New AT&T U-verse "Screen Pack" Illustrates "Value-Based Pricing" Dilemma

AT&T is offering U-verse TV customers a new Screen Pack feature, costing $5 a month, and offering access to unlimited viewing of a library of about 1,000 movies. The content can be viewed on U-verse TV, U-verse.com and on the U-verse app for tablets and smartphones, AT&T says. 

In one sense, that is a simple business decision by one Internet service provider. There is no absolute reason why any particular service or application has to be sold at retail on any basis directly related to the cost of providing the service. 

In fact, there is no reason why a firm cannot sell a product at cost, or at a loss. Still, service such at Screen Pack, and streaming of Netflix movies, do raise questions. Ignoring marketing and fulfillment costs, what does bandwidth and content licensing really cost, for such services.

And what level of actual average usage is a "breakeven" business case? By some estimates, a standard two-hour high-definition movie might consume about 3.6 gigabytes. A standard definition movie of the same length might consume only about 700 Mbytes (much depends on coding, of course). 

One presumes there is some clear point where AT&T might start to "lose money" in terms of licensing fees, incur higher network usage that could affect peering deals, or incur consumer displeasure because monthly caps are breached. On the other hand, AT&T and other ISPs might someday create "video-specific" usage plans that accommodate the higher usage heavy video watching represents. 

Though it is not a real question at the moment, one wonders how to reconcile the cost of bandwidth for video, which currently might be said to "cost" as much as bandwidth used for voice, messaging, web surfing or other applications, but which has quite different quantitative dimensions, and a clear expected consumer price point. 

In other words, including costs of bandwidth, peering, marketing, delivery, licensing and other costs, people expect "unlimited streaming" for a small fixed cost. In that sense, the "cost" of any single video event is deemed to be relatively low, even if "value" might be moderate to high. 

Another way of putting matters is that a consumer would expect unlimited access to 1,000 movies for $5, while a bucket of voice minutes of use might cost an order of magnitude more, even while consuming a vastly-smaller amount of bandwidth. 

The way I used to describe this was that 24 hours of video delivery of an older analog TV system would easily represent the equivalent of scores of DS-3s worth of delivered "data."

Yet where a single local DS-3 might cost $10,000 a month, for a cable TV subscriber the cost of scores of DS-3s used for video would be $35 a month up to $80 a month. 

It used to take as much as 24 MHz of bandwidth to deliver a single, uncompressed full-motion video stream, or about half a DS-3. 

These days, using much better coding, we can squeeze multiple standard-definition TV signals into a couple of megabits per second, or less, and a single HDTV signal into 6 MHz of bandwidth. 

The point is that there is a vast difference between the "value" and the "price" of network resources and bandwidth used to deliver a single TV event, compared to two hours of talking or texting, or web surfing. 

On a revenue-per-bit basis, voice and texting are really high value, for the amount of bandwidth consumed. The revenue-per-bit for entertainment video is frightfully low. How to reconcile those extremes is going to be an issue, some day, if value-based pricing happens. 

Video has for some time been driving bandwith consumption, but without a good relationship between value and revenue, from an ISP perspective, or from a retail buyer perspective, based on prevailing tariffs. 

Is Amazon Web Services Worth $19 Billion?

Amazon Web Services is in many ways a proxy for the cloud services business, or at least the infrastructure portion of the cloud services market (infrastructure as a service or platform as a service).

Macquarie Capital estimates that the overall cloud market will hit $71 billion in revenue in 2015 and suggests AWS will have $38 billion, or 53 percent of the total market. Macquarie Capital analyst Ben Schachter therefore estimates AWS would be worth $19 billion, based on a 5X multiple of Macquarie’s 2013 AWS revenue estimate, or $30 billion using an 8X multiple.

OTT Video Will Remain 10X to 100X Smaller Than Subscription TV, Near Term

Technologists often think that because Internet-based tools can change the way people watch cable TV, such changes naturally will occur. Business issues, though are the issue, specifically the scores of billions content owners and video distributors make from the current business model. 

