The "Mobile Satellite to LTE" Bubble is Forming

Investing in U.S. mobile satellite ventures never has been too terribly profitable. You might argue Long Term Evolution is a different matter, so mobile satellite spectrum re-purposed for LTE support would make sense. But one has to wonder whether yet another phase of "mobile satellite" over-investment is about to begin.

Mobile satellite has for decades seemed like an eminently sensible idea to some, the theory being that mobile satellite service could reach many users out of range of the fixed mobile networks. But more money has been lost, than made, trying to do so, with some notable exceptions.

Not to worry, the new idea is to re-purpose such spectrum to build new Long Term Evolution mobile networks. So far, Lightwave has failed, Dish Network is waiting and Globalstar wants to join the party.

But one wonders whether the new efforts will be more financially satisfying than the former efforts, as there is a fairly consistent record of failure in the U.S. mobile satellite business. Some might remember Teledesic, for example.

But similar efforts to create new national wireless networks also have lost billions. Some will remember Teligent, for example.

In fact, the very fact that there exists mobile satellite spectrum to re-purpose illustrates the general failure of most mobile satellite ventures in the past. But LTE is not mobile satellite, it is fair to say. Neither, on the other hand, is LTE an automatic winner for every potential contestant. 

If you accept the notion that four national LTE providers is at least one too many, one will be skeptical about adding three more facilities-based providers. Nor is the effort to monetize mobile satellite spectrum especially encouraging.
LightSquared, for example, can trace its current business plan back to 1988, when it was known as American Mobile Satellite Corporation.

SkyTerra was born from American Mobile Satellite Corporation, renamed Motient Corporation, then changed to Mobile Satellite Ventures.

The point is that SkyTerra has experimented with a number of business models over the years. 


For its part, Dish Network has acquired DBSD North America, formerly called ICO North America. Reston, Va.-based DBSD, whose S-band satellite and planned terrestrial network foundered on a lack of financing, filed for bankruptcy in 2009.

Then there was Iridium, the Motorola-owned fleet of low-earth-orbit satellites intended to provide a range of data and voice communications. It went bankrupt, but not before being purchased by Craig McCaw's Eagle River investment entity.

The Globalstar project was launched in 1991 as a joint venture of Loral Corporation and Qualcomm. On March 24, 1994, the two sponsors announced formation of Globalstar LP, a limited partnership established in the U.S., with financial participation from eight other companies, including Alcatel, AirTouch, Deutsche Aerospace, Hyundai and Vodafone.

The point is that mobile satellite communications, at least in the U.S. market, has a long history, but precious little evidence of marketplace success. The latest move to repurpose most of that spectrum for use supporting Long Term Evolution networks, a sensible enough idea, especially if one assumes there is not much chance to gain spectrum from new auctions.
But perhaps nothing is more common in the early days of what investors believe will be “big new markets” than over-investment. Simply, too much money chases the opportunity. Historically, one fairly easy way to eventually lose lots of money is to invest in “mobile satellite” services.

So it is logical that owners of mobile satellite spectrum are attempting to repurpose that spectrum for terrestrial mobile networks, at the moment Long Term Evolution. To some extent, the companies simply are making a bet that the value of their spectrum will grow if available to support LTE, even if the actual networks aren’t built.

It’s a logical theory. So far, Lightwave has failed, Dish Network is waiting and Globalstar wants to join the party. Since, ultimately, spectrum is valuable, there is a logic to these efforts.

But there is probably a stronger argument that the spectrum ultimately gets used, than that three new networks get built. Clearwire, keep in mind, had precisely that same thought, believing it could build a big wholesale 4G business. But it hasn’t really worked.

Assume, for the sake of argument, that three new facilities-based Long Term Evolution networks were to launch, in a market where there are five facilities-based national LTE networks. What would happen?

The obvious and nearly immediate likely consequences is a destabilizing of retail pricing for mobile broadband service. And since mobile broadband is the current driver of mobile service revenue growth, that could have unpleasant consequences for incumbent providers.

The other medium-term consequence would be that the original business plans conceived by the new providers would begin to deviate from plan. The very market entry they represent would act to depress market revenues for mobile broadband, the lead application the new providers likely would emphasize.

It might take a few years, but the three new contestants likely would wind up being acquired. In fact, some might argue that is the whole point of launching the new businesses. There being a rather slim chance of actually rising to leadership of the mobile market, the better investment strategy is to create the network, build share, and then sell to one of the other contestants.

