DSL Leads Cable in Rural Markets

Cable high speed access might hold the largest market share in many urban markets, but that does not seem to be the case in rural markets, where digital subscriber line access has the largest market share, a study using 2010 data suggests.

In 2010, DSL had 28 percent share in rural areas, while cable services had about 20 percent share. Fiber to home services had about one percent share.

Mobile broadband access had gotten six percent share, while satellite services had three percent share, and “others” had about one percent share.

It is possible, perhaps likely, the study says, that use of mobile broadband has grown since 2010. In fact, mobile phones were used for broadband access more frequently than satellite connections in 2010.

Rates of broadband adoption in non-metropolitan households increased from 10 percent to 57 percent, mirroring an increase of adoption for people in metro regions, between 2003 to 2010. By 2010, household broadband adoption in metro areas had grown to about 70 percent of homes.

Despite that huge increase in broadband adoption since 2003, the broadband adoption gap between metro and non-metro areas is about 13 percent in 2010, about the same as the gap was in in both 2003.

But the most rural counties experienced significant improvements in broadband adoption between 2008 and 2011, a study conducted by Brian Whitacre (Oklahoma State University), Roberto Gallardo (Mississippi State University),and Sharon Strover (University of Texas), has found.

Pay for Performance for Cable Networks?

Just how much the subscription TV business will change over the next decade is not at all clear.  There is the obvious lure and threat of Internet distribution. 

Somewhat ironically, TV distributors themselves may be helping to push networks toward Internet distribution. In some part, that is especially going to be the case for "niche" programming networks of all types, as video distributors increasingly are not able to continue spending as much as programming costs as they have in the past.

That new limit is directly caused by growing consumer resistance to the size of their monthly bills. 

Verizon Communications, for example, reportedly has begun talks with several "mid-tier and smaller" networks about paying for their channels based on actual ability to attract an audience, according to a WSJ.com report. 

In the past, fees have generally been set based on "subscribers," (the distributor's customer base, and then the tier of service on which a particular channel is carried) rather than "viewers." (ratings) with some allowances for popularity.

The new Verizon proposal obviously will mean lower revenue for networks that are not watched very much. The principle might someday also help distributors with the other parts of their content acquisition cost problem, namely the costs of carrying the most-viewed channels, such as ESPN. 

But a switch to ratings-driven payments is directly affected by the way video distributors package their content. So long as ESPN is carried on the tier with the broadest distribution, it probably won't make much difference whether distributors pay by ratings or "per subscriber."

But all bets would be off if the major distributors created "sports tiers" that allowed subscribers to opt out of paying for ESPN and the other sports channels.

Of course, ironically, such efforts by distributors will increase the attractiveness of online distribution channels such as YouTube, Netflix and other alternatives. 

By optimizing the current business, service providers are creating the foundation for tomorow's business, which will use Internet delivery. 

Mexico's 1984 Moment Coming?

The year 1984 was significant for the U.S. communications business because it was the year the AT&T monopoly was broken up. 

It now appears at least possible something similar could happen in Mexico, as the legislature considers a bill that would create a new agency with the authority to literally break up the dominant telecom company, America Movil. 

The thinking is that doing so will lead to more competition. That should be the case. Sometimes, though, breaking up a monopoly has different outcomes than were expected. You might argue that the AT&T breakup lead to success for MCI and Sprint.

The divestiture also lead to the creation of the seven regional Bell operating companies, all of which eventually were recombined to form Verizon and AT&T (SBC having gobbled up several of its sisters before buying the formerly independent AT&T). 

After nearly three decades, there are two dominant telcos, both the progeny of the original AT&T. 

Myanmar is the Hottest New Telecom Market on the Planet

Myanmar in 2013 already has emerged as the hottest new telecom market on the planet. Mobile penetration in the country of 60 million is estimated to be a meager five percent to 10 percent.

Myanmar says it has gotten statements of interest from 91 companies interested in one of two initial new communications licenses to be issued by Myanmar.

The new national licenses do not appear to specify which network technologies can be used to build the new networks. But most observers would tend to agree that mobile will be the only logical way to build new networks from scratch, and that Long Term Evolution 4G mobile networks will be the choice.

It appears that a total of four licenses will ultimately be issued, two to domestic firms and two to foreign firms.

Myanmar, where nine percent of the population has a mobile phone, wants to boost telecom communication availablitiy to as much as 80 percent of the country by 2016.

Myanmar is among the countries in Asia with the least availability of communications services. Cambodia has a services penetration rate of 70 percent, Laos 87 percent and Thailand more than 100 percent.

What is AT&T's Core Competency?