Consumers likely want to be able to buy only what they want, when they want it. But it is asking too much for a big industry to destroy itself. Over the top video revenues will grow, of course, but will remain a small fraction of the overall video subscription business, which might represent $170 billion just in subscription revenues (irrespective of advertising and commerce revenue) by 2016. 

Mobile Advertising in Developed Countries: $3.57 per person up to $36.35

Mobile advertisers in the United Kingdom spend more trying to reach each mobile internet user in the country than anywhere else in the world, according to new estimates by eMarketer. 

Advertisers spent $36.35 per mobile internet user in the United Kingdom in 2012. The United States has the third-highest spending per mobile internet user in the world; advertisers in the country spent an average of $31.50 to reach each one.

 Japan, which is the world's second-largest mobile advertising market in terms of absolute dollars, saw advertisers spend $26.23 per mobile internet user. 

What Makes Mobile Video Different?

If you were looking for one defining characteristic of mobile video, compared to all other formats, "sharing" would be a logical candidate for that unique feature.


In a recent survey by the Interactive Advertising Bureau of 200 mobile video viewers, 92 percent of respondents said that they share mobile video content with others, eMarketer reports. 

The most popular method of sharing listed by respondents was through posts on Facebook or similar social sites (56 percent). 

But 44 percent said they share videos simply by passing their mobile device off to a friend. In other words, formal sharing by instant message, text message, email or a social network post actually understates the amount of video sharing. 

54% of U.S. Homes Will Use Internet Access From "Non-Traditional" Devices by 2017

Some 66 million U.S. households, about 54 percent of all households, will use video set-tops, media players, e-readers, digital photo frames or cameras to connect to the Internet by 2017, Forrester Research estimates.

Such uses will largely be ancillary to primary broadband access connections, rather than full substitutes,  Forrester Research predicts. 

None of that should be surprising. Pundits have predicted for years that, over time, we would move towards ubiquitous Internet access, with computing embedded into the background. 

The extension of computing into automobiles, microwave ovens and refrigerators, payment mechanisms and other appliances is just part of the trend. 

Why 2013 Won't be "Year of Mobile Payments"

Without in any way implying that mobile payments will fail, 2013 will not be, as pundits often are fond of proclaiming, be the "year of mobile payments." The reason is simply that mobile payments requires changing significant business processes throughout a complicate ecosystem, and those changes always take time. 

Consumer demand is not so much the problem. It's all the other changes that have to happen, ranging from replacing store terminals and software to creating a critical mass of end user devices and awareness, as well as providing a clear value proposition.  

At the same time, expectations have been "dampened" by the continuing slow uptake of near field communications. But none of that should be surprising,  in a historical sense. 

Juniper Research has revised its forecasts for the global near field communications market, significantly scaling back its growth estimates for the North American and Western European markets. In some ways, that might be considered a "good" thing, to the extent that it follows a common pattern of technology adoption.

The most significant change to the Juniper Research forecast is the amount of transaction activity NFC devices will drive, as the new forecast reduced the number of NFC devices in use only slightly.

By 2017, global NFC retail transaction values are now expected to reach $110 billion in 2017, significantly below the $180 billion previously forecast. 


Such revisions are not unusual in the predictions business, especially not for a brand new market that depends on many changes in the ecosystem. That tends to mean excessive enthusiasm early on, with an under-appreciation of what is going to change later.

What is "good" about deflated hopes is that such periods seem "always" to happen, and are just a milestone on the way to eventual adoption on a fairly wide scale. So the argument is that dashed initial hopes mean the market is moving in the way one should expect: high hopes, disillusionment, and finally adoption.

Such hype cycles might be viewed as a typical part of the technology adoption cycle for any important new technology.

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. 

Smart Phones Displacing Several "Dedicated" Devices

It will come as no surprise to long-term observers of technology, but multi-purpose consumer devices are cannibalizing use of single-purpose or dedicated purpose devices such as cameras, watches and music or game players, according to the Accenture Consumer Media Survey 2013.

Purists will continue to note that such decisions typically involve a trade off. Few would argue that a multi-purpose device such as a smart phone always performs as well as a dedicated device for one specific application.

