The Value Driving Small Business to Mobile Payments

One issue proponents of many forms of mobile payment have had to grapple with is the issue of "value" for the end user, when the success of any such venture hinges on making several classes of end users happy, all at the same time.

That ecosystem includes people who buy things, the retailers who sell things, the financial institutions providing the end user accounts and the processors who handle the transactions, Unless each segment sees clear value, it is tough to create the new business. 

PaySimple, Intuit, GoPayments, PayPal Here, Square and Flint Mobile are solving one key element of the "value" question for some retailers, especially smaller businesses that always have cash flow issues. 

A primary benefit of retailer mobile payments systems is that sales are converted into cash inflows, within a day. That doesn't change the value proposition for shoppers, necessarily. Nor do such systems always and necessarily work to the advantage of banks or settlement brands. 

But getting paid right away is enough value for small businesses to drive adoption fast. Up to this point, convincing many retailers to invest money in mobile payments has been a tough sell. 

For small businesses, that increasingly is not the case. The cost of terminals is not much of an issue. The value does not have to hinge on "lower fees" for taking credit card or debit card payments. Just getting paid fast is the driver. 

EC Mobile Antitrust Probe Ends

European Commission regulators in March 2012 began a probe of whether five large telecom operators (Deutsche Telecom, France Telecom, Telefonica, Vodafone and Telecom Italia) were using standards processes to inhibit competition in the mobile business.

But the EC now has concluded that since such standards work now is conducted by the GSMA and other standards bodies, there is no immediate problem. 

To be sure, all standards ultimately benefit some contestants and market participants more than others, especially when a standard plays to one specific technology approach that becomes an "industry" standard. 

That sort of "bias" cannot be completely eliminated. But the investigation points out how careful dominant service providers have to be when trying to develop new services and apps that require scale. Mobile payments and mobile wallets provide one other example. 

U.S. Telecom Business (Overall) is In Surprisingly Good Shape

If you prefer video, an have 40 minutes, you can hear a discussion at a high level of the 2013 Telecommunications Industry Association “Market Review and Forecast.” It’s always useful.

You can watch here.

If you don’t have 40 minutes, here are a couple trends you might find noteworthy. The single biggest takeaway is that the U.S. business is outpacing most other regions, in terms of growth and revenue.

That does not mean every sector of the U.S. business is doing so well, only that the entire business, lead by AT&T and Verizon, is doing surprisingly well. The trend over the last decade has been for the market share leaders to do far better than smaller providers. So scale clearly matters.

There are two other developments of note. Among them: U.S. mobile data revenues have surpassed voice for the first time. You knew it was coming, and it has finally happened.

In 2012, for the first time in the history of U.S. mobile communications, customers spent more money on mobile data services ($94.8 billion) than on mobile voice services ($92.4 billion), the Telecommunications Industry Association now says.

That primarily is significant for those in the service provider segment of the business.

At a high level, the key managerial task is growing the essential data revenues business, which represents the future, while maintaining voice revenues at the highest possible level, for as long as possible.

For many on the supplier side of the industry, the key trend is that U.S.service provider capital investment is accelerating, and will grow at a 34 percent rate over the 2013 to 2016 period.

In 2012, U.S. wireline spending was $39.1 billion, compared with $27 billion for wireless infrastructure. By 2016, wireline spending is expected to climb to $44.4 billion, while wireless will reach $38.4 billion.

If the prediction proves correct, industry suppliers are headed for four “fat” years, after that recent “lean” years.

The TIA reports that although overall global telecom industry revenue growth decelerated to seven percent, down three percent from 2011 levels, revenue growth actually accelerated in the U.S. market from 5.9 percent in 2011 to 6.2 percent in 2012.

TIA predicts this trend will accelerate in the years ahead – with mobile data spend hitting $118.6 billion in 2013 (versus $86.4 billion for voice) and $184 billion by 2016 (versus $70.1 billion for voice).

Additionally, U.S. wireless penetration jumped over 100 percent in 2012, growing to 102.5 percent for the year. TIA predicts that wireless carriers will add 40.3 million subscribers over the next four years, for a penetration of 111.3 percent in 2016.

TIA predicts U.S. revenue growth rates of 7.1 percent in 2013 and 6.8 percent in 2014, while international markets will see rates of 7.9 and 6.5 percent, respectively.

Unlicensed Spectrum and "Fairness"

Most people, if asked, will tend to say that all competitions ought to be "fair." But what "fair" means, in practice, is harder to describe. A foot race should have all contestants running the same distance, for example. That sounds fair. 

But what if the objective is to "normalize" a competition for a full range of contestants with highly-varied skills? In that case, a "handicap" system, as used in golf, might be necessary.

Something of the same conundrum might be said to exist for broadband access services. A notion of "fairness" might suggest that all licensees in a field abide by the same rules. But that rarely happens in our modern IP communications business.