AT&T apparently has told investors and analysts it would consider selling its tower network: or stakes in America Movil if needed to continue paying its dividend, or buying back stock

Neither type of move--selling towers or selling international assets--would be unprecedented.  T-Mobile USA has done so.

Sprint did the same. Other carriers, such as Saudi-owned PT Axis Telekom Indonesia, have sold off tower networks.

In fact, the sale of tower assets seems to be a global trend.

And lots of service providers have bought out of territory assets, and then sold those assets to raise cash and reduce debt. Most service providers in Europe with out of market assets are thinking about it, or are doing so.

In most cases, such sales are for purposes of reducing debt.

Nor are tower sales, or disposing of international assets, the only steps service providers are taking. VimpelCom has signed a five-year managed services contract with Ericsson that has Ericsson managing network operations on VimpelCom's behalf at more than 10,000 sites.

The deal suggests that network operations are not viewed as a core competency by VimpelCom. It isn’t that the network is unimportant; simply that it is not the unique source of perceived value.

Likewise, Reliance Communications signed a similar deal with Alcatel-Lucent in India. Such developments might have been unthinkable back in the monopoly era of telecommunications, when executives might have argued that network operations were the core competency. The phrase can be misunderstood.

In common usage, a core competency might be understood as “something we do well.” That is not quite what business strategists might mean.

A core competency is a single, specific competence that not only is essential, but offers a key way of differentiating from other contestants in the same market. A core competence therefore is a subtle thing. It is not just “something we do well,” not only the “singular advantage” a company might possess, but a capability that also distinguishes a firm from all others in the same business.

That is what makes a “core competence” hard to pin down. Firms might have key skills in the regulatory area, for example. But other leading firms might also have such skills. That means skill at managing the regulatory process is not a “core competency.”

What is a bit shocking is that “running a network” is no longer seen by every carrier as a “key competence,” much less a core competence. That is not to say the network is unimportant, only that it is not uniquely important.

But such sales also raise the issue of what a telco’s “core competence.” What is the unique capability a tier-one carrier such as AT&T possesses?

It actually is a hard question to answer. Is it marketing, regulatory management, strategic vision, financial  management, scale or something else?

These days, it seems more clear that the answer is quite subtle. Carriers can dispense with towers or even network operations. Few seem willing to part with spectrum or physical access networks. Perhaps that remains key to answering the question of core competence.

Tier-one telcos have to be good at managing all processes relating to acquisition and control of scarce access assets.

Voice Business "Rapidly Collapsing?"

Whether a service provider executive is convinced the voice business is growing, shrinking or collapsing sort of depends on which segment of the business that executive is in. Many places in the world, voice revenue still is a growth business. In other places, voice revenues are flat, or slowly declining. 

In some regions, such as Europe, the problems are viewed as acute. Some would even say the voice business is “rapidly collapsing”, with fixed revenues nearly halving between 2010 and 2012.

Mobile service providers have the same long term problems as fixed network service providers, again with the distinction that some regions face more immediate problems than others. 

To a greater extent, service providers are changing the retail packaging of voice so that it almost becomes a feature of use of the network, rather than a discrete revenue-generating service. That's the whole idea behind the way Verizon Wireless packages use of voice and texting apps. 

Users get access to the network for an initial fee that also includes unlimited domestic voice and texting, with the amount of data bandwidth becoming the variable part of the package. 

Telefonica O2 Germany  offers free voice and messaging on all of its four mobile data tariffs. Buckets of usage range from €19.99 for basic service at 3.6 Mbps, with a 1 Gbyte bucket of usage, up to €50 for 50 Mbps service and a bucket of usage of 5 GBytes.

STL Partners tends to concur that voice is quite challenges in the European market. 

European Core Mobile Services Revenue

Galaxy S4 Shows Samsung and Apple Have Some Common Problems

It would have been hard for the Galaxy S4 to break totally new ground over the Galaxy S3, and some will argue Samsung has launched a device that does not innovate as much as some might have preferred. That would mean both Apple and Samsung have had that reaction with recent updates of their leading devices. 

Some new features, such as eye motion-sensing that allows users to pause video and scroll through pages using eye movements alone, provide one example. 

The optional wireless charging feature is interesting.  

I have to say I am constantly finding features on the Galaxy S3 that I didn't know I had, or even know how to use for some productive or even fun reason. I know users of the Galaxy Note who have the same experience. 

There are, in other words, plenty of features. The issue is how many of them will be discovered by most users. 

3 Billion Global Members of Middle Class by 2020?

If the global middle class does hit three billion by about 2020, it will be a big deal for service providers, any way you look at it.

Global Middle Class To Hit 3 Billion by 2020 infographic by sramzee.