The point seems to be that "good enough" performance is key. Consumers would rather use a device that does many things, and means fewer devices to carry or purchase, compared to many discrete devices. 


From 2011 to 2012, ownership of tablets doubled, while ownership of digital cameras, DVD players, DVRs, portable music devices, portable game devices, and health and fitness devices
remained flat or declined. 

One might argue that another statistic--:"owned but rarely used"--might show even sharper contrasts. 

Devices with decreasing ownership are single-use products, including portable music players,
DVD players and digital photo cameras.

On the other hand, smart phone ownership increased from 26 percent in 2009 to 58 percent in 2012 while ownership of digital photo cameras decreased from 77 percent in 2009 to 68
percent in 2012, Accenture notes. 

UK Companies Not "Mobile First"

Two thirds of companies in the FTSE 100 have websites that are difficult to use on smartphones, a study conducted for the Financial Times shows. 

Whether that is a big problem or not is a matter of opinion. If such reliance on PC-formatted websites were really hitting sales, the firms would already have moved.

Granted, that will change. Google predicts more than half of all web searches will be carried out via mobiles within three years, compared with about a quarter now. One suspects most enterprises will have moved by then. 

But "search" is not the only expected change. Simply creating "mobile" websites probably will not be sufficient. Many enterprises also will need to integrate e-commerce or mobile commerce capabilities at the same time. 

Worldwide 32 percent of smart phone users spend $1 to $20 per month on m-commerce, followed by 12 percent who spend $21 to $40 per month on m-commerce. 

M-commerce revenue was expected to hit $11.6 billion in 2012, up by 73.15 percent compare to 2011, according to dazeinfo. 

Smart Phones, PCs Support Different Lead Apps

Though digital appliances (smart phones, PCs, tablets) often can support the same apps, the use cases still remain somewhat distinct. 

When smart phone owners are asked which of a set of actions (common to both devices) they regularly perform on a smartphone or on a computer, there are distinctive "lead apps"  the two devices are used, according to Harris Interactive. 

Despite the fact that it is a specialized form of personal computer, smart phones remain "communicating" devices whose distinguishing characteristic is "communications on the go," even though it is a multi-purpose device. 

That navigation is among the top uses for smart phones is another example of the use case being skewed to the "mobile" capability, even if smart phones also are heavily used in stationary mode, much of the time. 

For example, the immediate communication of text or instant messages is the most common smart phone activity (87 percent) and the least common use for a computer (20 percent). In contrast, email is the top use for computers (90 percent for all email uses combined). 

Keep in mind that email also is used by people on smart phones (72 percent), but more in a "reading" mode. That is an analogy to the way tablets are used as well: more for content consumption than content creation. 

PCs remain much more a device useful for content creation and shopping, though. The study also confirms that  smart phones are less used for e-commerce or shopping research than PCs. 

The Harris survey asked users to indicate which activities they believed they regularly engaged in, on PCs and when using their smart phones. Social media activities seem about evenly distributed.

	Using a computer		Using a smartphone
	%		% 5
Email [NET]	90	Send or receive text or instant messages	87
Send personal emails	84	Mapping, navigation, etc.	73
Read personal emails	82	Email [NET]	72
Send work emails	60	Read personal emails	67
Read work emails	59	Send personal emails	56
Take surveys	86	Read work emails	38
Research goods or services	81	Send work emails	32
Purchase other products or services (e.g. clothes holiday gifts, etc.)	78	Download free applications, music or videos	66
Social Media [NET]	69	Social Media [NET]	64
Read social media posts on sites or apps such as Facebook or Twitter	62	Read social media posts on sites or apps such as Facebook or Twitter	56
Share social media posts (e.g. news, jokes, pictures, etc.)	51	Share social media posts (e.g. news, jokes, pictures, etc.)	44
Write social media posts	50	"Check in" via social media	43
"Check in" via social media	28	Write social media posts	43
Find or research restaurants	61	Play games	56
Mapping, navigation, etc.	56	Find or research restaurants	53
Play games	52	Research goods or services	45
Download free applications, music or videos	38	Purchase applications, music or videos	42
Purchase applications, music or videos	37	Take surveys	24
Video chat (e.g. FaceTime, Skype, etc.)	35	Video chat (FaceTime, Skype, etc.)	23
Send or receive text or instant messages	20	Purchase other products or services (e.g. clothes, holiday gifts, etc.)	23