Competitors always argue, and regulatory officials typically agree, that the former monopoly provider has such entrenched advantages that handcuffs need to be kept on the incumbent, at least until such time as the competitors have had a chance to become established.

But we also have the example of industries competing directly under "unequal" rules, such as cable TV and telcos, for example, where cable operators have no wholesale obligations and leading telcos do have such obligations. That is beginning to change, slowly. 

But the philosophical issues remain highly charged. Many do not believe, for example, that non-profit entities should be able to compete with for-profit entities when the non-profits can use their tax advantages to do so. 

A non-profit government entity should not, in this view, be able to compel purchase of products, or use its taxing authority to raise capital, borrow at favored rates, or employ other advantages no for-profit competitor can match.

That might be one attraction for wider availability of unlicensed spectrum: it can provide the basis for greater competition without raising those other competitive issues. That doesn't mean existing competitors will agree, only that some thorny issues are avoided if non-licensed spectrum is made available. 

Millimeter waves in the spectrum from 30 GHz to 300 GHz have not traditionally been usable for communications, even very short range (local distribution between a decoder and a TV, a mouse and a PC, a smart phone an a payment terminal).

Better coding and abundant cheap processing now makes those frequencies usable, in some cases, for the first time. 

For some of us, the question is whether any of those frequencies will be usable either for wireless backhaul or access purposes. The big problems lie with the physics. Waves at those frequencies just don't travel that far through air, limiting their effectiveness for network access. 

As a figure of merit, assume that a 3 decibel gain represents 100 percent more signal strength, while a 3 dB loss cuts signal strength by 50 percent. As always is the case with free space energy, there is less attenuation at lower frequencies, so 30 GHz to 40 GHz looks interesting, from an access perspective. 

The 80 GHz to 100 GHz range looks interesting as well, from an attenuation perspective. Because of the physics of radios, tiny antennae work well at these frequency ranges. There are line of sight and transmit power issues.

In many cases, the other issue is access to the core network (middle mile access). A robust local access network is only as good as the bandwidth and pricing of the connections to the backbone networks. 

But maybe everything can align. Unlicensed spectrum, smart people doing the algorithms, lots of people willing to share to build a big "public" or "commmunity" network, a sustainable revenue model and adequate middle mile connections. 

To be sure, incumbent service providers will not wish for such a scenario. But the problem probably is just hard enough, and small enough, in terms of revenue impact, to allow some room for experimentation. 

And, one hopes, experimentation could lead to new ways of supplying access, without upsetting notions of fairness. 

Execs Think "New IP Services" Will Drive Revenue in 2013. Really?

There is something a bit more than a little familiar about the ways surveyed industry leaders are thinking about Long Term Evolution and 4G services. Namely, polled executives logically, but perhaps somewhat critically, seem to believe that “new IP-based services” will be a “main driver of revenue for operators in 2013.”

The SAP sponsored survey of attendees to the GSMA Mobile World Congress found that 36 percent of respondents believe “improved data speed” were among the reasons to offer LTE, while 30 percent believed  “offering new IP-based services” was a primary driver for launching LTE.

No rational person would deny the soundness of those opinions. But some might recall what people were saying about 3G, and recall that exactly the same things were said.

It isn’t that the hopes are unrealistic, or out of place. But it would also be fair to say that it is unlikely “new IP-based services” really will become a “main driver of revenue for operators in 2013.”

That, some of us might say, is completely wishful thinking, unless people start defining “old things as new things” so that legacy revenue is counted as “IP new services revenue.”

Some 58 percent of respondents believe that “new offerings, including rich communication services (RCS) and 4G/LTE and increased data usage by smartphone users, will drive operator revenue.”

And there you see the problem. Many service providers are going to offer RCS services at no charge. So there is no new revenue. For those who do plan to charge, one might predict, with no further information, that any such new revenue will be rather small in magnitude.

Defining “4G/LTE” as a “new IP service” really only substitutes 4G broadband access for 3G-based broadband access. You can call the 4G services “a new IP service” in the same way that service providers define 20 Mbps “standard access” and 50 Mbps or 100 Mbps as “gold service.”

Is that really a “new IP service,” or a different tier of the same service. Sure, there are different product codes, but you get the point.

About a third of respondents based in Europe and North America expected that “new services” such as video broadcast and movies on demand would be the key to generating revenue in 2013.

To be fair, a service or product is “new” for a particular service provider who hasn’t offered it before. But do you really consider entertainment video to be a “new IP application?” It might be an “existing IP app we haven’t sold before,” but it isn’t quite what some might have in mind.

But 40 percent of Asia-based respondents placed much greater significance on increased data usage by smart phone users.

Don’t get me wrong. It’s a good thing to make more revenue by selling faster broadband access. Personally, I hate having to use 3G when I am used to 4G.