Assuming all that new capacity does wind up in the hands of the larger contestants, eventually, you might also ask whether a “spectrum glut” would result. Not necessarily. The incumbents are “rational” and would activate the new spectrum as needed, and not in a way that destroys the scarcity value of their networks.

It wouldn’t be so much that “supply creates its own demand,” as that supply would be activated in a controlled fashion, to support incremental demand, and not in a way that destabilizes retail pricing.

But there are other possibilities, such as one of the three proposed networks actually finding a new niche. Dish, with its combination of video entertainment and broadband access, would be a possible candidate.

Dish might not focus on “cheap broadband” only, but rather lead with video entertainment. Dish might merchandise broadband to sell video subscriptions, in other words.

Some might argue it is unlikely all three proposed new networks will be able to launch. More likely is an asset purchase of the spectrum by one of the other market-leading firms.

Dish Network, conceptually, at least has the "video entertainment" angle. Where all the other networks are based on voice and data, Dish presumably would want a video-driven business model.

Of course, mobile video has its own history of failed hopes.

In U.S. and France, Mobile Operator Consolidation Seems Likely

T-Mobile COO Jim Alling said that there could be consolidation in the U.S. mobile market that reduces the number of major U.S. carriers to three. Lots of observers have been saying that for years, and similar talk also is happening in the French mobile market.

In the meantime, though, T-Mobile USA is likely to seek acquisitions of its own to bulk up, as it is trying to do by buying MetroPCS. 

Ailing doesn't predict an immediate consolidation. He  says that such a move is possible now and is "likely in the long term." But lots of observers think the Softbank takeover of Sprint will eventually lead to a merger between Sprint and T-Mobile USA as well. 

In most markets, there are about three to four leading providers. Huge fixed costs explain why the number of facilities-based access providers seems always to be a small number, no matter what regulatory framework is employed, economists at the Phoenix Center for Advanced Legal and Economic Policy Studies  have argued. 

In fact, the starting point for analysis should always be that there were be only a few facilities-based providers of any communications or video service, notably in the terrestrial facilities business, and especially when referring to networks using some form of wired access, Phoenix Center researchers say. 



At least in part, gross revenue is only part of the problem for a market with four leading contestants. Profit margin might be the bigger issue.

Google-Dish Mobile Service a Go?

Though talks between Google and Dish Network about collaborating on a new Long Term Evolution network might not actually lead to something more concrete than preliminary talks, the way the possible venture could launch might have interesting ramifications.

First of all, all Google really wants is faster Internet access, and the potential partnership with Dish (and others, presumably) would spur continual development in that regard. That's why Google seeds markets and firms such as municipal Wi-Fi, fiber to the home and Clearwire. 

Rumors of a mid-2013 launch sound far too aggressive. The Federal Communications Commission has not yet formally approved Dish Network's request to use its mobile satellite spectrum for a terrestrial LTE network, so it is almost totally inconceivable a national network could be launched that fast.

There are some other avenues, such as Dish Network doing what some other upstart mobile operators have done: lease capacity at first while building its own network. Sprint is a possible partner, in that regard. 

The equally compelling development would be Dish and Google launching a national LTE network that is "data only," dispensing with voice except as an over the top application. Google Voice comes to mind. That would support both text messaging and voice, without the complications of voice infrastructure.

FreedomPop is doing something similar, providing national data access only, not its own voice service. The potential implications are clear: can a national 4G network actually sustain itself strictly on data revenues, without voice and messaging revenue?

Consider it from Dish Network's perspective: Dish clearly wants a platform to launch mobile direct video services. And Google already has concluded that basic model, using revenues from broadband access and entertainment video, offers a path to sustainable operation of Google Fiber. 

The rumored Dish-Google collaboration remains a rumor, not an established fact. But if it does materialize, we should get more answers about the "data-only" business model. Up to this point, Google seems to have concluded that a fixed network offering 1 Gbps service could only become self sustaining if it also offers video entertainment service. 

Groupon Issues Aside, Daily Deals Business Grows

Recent concern about daily deals in general and about one provider of "daily deals" (Groupon) in particular tends to cast doubt on the daily deals business as a whole. But the "coupons" business, of which daily deals are a part, continues to grow. "Social" ad spending is growing.

With the shift of consumer behavior to mobile devices, transactional marketing opportunities are growing as well. But isn't clear is how the market will continue to develop, though. 

Key revenue streams are emerging such as monthly or annual fees, commissions for loyalty business, bounties for new customers and mark-ups on transactional fees, according to BIA Kelsey.