Qualcomm StreamBoost and the Limitations of "Dumb Network"

From time to time, when network architects think about how to best design large IP networks, and what is the "best" way to do so, there can be a divergence of opinion about how much "intelligence" to build in, and where that intelligence should be located.

These days, there is some thinking intelligence should be at the edge, while others argue logically that it should be at the core of the network. 

Count Qualcomm as among those who believe lots can be done, and should be done, at the edge of the network. 

Qualcomm Atheros,"StreamBoost™" technology for Wi-Fi routers and gateways manages and shapes traffic, and giving each connected device and application the priority and bandwidth required for optimal performance.

Qualcomm also is introducing a companion cloud service that monitors application usage and can adapt the router based on actual usage, to prioritize any new apps as well. 

Service providers might once again find themselves frustrated by the new technology, in a sense, as once again within the Internet ecosystem, innovation and value are properties of devices or Internet apps, not the transport or access. 

How Long Before U.S. Smart Phones Reach 80% Penetration?

If current adoption rates continue for another year and a half, smart phone adoption in the U.S. market will reach 80 percent by about August 2014. 

Does Wi-Fi Compete with Mobile Access?

With all the talk now of “heterogeneous networks” integrating traditional mobile with Wi-Fi access, it is not hard to understand why many find irresistible the notion that Wi-Fi could become a substitute for mobile broadband. That refrain has been heard, off and on, for decades.

The issue seems to be arising anew because cable operators contemplate using Wi-Fi as their “wireless” strategy.  But most major mobile service providers think Wi-Fi complements mobile, especially by offloading traffic that does not need to use the “mobile” network because users are stationary.

According to Signals Research Group, mobile data traffic in the United States alone is forecast to grow between 53 and 153 times from 2010 to 2020, compared with projected growth in U.S. cellular capacity of only 25 times over the same period.

To meet this demand, mobile service providers are adding macro network capacity by increasing cell site density, investing in new cellular technology, such as long term evolution, or LTE and LTE Advanced,and acquiring additional spectrum, and also offloading traffic to Wi-Fi networks.

To be sure, cable operators hope their own public Wi-Fi networks will offer their customers an “untethered” out of home experience without offering full mobility services under their own brand names, at least for the moment.

But most of the mobile industry sees Wi-Fi as complementary to mobile networks, and not as a competitor.

“Tariffs have consequences,” researchers at the Yankee Group rightly note. And tariffs, and the shaping of retail offers, can have a powerful effect on user behavior, in ways that can shape consumption of data overall and moderate and shape capital investment.

The mobile operator’s business objectives are only sometimes and partly related to improving mobile coverage) at specific locations. An equally important objective, in some instances, is the ability to supply more bandwidth without loading the mobile network.

The former business objective (coverage) can be provided either using a small cell, dividing macro cells or offloading to Wi-Fi networks. The latter objective (offload) is better satisfied, where possible, by encouraging use of Wi-Fi.

Softbank in Japan has tested the offload potential of dense Wi-Fi deployments and apparently has concluded that less than 25 percent of mobile data traffic can be offloaded to public Wi-Fi in the long term.

Those estimates correspond with figures Boingo suggests. Boingo believes about 22 percent of mobile traffic will be offloaded to Wi-Fi by about 2016.

Others might disagree. Cisco analysts say as much as 30 percent of mobile traffic could occur on Wi-Fi networks. And analysts at Juniper Research think more than 60 percent of mobile device traffic could be offloaded to Wi-Fi means by about 2015.

Others say studies show as much as 70 percent of smart phone traffic uses a Wi-Fi connection.

The larger point, though, is that Wi-Fi still is not a “competitor” to “mobile” networks and service, even as cable operators plan to use their own public Wi-Fi networks.