But I wouldn’t say 4G is a “new IP service.” It’s a better version of an access service.

Will “new IP services” generating significant revenue emerge? Eventually. Will truly “new” services generate significant revenue in 2013. That is doubtful. People are having a hard time demonstrating something truly new.

Faster is better. Lower latency is better. Better experience is also worthwhile. But some might argue the really new things are off in the distance someplace.

New Ways Milliseconds Can Matter

Milliseconds long have mattered for high frequency traders, since a time lead of that magnitude can translate into hundreds of thousands of dollars of extra profit on a trade.

Such algorithmic trading is handled by computers, not live humans, so trading speeds  are limited by processors, software and sometimes even the distance between two computers that are parties to executing a trade.

But Adobe now believes such differences of milliseconds might someday be important for digital marketing platforms as well. It is a bit of hyperbole at the moment.

But Adobe argues that such speed advantages may separate winners and losers, according to Brad Rencher, Adobe SVP.

Adobe is aiming to build a millisecond of a lead on the competition.  It turns out that the millisecond is the one that occurs between the last piece of data a consumer “gives“ a system and the content with which the system responds.   

What happens in that millisecond?  The system needs to correlate, manipulate, measure and analyze all the various pockets of data is has on the consumer and then choose, assemble and display the relevant content to her.  

The content that these algorithms choose and that the infrastructure renders, must encourage the consumer to take a preferred action, especially buying something.

The analogy is not quite perfect, since milliseconds are not relevant for human cognition or perception. But milliseconds might be a reasonable of describing latency as computers experience it when crunching enormous quantities of data before presenting some sort of solution in a marketing context.

In other words, in the big data environment, when evaluating data and then assembling offers, for example, milliseconds might matter when trying to find meaningful signals about what people are doing right now, where they are, and what device they are using, and what they might want.

So milliseconds might matter if that data has be correlated with what is known about the customer from all available sources of data (CRM, social) to create a more granular view of a particular person’s values, past behavior and buying preferences. Then the objective is to use that understanding to predict what content must be delivered, immediately and in context to achieve a commercial objective.

In that sense, milliseconds might matter, even if humans cannot apprehend delays that small.

That might also imply that milliseconds could matter, in new ways, for communication networks other than those supporting high frequency trading systems.

Kentucky Deregulates, AT&T Invests

Some observers do worry that a growing wave of deregulation regarding universal service obligations on dominant telcos is going to be bad for consumers. In Kentucky, for example, Senate bill SB88  repeals statewide service obligations on incumbent telcos regarding landline services, which formerly had to be provided statewide.

Under provisions of the new bill, incumbents must continue providing basic local exchange services to residences where those residence currently exist, and when such residences are located in areas with less than 5000 housing units.

Incumbents do not have to provide basic local exchange services when the carrier offers an alternative telephone service, when there are at least two providers offering telephone services in the area or when there is at least one provider of broadband service that is capable of delivering telephone service.

It might not be coincidental that AT&T has announced it now will spend between $600 and $800 million during 2013 to 2015 to support its current network capabilities and expand access to broadband services in Kentucky.

Perhaps observers should not worry so much. There appear to be no shortage of third party, independent service providers more than happy to compete for customers in Kentucky and elsewhere.

If the fear is that AT&T will withdraw from some markets, that only increases the market opportunity for other providers eager to fill the gap. One only has to spend time with wireless ISPs to understand that.

Reliance, Samsung to Attempt LTE Disruption in India

Reliance Industries reportedly is working with Samsung on a plan to disrupt the Indian smart phone market with a new Long Term Evolution device priced at 3G device levels as low as $100, plus service plans that include data packages starting at as low as Rs 100.

To help, the new devices will be sold with minimum down payments and installment payments with no interest.

That would be significant enough. But there are rumors that Samsung might eventually wind up as an equity partner in some way in the venture with Reliance.

That would be equally interesting, if also politically delicate.


But some amount of ecosystem tension seems difficult to avoid, in the mobile or Internet spaces.

Asus Fonepad Fully Merges Smart Phone, Tablet

It has been inevitable for some time that at least some suppliers were going to push the boundaries between smart phones and tablets, reaching some point of convergence.

Count Asus as the first to do so. Its “Fonepad” is a device with seven-inch screen that doubles as a tablet and a smart phone, having 3G voice and mobile data.

In some sense, the Asus device is the first phablet device that fully combines a seven-inch screen with smart phone capabilities. Reportedly, it will be initially selling for about 265 euros.

That means the device still is too expensive for widespread use as a converged device in many developing markets, but that is only a matter of time. No doubt pundits will find much to criticize. But that would be true of any device intended for mass market use, especially in markets where affordability is a key concern.

