Global Telecom Revenue Grows Unevenly

Though the global telecommunications business is predicted by virtually all analysts to be growing, that is not necessarily the case in every region. Global telecom revenue is one thing. The fortunes of service providers in specific regions are another matter.

The European telecom service market decreased for the third year in a row, by 1.5 percent, the European Telecommunications Network Operators Association reports. You might blame a tough economy for the contraction, but ETNO points out that in the most-recent year, in a context of moderate economic recovery (+4.2 percent for current gross domestic product in the region), the lagging performance suggests structural changes, not just cyclical economic impact.

But some observers might argue that economic woes are having an impact. And some might predict more turmoil in 2013.

The decline in European fixed telephony revenues is accelerating (-8.3 percent in 2011 and –31 percent over the last five years), driven in part by a negative five percent growth of fixed lines in service. Since 2005, fixed line subscribership is down 22 percent.  The bad news is that mobile revenues, long the driver of industry growth, also are declining (-0.6 percent)

Mobile voice revenues were down 4.7 percent in 2011 (–13.2 percent over the past three years), a decline driven by significant drops in some large countries: Spain (-8.3 percent),
France (-8.2 percent) and Germany (-7.1 percent).

Fixed network broadband revenue is the bright spot, as revenues were up 6.5 percent in 2011.

Mobile services, though, remain the bulk of telcos revenues, accounting for 52 percent of the total market (142.7 billion EUR in 2011).

The report also shows the divergence between European and the United States market, where it comes to revenue growth. Since 2006, U.S. service providers have done better than their European counterparts.

Precisely why that should be the case is not always so clear. One might argue that European markets are more competitive. One might argue European markets are more fragmented. One might argue that calling and texting tariffs have been higher, since there is more international roaming across Europe, compared to the continent-sized U.S. market.

Certainly, regulators have been squeezing revenue by mandating lower charges for cross-border roaming. Those lower tariffs of course will put pressure on gross revenue.

Moreover, Europe's share of the global telecoms market has been declining regularly over the recent years, from 31 percent  in 2005 to just over 25 percent in 2011 as the gap between
global growth (+3.2 percent in 2011) and growth in Europe widens.

4G, Better Devices Mean Mobile Video Is Set To Explode

Over the last two years,the U.S. mobile video audience increased 77 percent to 36 million viewers. Plus, tablet sales are expected to explode as well. in the coming years. More mobile devices means more mobile video consumers, and more mobile video consumption. 

But that's only part of the change. Faster mobile networks, especially 4G Long Term Evolution, mean better video experience. Larger screen devices, including smart phones and tablets, likewise make video experiences far better. 

By some estimates, faster networks increase the likelihood that mobile users will watch a video on their smart phones. 

Fighting "Dumb Pipe" Won't Work

Fixed network service providers are trying to swim upstream in struggling against the notion that they provide “dumb pipe” or “big pipe” access to the Internet. Ignore for the moment the unstated “low gross revenue or low gross margin” adjectives that often accompany the phrase “dumb pipe.”

The simple fact is that a fixed connection provides the lowest-cost access method for an untethered device. In the case of a public Wi-Fi hotspot, the incremental cost can be “zero.”

In the case of a branded service provider hotspot, the incremental cost also might be zero, though the precondition for such “no incremental charge” access is that the customer already buys a fixed or mobile Internet access service.

Likewise, a fixed connection, equipped with Wi-Fi, provides the lowest cost bandwidth for consuming entertainment video on a variety of devices.

There are, to be sure, other services and applications that fixed network providers supply. But it seems unlikely any amount of marketing is going to persuade end users that the primary value of a fixed broadband connection is “lowest cost bandwidth.”

That does not mean fixed service providers will not have other, and new services and applications to sell. But it is hard to deny the obvious end user understanding that a primary reason for using a fixed broadband connection is the sheer cost advantage, compared to a mobile bandwidth alternative.

Traffic from wireless and untethered devices will exceed traffic from wired devices by 2016, Cisco forecasts, even though, up to this point, fixed connections have represented  perhaps 90 percent of all bandwidth consumed by end users. It is perhaps a shocking prediction, but has to be put into context.

In 2016, wired devices will account for 39 percent of IP traffic, while Wi-Fi and mobile devices will account for 61 percent of IP traffic. In 2011, wired devices accounted for the majority of IP traffic at 55 percent, Cisco says. That is a huge change, driven in part by a shift of Internet consumption away from “PCs,” the traditional driver of Internet traffic.