Will French Mobile Market Consolidate?

We might soon get a real-world test of how many mobile service providers a stable market can support, as the three larger mobile service providers continue to face a pricing challenge from Illiad's Free Mobile operation.

SFR, owned by Vivendi, is in the midst of a strategic review that could have SFR merging with at least one other provider in the French market. The other mobile operators are struggling with revenue issues as they lower prices to compete with Free Mobile. 

So there now is growing speculation about industry consolidation. Many executives believe the market will eventually return to just three providers. That would correspond to the "rule of three" that seems to operate in most markets. 

In the meantime, all the providers seem to be looking at ways to reduce operating costs further, the Financial Times reports. 

Social Networking is Heading Towards "Mobile First"

As adoption of smart phones grows, so does the percentage of time people use social networks from those devices, instead of PCs. Nielsen says more than 60 percent of social network users get to their favored sites using their mobile device in Singapore, Indonesia, China, Korea and Hong Kong.

You might reasonably infer that mobile social media use is higher in those nations because smart phone penetration is highest in those nations. 

Actual smartphone penetration rate (per population) varies wildly among that bunch, from low penetration in Indonesia to more than 60 percent in Korea, Nielsen says. 

What is 5G?

Mobile networks have gone through distinct generations based on air interface, ranging from the original analog to second generation TDM and then a few flavors of 3G and now a small range of flavors of 4G Long Term Evolution.

Now U.K. regulator Ofcom is referring to "5G," which doesn't yet exist, for spectrum it plans to auction off in 2018, if all goes according to plan. 

Those frequencies in the 700 MHz band, which by that time will no longer be used to support TV services. 

Because the spectrum won’t be available till 2018, Ofcom, expects this will be used for the next technology following 4G or LTE, and it is therefore being referred to as “5G”. It's a fiction at the moment, since the industry has not agreed on what is to follow LTE. Nor is it clear LTE necessarily will need to be superseded by 2018. 

Roughly speaking, air interface generations have occurred about every decade, starting about 1980 for first generation, then 1990 for second generation, then 2000 for 3G and now 2010 for fourth generation networks. That implies the fifth generation will start to appear about 2020. 

Another Example of Regulator Impact on Business Strategy

Taxi and limousine regulators from 15 U.S. and Canadian cities plan to place restrictions on use of smart phone applications and online services that allow people to find and use taxi services, the  Wall Street Journal reports.

The story would be a familiar one for many veterans of the communications, broadcasting, cable TV and radio businesses, and a newly-heard story for technology industry participants. And that story is the foundational role played by regulations in enabling or barring a new industry from developing.

In fact, some global studies indicate that such entry restrictions not only are harmful to consumer welfare, but also lead to corruption. That flies in the face of theories of the benefits of “public interest regulation,” but the facts are hard to ignore, some might argue. Simply put, a study of practices in  85 countries shows fewer public benefits, not more, from heavy entry regulation. 

Deregulation has dramatically reshaped mobile service provider markets, for example, leading to a situation where it is common for a former monopolist to have only about a third of the market.



The other element of the story that will be familiar to many in the telecommunications business is the notion that the industry that is supposed to be regulated comes to ”own” the regulatory process. Such regulatory capture is widely seen as part of the reason large firms spend so much money lobbying in Washington, D.C., for example.

The rules, created by a task force of the International Association of Transportation Regulators,  would, for example, ban the use of a GPS-equipped smart phone in place of a taxi meter. Any experienced executive in the communications business could likely point to many instances where a regulator ruling on a technology matter had large business consequences for a service provider, or would-be service provider.

The rules would essentially kill Uber Technologies, and others like it, which use drivers' phones to determine the length and cost of rides. That appears to be a simple “technology” rule, but it also has business consequences.

The rule is, in some cases, and perhaps ultimately, about controlling entry into the business. The use of new smart phone based systems essentially undermines the licensing system used in the taxi industry. By banning the use of smart phones for metering, regulators also control entry into the business.

That is a hallmark of communications regulation as well, where a wide variety of rules, some based on technology, also prevent or enable contestants to enter the business.

The proposals also speak to retail packaging and pricing, another hallmark of communications regulation. The new rules would forbid "demand-pricing,” where fares for trips of equal length and destination could vary based on supply and demand.

As always, regulators will say the new rules are intended to protect the public from unfair fares and protect safety. The corollary is that the rules will protect an incumbent industry from competition that represents more consumer choice.