Mobile Payments Growing Faster Among Small, Distributed Businesses

The issue with mobile payments adoption always is the ability to align clear value propositions for several key constituencies, simultaneously. So far, the clearest example of that alignment is small business (or distributed retail units of enterprises) use of mobile credit card readers.

Square's mobile payments volume, for example,  rose to $10 billion in 2012, up from $2 billion in 2011. 

The point is that mobile card readers have solved the adoption conundrum by immediately aligning consumer, retailer, bank and processor interests. 

Consumers don't need new phones; they keep using their existing debit and credit cards. But small retailers get a low-cost way to accept credit and debit card payments even at non-traditional locations. 

The value to retailers is more "time to processed payment" than "lower payment processing fees," though. 

In fact, the value of mobile card readers is the ability to accept card payments at non-traditional locations, for small merchants to take such payments for the first time, or to reduce the float time between transaction and receipt of funds. 

That value can outweigh even the alternate value of "lower transaction fees" that can be another driver for adoption of mobile payments by retailers. 

For card-issuing institutions, processes don't change, but transaction volume grows. And transaction clearing is unaffected. 

The point is that a clear value proposition has to exist, and that value has to be significant for at least one of the key segments of the payments ecosystem, to succeed. One might argue that value for retailers is what has made mobile card readers so successful, so fast. 

Urbanization is a Big Deal for Communications Service Providers

Urbanization is a big deal for communications service providers, since cities create both a critical mass of potential customers and lower the costs of infrastructure to connect those potential customers. 

Urbanization also tends to be associated with higher economic growth and household incomes, also trends that are helpful for communications service providers.

So the global urbanization trend is an important and powerful underpinning for communications in the 21st century. 

All Enterprises Have Faced Cyberattacks: They Just Don't Talk About It

Though JPMorgan Chase (JPM) and BB&T (BBT) are the only big banks to confirm a denial of service attack in March 2013, roughly a half dozen institutions endured digital assaults at around the same time, according to Radware. 

Cyber attacks in fact have become a regular fact of life fact of life. 

Samsung Impact on Device Market

The issue in the smart phone ecosystem right now is whether any of other challengers to Apple and Samsung can claim a significant and permanent role in the device market. The future issue will be whether Samsung can outgrow its hardware roots and become a software leader. 

Some think more success in the enterprise markets would provide some sign Samsung is making that turn successfully. 

Success in challenging Apple's position in tablets remains a work in progress, one might say. But it is hard to deny the impact and leadership Samsung is having in smart phones. 

Where Will Mobile Internet Behaviors Lead?

The conventional wisdom about communications is that mobile increasingly represents the future for consumers. The devices people will use are mobile phones, smart phones and possibly tablets, but certainly not PCs or fixed network phones as the primary devices.

For example, U.S. mobile data revenues have surpassed voice for the first time. 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.

The same trend is happening globally. But among the other issues such mobile behavior raises is the future use of both mobile and. fixed networks.

U.K. Android users send and receive 78 percent of all their data over Wi-Fi networks, according to Nielsen

Data collected by Mobidia shows that Wi-Fi usage is close to ubiquitous in developed markets, where more than 90 percent of smart phone users also use Wi-Fi as a means of data connectivity. In Hong Kong and the Netherlands, use of Wi-Fi by smart phone users is over 98 percent.

So though it might not be the main issue, one potential issue is whether, as usage shifts in some markets from voice and messaging to use of the Internet and apps, business models and services based mostly on Wi-Fi access could make more sense, to more users.

To be sure, mobile access always will be vital and valuable in many instances. But the larger business issue is what proportion of value can be supplied by fixed networks, how often, and what value end uses will place on such access.

At least in principle, one could envision scenarios where some users benefit from lower-cost prepaid style “mobile usage” while relying on fixed network access for the bulk of Internet-related operations, which in some cases will become the number one reason for using a smart phone.

In a larger number of instances, even when voice and text are valued, a device will be used primarily for Internet apps, and mostly when users are stationary, rather than out and about. Just as important is the growing importance of access to the Internet as a primary value of a mobile device.

About 25 percent of U.S. teens are “cell-mostly” Internet users, who report they mostly go online using their phone and not using some other device such as a desktop or laptop computer, the3 study by the Pew Research Center has found.

Few would extrapolate in linear fashion to future behavior when those teens grow older and join the workforce. But, as always, youth behavior tends to be a strong indicator of what their preferences will be in the workplace.

So the “money quote” is that “the nature of teens’ Internet use has transformed dramatically, from stationary connections tied to shared desktops in the home to always-on connections that move with them throughout the day,” says Mary Madden, Senior Researcher for the Pew Research Center’s Internet Project.