At the end of 2011, 78 percent of IP traffic and 94 percent of consumer Internet traffic originated from PCs. By 2016, 31 percent of IP traffic and 19 percent of consumer Internet traffic will originate from non-PC devices such as smart phones and tablets, gaming consoles and Internet-connected TVs.




Globally, mobile data traffic will increase 18-fold between 2011 and 2016, Cisco says. Mobile data traffic will grow at a compound annual growth rate (CAGR) of 78 percent between 2011 and 2016, reaching 10.8 exabytes per month by 2016.

Also, global mobile data traffic will grow three times faster than fixed IP traffic from 2011 to 2016.
Global mobile data traffic was two percent of total IP traffic in 2011, and will be 10 percent of total IP traffic in 2016.

One of the key observations is the difference between tethered Wi-Fi and mobile access. If 61 percent of all traffic is created by untethered and mobile devices, while 10 percent of demand is driven by mobile devices, then it is fairly obvious that Wi-Fi-based use of the fixed networks could represent half of all bandwidth demand.

In other words,untethered devices--including mobile devices in Wi-Fi mode--become the key drivers of overall Internet demand.

What Will Dish Network Do if FCC Approves LTE Plan?

The Federal Communications Commission is close to approving the request by Dish Network to use its mobile satellite spectrum to build a terrestrial Long Term Evolution network. That would seem to be welcome news for Dish, but there is a catch, Wall Street Journal reports. 

To prevent interference, the agency is likely to bar Dish from using some portion of its bandwidth, a move that Dish CEO Charlie Ergen has said  "would be a game changer for us," making his bet to enter the wireless industry "increasingly risky." 

Basically, the limits on use of some spectrum at the high end of the frequency range would reduce uplink bandwidth about 25 percent. Dish also argues other relatively typical sources of link degradation would reduce bandwidth another 25 percent. 

So, if approved, the issue is whether the stated objections really would cause Dish to abandon its plans, modify those plans or proceed after making the strongest argument it could to use all the spectrum. 

Given the FCC's handling of interference issues posed by Lightsquared, Dish Network has to have known all along that some sort of guard band would be required. On the other hand, many carriers operate asymmetrical networks with more bandwidth provided downstream than upstream. How big a marketing issue Dish might have, with less upstream capacity, is unclear. 

Also, to the extent that the key innovation would be a mobile video service, which would be highly biased to downstream bandwidth, asymmetry might not be a killer issue.

What Does T-Mobile USA Mean by "Un-Carrier?"

T-Mobile USA, which has named Michael Sievert, a 20-year marketing veteran of the tech and telecom sectors, as the company’s new chief marketing officer, also comes with the cryptic comment that T-Mobile USA intends to "redefine wireless as America’s un-carrier,” said John Legere, president and CEO of T-Mobile USA.

The phrase "un-carrier" could have lots of meanings, none of which yet are clear. At some level, it could mean T-Mobile USA simply wants to try and behave in a way different than other major mobile service providers, in pricing, packaging, customer service, business strategy or some other dimension of routine market positioning and operations. 

More fundamental meanings could involved a redefinition of what "product" T-Mobile USA offers. That seems less likely, though some upstart contestants already are moving to a "data only" approach. 

Market structure seems poised for changes, to be sure. But one gets the feeling that equally significant changes in product definition and pricing are about to be tested, for a variety of reasons.  

We have been for at least a decade in a period of relative quiescence as far as the fundamental structure of the U.S. mobile market is concerned. That appears likely to be tested in the next several years. 

In Broadband Economy, Does Every Winner Have a Loser?

Economics has in the past been called the dismal science because of a fear that it describes a "zero sum" world where demand for resources will outstrip supply. That "Malthusian" perspective seems not to have such analytic power these days, in large part because human ingenuity has consequences. 

People are able to come up with solutions for new problems in ways that are not, in fact, zero sum. A new analysis of the economic impact of broadband suggests lots of ways people have saved money by using the Internet. 

But one might also note that major economic and technological innovations, while positive for society overall, rarely are "cost-less" in the sense of having no "losers." In fact, markets work because suppliers of products people prefer more survive, while suppliers of products less desired do not survive. 

To the extent that the Internet allows more efficiency in just about any endeavor of human life, that efficiency means there is less room for  "inefficiency" on the supply side of life. But one person's cost is another person's revenue. 