It’s an old story, indeed. The story might be less obvious in the wake of widespread deregulation of telecommunications in most nations, but remains a crucial element of the communications business. And the car for hire business, it now seems, is in the spotlight.

Whatever one thinks of the benefits or costs of entry regulation, there are costs.

More Worrisome Data on TV Viewing

Some television executives argue that use of digital video recorders explains sharp declines in "live" viewing of most major broadcast networks in the fall of 2012. That might not be entirely true.

It appears that consumer viewing of broadcast TV using a DVR also shows a decline that virtually matches the live TV results, the Wall Street Journal reports. In other words, DVR viewing and real-time "live TV" viewing fell by roughly the same amount. That indicates that a shift to DVR time shifting does not explain the drop of "live TV" viewing. 

The data are going to fuel speculation that people have been spending more time watching on-demand TV or online video.

The more worrisome explanation would be that people are just less interested in TV, overall. Younger people might just be watching less, in particular. 

Google Talks with Dish About Partnering for LTE

Google has held preliminary talks with Dish Network Corp. to partner on a new wireless service that presumably would be a Long Term Evolution mobile network, the Wall Street Journal reports. But Dish apparently has been talking to a few potential partners, so the talks with Google would not be unusual, except for the fact that Google would be bringing cash and application expertise, not network infrastructure skills Dish would need.

To be sure, there are lots of reasons for holding such talks, so nothing is certain. For starters, Dish Network, which has been talking about finding a partner to help it build out an LTE mobile network, if the Federal Communications Commission approves its request to use satellite mobile spectrum to support a terrestrial LTE instead, might want to pique the interest of other service providers.

Talking with Google is one way to do so. But Google has a vested interest in spurring faster broadband access, on as many devices as possible, for the simple reason that faster page loading increases the amount of ad inventory it can display to consumers. 

Google for that reason has invested in any number of ventures that promise to create faster broadband, ranging from municipal broadband to Clearwire to Google Fiber in Kansas City. At least so far, most of those initiatives have been intended to spur action by service providers, not to get Google into the service provider business. 

Google's building of its own branded "Nexus" line of smart phones has a similar process, namely, to illustrate what can be done with an Android handset. 

Additional Screens Get Used for Longer Form Video

It has been common for some years to refer to PCs, smart phones and now tablets as second or tertiary TV screens, in addition to the growing amount of online video consumed on standard TVs, but delivered using a game console or Internet-connected TV. 

And though most such Internet-delivered content remains "shorter form" fare, tablet owners spent 71 percent of their total tablet video viewing time watching videos 10 minutes or longer, a study by Ooyala finds. About 30 percent of total tablet viewing time was spent watching content over an hour long.

Desktop viewers tuned into live video for an average of 40 minutes.

Those statistics are important as they show growing willingness to watch the sort of longer form fare that in the past has been watched on TV screens. A shift of consumer behavior towards video viewing on screens of all sizes is one precondition for a future in which standard TV fare can be viewed conveniently on virtually any Internet-capable device. 

The other, and more important issue is a decision by programming networks to allow such viewing, and the development of what are to them interesting revenue models. 

Also, the amount of time users spent watching live video on gaming consoles more than doubled in the third quarter of 2012. 

Iliad Free Continues to Disrupt French Mobile Market

France's "Free Mobile" reached 4.4 million in the third quarter of 2012, ton reach market share of 6.4 percent, according to Reuters.

Perhaps more to the point, Free Mobile gained 60 percent of all net new mobile subscribers.

Iliad added 805,000 net subscribers. 

Orange gained 320,000 customers, SFR gained 40,000 and Bouygues Telecom gained 124,000. 

Price is Free Mobile's distinguishing trait, and the means by which it intends to disrupt the French mobile market. 

Fixed Network Broadband Market is Near Saturation

It almost seems impossible that fixed network broadband Internet access could have become a “legacy product” so soon, but that is what has happened. For the most part, nearly everyone who wants to use broadband already buys it. And for those who want access to the Internet, and don’t want to buy fixed network broadband, mobile broadband, using a smart phone, now is a growing trend.

Leichtman Research Group points out that  the 17 largest cable and telephone providers in the United States, representing about 93 percent of the total market, acquired about 580,000 net additional high-speed Internet subscribers in the third quarter of 2012.

Collectively, these service providers now account for over 80.7 million subscribers. Cable companies have 46.2 million broadband subscribers, and telephone companies have 34.5 million subscribers.