About 74 percent of teens ages 12 to 17 say they access the Internet on mobile phones, tablets, and other mobile devices at least occasionally, but the 25 percent who say they do so “mostly” on a mobile phone is higher than the 15 percent of adult users who say they are “mobile mostly.”

By comparison, 55 percent of adults use the Internet from a mobile device. However, this gap is driven primarily by adults ages 65 and older.

Adults under the age of 50, on the other hand, are just as likely as teens to be mobile internet users. Fully 74 percent of adults 18 to 49 access the Internet on a mobile  phone, tablet, or other mobile device.

In some cases, teens might use a mobile because they do not have access to a desktop or laptop computer. About 80 percent of teens have their own computer at home.

Among the 20 percent of teens who do not have their own computer, 67 percent have access to one they can use at home. Taken together, this means that 93 percent of teens have a computer or access to one.

The implication there is that teens mostly use mobile to access the Internet because they prefer to use such access. Among teen smart phone owners, 50 percent say they use the internet mostly using their mobile phone.

The findings show not only the prevalence of use of mobile data, but also that mobile access is disproportionately more important for lower-income adults. Adults with an annual household income of less than $50,000 per year and those who have not graduated college are more likely than those with higher levels of income and education to use their phones for most of their online browsing. 

Who Benefits From Growing Unlicensed Spectrum Inventory?

The Federal Communications Industry says it has identified more than 700 MHz of spectrum that is available in the United States for mobile broadband use on a nonexclusive basis, as well as an additional 345 megahertz that is either in the pipeline or has the potential to be used in such a manner.

You might argue that there could be lots of winners or losers as more unlicensed spectrum is made available. Licensed carriers and existing major ISPs might lose, to the extent new competition is enabled. New competitors, and smaller competitors, might win.
The big issue in some quarters is how much of that unlicensed spectrum might prove useful of fixed broadband as well. So far, most of the hope has centered on the potential use of “TV white spaces.”

As Google's white spaces data base suggests, many of the best places to use white spaces spectrum for fixed operations are in the rural areas where most wireless ISPs operate.

To be sure, most of the attention and business models using unlicensed spectrum have been for Wi-Fi and other personal area or in-home or in-office signal distribution, not for access, as provided by most ISPs.

But the white spaces spectrum probably is the biggest block of spectrum useful for access, rather than local distribution, as valuable as that might be.

As always, the business case is among the biggest issues. And one argument in favor of use of white spaces is the non light of sight propagation, a huge advantage for wireless ISPs who have in the past had to work with line of sight frequencies.

Right now, white spaces are in trial in the United States, South Africa and Kenya. All of that is useful, but widespread deployment will hinge on sustainable revenue models. In that regard, consumer models may hinge on traditional “access services.” Some enterprise models might work in the more traditional private network sense that many larger organizations have built and operated their own access and transport networks.

A Reflection in Income Inequality

Income inequality is a difficult issue to sort through, in part because how one measures, and what one measures, can lead to different conclusions.

It nevertheless is possible to argue that excessive income inequality is a bad thing, while arguing that some amount of income inequality is a positively good thing (to the extent it encourages people to invest in training, and further to note that some income inequality is justly deserved.

At the same time, one also should note that one reason income equality in some countries, which arguably has increased recently, is caused by "returns to wealth," and not necessarily by excesses on the "executive pay" front, which it might be easy to argue do exist.

The average annual income of the top one percent of the population is $717,000, compared to the average income of the rest of the population, which is around $51,000.It also is fair to note that there is a logarithmic difference. 

The top one percent of the top one percent have incomes of over $27 million. But the real disparity between the classes is not income but net worth. The top one percent are worth about $8.4 million, or 70 times the net worth of "regular folks."

As a simple look at the Dow Jones Industrial Average will suggest, owners of equities should have done very well since the early 1980s. Since dividend income counts as income, that will show up in the income indexes as well. 

Here's the point:  "The richest one percent earn roughly half their income from wages and salaries, a quarter from  self-employment and business income, and the remainder from interest, dividends, capital gains and rent."

About 16 percent of the top one percent in income were in medical professions and eight percent were lawyers.

Some 18 percent of the top one percent in 2005 worked in the financial industry. 

But the ranks of the one percent also include highly paid atheletes and entertainers, as well as the people leading firms that innovate in the Internet ecosystem. The point is that the vague sense that people "did not earn their money" covers a smaller range of people than commonly suspected. 

All that noted, the graph shows why returns to equity have had such an large impact. Equity owners would naturally benefit from the huge run up in equity values, irrespective of any changes in income trends.