So broadband access, though not a zero sum game, also means there are some losers. Virtually any part of a supply chain involving "distribution" will see distribution costs decline, but that also means income of distributors declines.

Production is affected as well, though. That is easy to see in the media business, for example. Broadband does, one might argue, have powerful and positive social and economic impact. But there also are winners and losers. The correspondence is not one-to-one. There likely is no zero sum outcome. But that doesn't mean all we have is winners. We have losers as well.  

Which Part of U.S. Mobile Market Might Google Want?

The rumors about Google working with Dish Network to build a fourth generation mobile network are not yet confirmed, and might not even happen. 

But it is a jarring notion in some quarters, simply because Google would have a motivation not shared with mostly all the other service providers. 

Google's business model is based on advertising revenue, so all its other moves in the operating system, payments, browser, device and broadband access areas essentially are intended to spur more competition and investment in those markets, in ways that increase Google's ability to sell advertising and marketing services. 

That's quite a lot of investment that has indirect benefits. And that's the crux of the Google challenge. Google is quite willing to behave in ways that essentially lower the price of a product others sell. 

Lower broadband access prices, broadband on every device and faster broadband all around are inputs to Google's business model. 

Still, some observers might look at any future Google-influenced or partly Google-owned Long Term Evolution mobile network as an almost-certain exercise in futility. 

After all, the entire U.S. cable industry, which also has a vested interest in mobility has struggled for at least a couple of decades to figure out "how to do wireless," and basically has concluded it is too late to get in.

That is not stopping would-be disruptors such as FreedomPop, and might not stop Google, Dish Network, Globalstar  or LightSquared, either. For some of those entities, the suspicion remains that the real objective is simply to enhance the value of spectrum holdings by making noises about LTE and then enticing another firm to buy the spectrum. 

FreedomPop wants to try disrupting the market, though, and that might be what Google also could find attractive about its own LTE mobile network. 

Disruption likely is on Softbank's agenda as well.  

And that might be the developing challenge. There are lots of contestants making some amount of noise about getting into the mobile business. And some of those contestants likely will try not only disruptive levels of pricing, but might also try to recraft the approach to the market.

Google has a big interest in broadband Internet access, not voice. Dish Network has a huge interest in mobile video, while mobile broadband access is just a way to do that. Neither firm seems to believe voice or text messaging is a core interest. 

And that should lead to retail packaging that simply tries to create a different value proposition, namely mobile Internet and mobile video, not "communications" in the more established way. 

And such efforts are fairly common when new contestants try to disrupt a market. 

“Untethered” Now is the Fundamental Reality of the End User Experience

If you have been in the telecom business for a while, it is normal to think of the “fixed network” business and the “mobile” business as two distinct fields of endeavor, and from a provider perspective, that often makes sense.

From the standpoint of an end user, customer, application or device, the distinction is blurring, though. In fact, one might argue that, with some notable exceptions in the business customer segment, “access” now is untethered, whatever the formal nature of the distribution network.

Whether one looks at smart phones, tablets or PCs, “access” typically is “untethered,” without the need of a cable connecting to a network. To be sure, mobile devices sometimes are used while a customer is actually “moving” about. But, most often, that is true of voice or messaging, with some light use of data services.

By volume, though, most use of Internet services and apps is conducted while users are stationary. That likely blurs, in the consumer's mind, all differences between "networks." It might go too far to say that most consumers see no difference between use of public Wi-Fi hotspots, home Wi-Fi, at-work Wi-Fi and the mobile network.



People understand that sometimes they "pay for access," and sometimes they do not. But that, in itself, might point to the near-commodity nature of broadband access, in some situations. When the chief difference is "sometimes I pay, sometimes I do not," that product has few differentiating characteristics, except the "sometimes I pay" aspect. 

And that creates a logical expectation, in the mind of the user, that the chief difference is whether one pays, or not. The single exception is that people also know they can use the mobile network "on the move," while the Wi-Fi experience happens when they are stationary, or sitting. 

But that is not much source of differentiation. Also, the growing realization that untethered usage does not require incremental spending should result in long term changes in end user preferences. People logically should start asking themselves how much extra value full mobility provides, if "no incremental charge" usage is possible when people are stationary.

To be sure, full mobile access will logically deserve a premium. But the growing issues will be "how much of a premium" is reasonable. Don't be surprised if the ultimate answer is "not that much."

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.