Keep in mind that not all households own or use computers, a primary indicator of potential demand for broadband. At about 80 percent broadband penetration, we already are very close to the percentage of households that own computers, use the Internet at home, and want to buy the product. .

Many studies show that income is directly correlated to PC ownership and broadband usage. Households with annual incomes of at least $75,000 buy broadband at at least an 87 percent rate. Homes with annual incomes of $30,000 to $49,999 buy broadband at a rate of about 64 percent.

That pattern roughly mirrors the TV market, where not all homes own TVs and not all households subscribe to video entertainment services, though most do. There are about 132 million U.S. homes. About 114 million have TVs. And there are about 96 million video subscriptions purchased by U.S. consumers.

Since many households own two or more PCs, it is difficult to determine precisely what percentage of U.S. homes actually are candidates for broadband services to support those devices.



The top cable companies added about 575,000 subscribers, while the top three telephone companies added about 5,000 subscribers, in large part because AT&T and Verizon actually lost customers.

AT&T and Verizon added 749,000 fiber subscribers (U-verse and FiOS) in the quarter, while having a net loss of 799,000 DSL subscribers.

The slow pace of net additions simply reflects a market that is nearly saturated. We will know when the market is completely saturated when net additions hit zero, or very close to it. .

European Mobile Providers Have a Tough 3rd Quarter 2012

SFR's third-quarter operating profit sagged nearly 17 percent, year over year in the third quarter of 2012,  Reuters reports. For the full year, SFRT now expects a decline of annual earnings of about 12 percent.

SFR added only 40,000 new mobile customers on long-term contracts and 24,000 broadband customers in the quarter, compared with larger rival France Telecom's 320,000 new mobile contract customers.

Vodafone Group reported service revenue that fell 1.4 percent in the second quarter ended Sept. 30, 2012.

Deutsche Telekom, the former German phone monopoly, last week reported a 0.1 percent decline  in third-quarter revenue. 

Telefonica, Spain’s biggest telecommunications company, said sales for the same period dropped 1.6 percent.

What Devices Will Tablets Cannibalize?

Tablets are among the fastest adopted consumer devices ever. The only other device that might rival tablets are smart phones. But one wonders: with global economic conditions difficult, are consumers shifting their spending from one device category to another? And are consumers shifting spending from non-technology categories to devices?

The evidence is probably ambiguous at this point. Perhaps the clearest evidence is that users are shifting spending from “high end” to lower-priced value PCs. But if that is true, one also wonders whether tablets might not start to cannibalize the “value PC” category in turn.

PC cannibalization has been the big issue so far. But it stands to reason that that opportunity costs exist in consumer electronics as in any other field of life. In other words, funds spent for one product necessarily cannot be spent for another product.

Gartner analysts have estimated that consumer spending on technology goods will increase to as much as $2.7 trillion by 2016, driving demand for everything from mobile devices to app store products.

In 2012, about $2.1 trillion€” will have been spent on mobile phones, tablets and smart devices to the services that enables these devices to connect to networks, €”a jump of $114 billion over what consumers spent in 2011.

Other changes might be happening, though. One might argue that a consumer structural shift is happening. A growing number of individuals, across all regions, may be placing more emphasis on purchasing, owning and enjoying technology than ever before.

At one time, the rite of passage for becoming an adult may have been buying a car and then a house. However, in 2012 the rising cost of running a car and buying a house may well cause priorities to be reset.

Renting may become more acceptable, and taking public transportation, taxis and renting cars may become preferable to owning them, particularly in cities with highly congested roads, Deloitte analysts argue. Spending less on housing and transportation enables more money to be spent on technology devices.


Consumers continue to favor lower-end desktop PCs and notebook computers over high-performance models, with the top-end systems accounting for only six percent of the market in 2012, according to an IHS iSuppli Compute Platforms Topical Report.

This year, for instance, the mainstream desktop PC category tied with the value PC category in the share of the global desktop PC market, with each segment projected to claim an evenly matched 46.9 percent by year-end. In comparison, performance PCs will be left far behind in third place, with a meager 6.2 percent.

Meanwhile in the notebook computer space, the value notebook segment will take 46.8 percent, compared to 44.0 for mainstream laptops and 9.2 percent for performance models, IHS argues.

The upshot is that it isn’t entirely clear whether demand for tablets is coming at the expense of some other category of PCs, some other category of devices, or whether some other part of consumer spending is being affected. 

But opportunity costs still apply, always. What people are spending on tablets and smart phones prevents spending on other goods and services.