What Comes Next After Mobile Data Peaks?

At least until 2016, mobile broadband will be the product  that offers the single highest revenue contribution to growth, analysts at Ovum say. The issue, you might well say, is “what comes after that?”

The reason is simply that replacing the primary “voice” revenue source is a big undertaking.

Mobile broadband will grow 19.2 percent annually and generate $122.9 billion in incremental revenue between 2013 and 2016. Ovum predicts. Over a four-year period, that suggests annual revenue of about $31 billion.

That’s a healthy figure, but in the context of a global business generating about $2 trillion a year, or about $20 billion a month, even mobile broadband represents about $2.6 billion a month. In other words, the "law of large numbers" is at work. 

Any new revenue sources that aim to replace existing key sources have to become "big" at some point. Many of the "new sources," such as public cloud, enterprise Ethernet, IPTV, and managed and hosted IP voice, will grow at double-digit rates, Ovum suggests. 

But ask yourself whether any of those sources currently represent even half a billion a month in revenues.
International Telecommunications Union figures illustrate the issue. In 2011, there were about 8.8 billion subscriptions in service, including fixed voice, fixed broadband, mobile voice and mobile broadband.

But fully 67 percent of those connections are mobile voice lines. Only about 12 percent of those subscriptions are for mobile broadband. In other words, it takes quite a lot of growth of mobile broadband to “move the needle” on total revenue.

Similarly, only about 13.5 percent of total connections are for fixed network voice, and only about seven percent of total lines are fixed broadband accounts.

By definition, big changes in revenue come from changes in those key revenue sources, especially what happens with mobile revenue. 

Global Subscriptions	(millions)
Fixed-telephone subscriptions	2009	2010	2011
Developed	555	548	539
Developing	694	680	665
World	1'249	1'227	1'204
Mobile-cellular subscriptions
Developed	1'384	1'413	1'514
Developing	3'263	3'898	4'457
World	4'647	5'311	5'972
Active mobile-broadband subscriptions
Developed	450	516	635
Developing	165	256	458
World	615	773	1'093
Fixed (wired)-broadband subscriptions
Developed	271	293	309
Developing	193	235	280
World	465	528	589

Mobile broadband has been leading revenue growth for mobile service providers for some time. But revenue is a "leaky bucket." In other words, new revenue is being earned, but legacy sources are dwindling at the same time.

In some markets, such as Western Europe, the shift of revenue sources is even more pressing.

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, according to the European Telecommunications Network Operators Association.

Since 2005, fixed line subscribers have declined 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 telco revenues, accounting for 52 percent of the total market (142.7 billion EUR in 2011).

But you might reasonably ask whether it is reasonable to expect many new lines of business to collectively approach the $123 billion in incremental revenue contributed by mobile data services between 2013 and 2016.

One way of illustrating the magnitude of new revenues required is to note that, globally, mobile service providers will lose about $1 billion a month in voice and messaging revenues in 2013, Yankee Group analysts predict.

Over a four-year span, assuming the rate of decline does not change, mobile service providers would lose about $48 billion in voice and messaging.

But mobile service provider data revenue will increase from $319 billion in 2011 to $550 billion by 2016, so total mobile service revenue will increase from $1 trillion in 2011 to $1.15 trillion by 2016, the Yankee Group estimates. 

Note the figures: total revenue grows $150 billion. But mobile data grows $231 billion. So other revenue is dwindling.
The global mobile voice and messaging market will decline from $758 billion in 2012 to $746 billion in 2013. That's only about $12 billion, so most of the loss is coming from somewhere else, with fixed network voice being the logical culprit in most developed markets.

In terms of growth, mobile remains key. On a global basis, telecom service provider revenues, topping $2 trillion in 2012,  were generated mostly by mobile services. Some 60 percent of total revenue was earned by mobile operators, Ovum  says.

Mobile Broadband Revenue Will Surpass Fixed Broadband Revenues in 2014

In 2014, telecommunications companies will make more money from mobile broadband than from fixed broadband for the first time, Ovum projects.