The issue is more than simply the availability of the first device that really blends smart phone and tablet in one device. The issue is whether, over time, such devices will be useful in many emerging markets where device cost and service cost are important barriers to be overcome.

Some skeptics have argued that in many such markets, many consumers will opt for a phone only, and not be able to afford a tablet. That assumption remains to be tested, especially over time, as prices for these sorts of combination units or phablets decline.

It might be an important new device category, for such markets.

Fonepad can be used for voice calls using the built-in noise-cancelling digital microphone or an optional Bluetooth headset, and Asus suggests the device can help users by operating with a single mobile data plan.

This Simple Chart Shows Where Broadband Growth Is Going to Happen

While it took 20 years for the first two billion people to connect to the Internet, the next two billion users will be coming online in only five years, according to Gary Kovacs, the CEO of Mozilla. 

That is a breathtaking speed of adoption. 

Average revenue per user will not be as high as in the developed regions, and access speeds might not always be as high, either. 

But the Internet-using population of the planet could double in just five years. Asia will be the global center or gravity in terms of gross subscriber additions, but Africa's growth rate will be faster. 

Will Apple and Samsung Hit the Wall?

As much as device suppliers ranging from Nokia to BlackBerry to LG to Motorola are trying to survive, not necessarily catch Samsung and Apple in the market share race, even Apple and Samsung face key issues. 

The primary problem for Apple is that the market for high-end smartphones is nearing saturation, according to Adnaan Ahmad at Berenberg Bank. 

As a result, demand for the newest iPhone, which was the main driver of Apple's growth, is softening. 

Citigroup, for example, has updated its revenue growth model for Apple, predicting single digit growth.

Samsung is going to face the same problem, some would argue. 

Service Providers Not Making Much Money from Mobile Content, Billing for It Is More Lucrative

Mobile service providers have not achieved much market share from content sales globally at least as measured by volume of downloads, Juniper Research estimates.

Mobile operator storefronts and portals now account for about six percent of content downloads worldwide, with Google Play and Apple’s App Store now comprising nearly 70 percent between them. 

That has lead many operators to close their own storefronts, Juniper Research says. On the other hand, the value of mobile content that could be sold using direct carrier billing could rise from $2 billion in 2012 to more than $13 billion by 2017, according to Juniper Research. 

Direct carrier billing might therefore be said to represent a more lucrative mobile service provider revenue opportunity than selling mobile content. 


Analysys Mason forecasts that direct carrier billing will provide service providers with more than US$12 billion in revenue in 2022. 

According to mobile applications vendor Ebscer, since BlackBerry introduced carrier billing in August 2010, the percent of sales coming from carrier billing has increased every month for Ebscer. 

At the end of April 2011, over 25 percent of total app sales for Ebscer in BlackBerry App World were coming from operator billing.

Who Does Google Compete With?

Who does Google compete with, strategically? Over the years, many names have been discussed, including Yahoo, Microsoft or Apple. Google sometimes is said to be unable to compete with some others, such as Facebook. But increasingly, the name that appears is "Amazon." 

So it is that Google has begun testing a same-day delivery service with retailers, a move that obviously will be seen as part of a wider head to head competition with Amazon in the e-commerce space, as part of Google Shopping Express.

For a firm historically associated with an advertising revenue base, that might sound odd. But lots of application providers and some service providers now see "mobile commerce" as the next big revenue frontier, with angles ranging from promotion to payments to couponing and payments, as well as a broader "product sales" function. 

That shift might see Goolge Shopping Express evolve in the direction of becoming a full marketplace, more like Amazon. 

Leap Doesn't Find iPhones Too Helpful, Apparently

One has to wonder whether the highest-end devices are such a good match for value segment mobile customers. 

Broadband Matters When People Figure Out What to Do with It

"The U.K.’s broadband market is already in rude health," said Ed Vaizy, U.K. Parliamentary Under Secretary of State for Culture, Communications and Creative Industries. What the heck does that mean?

Basically, that the United Kingdom has done a good job of bringing low cost broadband access to its people, offering access at low prices, caused by high degrees of market competition. Challenges remain, particularly in rural areas. 

"The U.K. currently benefits from low prices and a high degree of competition in the broadband market," said Vaizy.  "The U.K. has the best deals available for consumers across a selection of pricing bundles in the major European economies."

But the role of "demand stimulation" also was cited as key. In other words, beyond making access possible, as much hinges on people figuring out ways to use broadband to grow the economy. 

"But we cannot create a world class connected Britain just by laying more fiber in the ground or building new base stations," Vaizy said. " It is also crucial that we get as many people as possible online enjoying the benefits presented by better connectivity, and also encourage British companies to expand and develop their internet-based operations."

"Ultimately it is users that will turn infrastructure investment into growth," he said.

In other words, a fixation on "raw speed" is misplaced. What ultimately matters more is what people figure out they can do with broadband, in ways that benefit the economy.