equity is a praisworthy goal. But there is a difference between arguing that residents in rural areas should have substantially the same service are residents of urban areas, and arguing that providing such access equity will actually do much to boost economic activity in rural areas. 

Talk to anybody in the business of rural communications and you quickly will find there are few customers of any type, business or consumer, to serve. And without a critical mass of people, many businesses simply cannot afford to locate in a rural area, no matter what the potential benefits might be. 

There still is an income effect, but less than if a company were physically located in a rural area. One example is offshore call centers, or offshore software development. Because of high speed communications, jobs that might otherwise be sited in one country are actually sited in another country. 

The bigger issue is now whether high speed access supports existing companies and jobs, or creates some number of new jobs that did not exist before. The larger question is whether those new jobs actually destroy other jobs in the broader economy, as agricultural mechanization has done. 

Mobile Wallet Runs into the "Adoption Curve"

Mobile wallets or mobile payments are not the first new technology-based innovations presented to U.S. consumers as the "next big thing." So far, actual adoption has been fairly limited, outside of Starbucks stores, where Starbucks operates what most would consider to be the most-successful closed-loop mobile payments or mobile wallet service.

"Mobile payments and purchasing at the physical point of sale have experienced little adoption in the U.S. marketplace despite abounding innovation in mobile and payments technologies," according to Javelin Strategy & Research.

But that will change, for other reasons. A major shift of credit card security technology is coming, and that will be favorable for mobile payments.

Globally, an estimated 76 percent of point of sale terminals and 45 percent of cards are EMV‐enabled. “EMV” stands for “Europay, MasterCard and Visa,” a global standard for integrated circuit cards (IC cards or "chip cards") and IC card capable point of sale (POS) terminals and automated teller machines (ATMs). EMV often is referred to as a “chip and PIN” approach to security, as contrasted with the more-familiar U.S. “magnetic stripe” found on the backs of credit, debit and prepaid cards.

Right now, about  10 perent of U.S. terminals deployed in the United States support EMV. About one percent of cards use EMV.

The potential of mobile payments based on near field communications, which Javelin believes will ultimately emerge as the most successful mobile payments technology for the long-term, provides a powerful justification for merchants to invest in dual‐interface EMV terminals that support contactless NFC transactions and NFC-based mobile wallets.

“Javelin believes that NFC will ultimately be the leading technology underlying mobile wallet solutions, and implementing the EMV standards will facilitate that,” said Beth Robertson, Javelin director.

In other words, if most retail merchants upgrade to EMV, and they will, then the companion NFC support will create a ubiquitous point of sale infrastructure to support NFC-based payments. And retailers will adopt EMV because the payment networks have clearly said any merchant not using EMV will in the future bear the losses from fraud, not the payment networks, as now is the case.

That’s a big enough carrot to drive 100 percent of merchants to adopt EMV.

But new technologies historically take some time to reach 10 percent, then 50 percent, then virtually ubiquitous adoption. To be sure, there has been a tendency for new technologies based on digital and electronic technology to be adopted faster. But a decade period to reach perhaps 10 to 20 percent adoption is hardly unusual.

That is not much of an issue for point solutions like computers that can be used without lots of additional change in infrastructure. That is not true for highly-complex ecosystems such as payments, though.

ATM card adoption provides one example, where "decades" is a reasonable way of describing adoption of some new technologies, even those that arguably are quite useful. 

Debit cards provide another example. It can take two decades for adoption to reach half of U.S. households, for example. 

Gartner Forecasts Android Tie With Windows By 2016

Apple, whose iPad, and now iPad mini, are expected to achieve sales of 219 million units globally by 2016, Gartner says. That would make Apple the leading provider of tablet computers.

Android suppliers will collectively hold second place, with 109 million in unit sales. Microsoft will grow from 2.3 million units in 2012 and 9.3 million in 2013 to 34.4 million by 2016 for third place. The total tablet market may reach 364 million units by 2016, Gartner predicts. 

Freemium Works: Leads App Store Revenue Sources

If you look at revenue being earned by mobile apps, the "freemium" approach seems to be working. In fact, actual revenue earned by app providers leans heavily in "in direct" revenue earned from users paying for content or products supplied by "free" apps, compared to direct revenue earned by selling those apps to use.

Over the last two years, global revenues for freemium apps on iOS have more than quadrupled. In 2012, worldwide freemium revenues on Google Play have grown 3.5 times, according to App Annie. 

Those revenue growth figures do not tell the full story, unless you compare the growth and absolute revenue figures with the revenue created by apps whose revenue model is "you buy the app."