"Unsubsidized" Phones Actually Would Change Very Little for End Users, Lots for Carrier Advertising

In many ways, the discussion about whether major service providers are better off selling only

non-subsidized phones misses the point. If a carrier allows subscribers to buy on installment plans, out of pocket costs of service might not change much.

The hit to operating earnings likewise might not change very much. What would change is the “headline” price for a monthly mobile service, which presumably could be lower by the amount of the avoided amortization of the smart phone “purchase.”

In reality, most consumers would still continue to pay the installment fee, so the consumer’s out of pocket expense might not change much, if at all. But the advertised headline price might be low enough to prevent some users from downgrading from a postpaid account to a prepaid account, probably provided by a rival supplier.

Verizon Wireless is not opposed to the idea of separating headline recurring service costs from any forms of consumer device purchases. Even if such changes did not really affect end user out of pocket recurring costs very much, the policies still would allow Verizon to advertise “lower prices.”

Cord Avoiders, Not Cord Cutters, Appear to be the Video Subscription Provider Problem

About 3.74 million (3.7 percent) U.S. subscription video service subscribers cut their TV subscriptions 2008 2012 to rely solely on alternative viewing options, including Netflix and other online alternatives, in 2012.

Convergence Consulting Group also forecasts that U.S. TV cord cutter households will reach 4.7 million (4.7 percent of total households) by year-end 2013. For some, that means cord cutting is a modest problem.

Others might argue the bigger immediate problem is “cord avoiders ” namely people who can afford a video subscription but do not find the product relevant.

Credit Suisse analysts who said they remain optimistic on cable and satellite entertainment businesses nevertheless see the developing new problem as "cord-avoiders," households that are relying on video alternatives in an arguably new way.

Many new households simply are not signing up for cable or satellite, the analysts said. While there were 1.8 million households formed, according to U.S. Census estimates cited by the report, only 16.9 percent of them signed up for video entertainment services.

A reasonable way to describe the trend is to say that the audience for free online full-episode TV (not Hulu Plus, iTunes, Netflix, or walled garden requiring a paid subscription) has slightly declined, says Convergence Consulting Group. The audience using subscription TV services has not fallen off a cliff.

Nor is it so clear that the abandonment rate has even accelerated. In fact, service providers still are adding net new subscribers.

Convergence Consulting Group estimates 31,000 U.S. TV subscribers were added in 2012,

down from 112,000 in 2011, and forecasts 98,000 net video service subscriber additions for 2013.

Over the 2004 to 2009 period, annual U.S. subscription TV net additions averaged 1.86 million. So it would be fair to say that the video subscription market is close to full saturation, a condition that is not necessarily directly linked to video abandonment, but is linked at some level, based on growing consumer resistance to price hikes.

On Smart Phones, Apps Rule, Not Web

Today, the U.S. consumer spends an average of 2 hours and 38 minutes each day on smart phones and tablets. And to illustrate the impact mobile apps have had, Flurry points out that  80 percent of that time (2 hours and 7 minutes) is spent inside “apps,” while just 20 percent (31 minutes) is spent on the mobile Web, defined by Flurry to include any use of a “mobile browser.”

So does that mean the "end of the Web?" Not necessarily. It is a truism that people do different things on their mobiles than on their PCs. For the former, apps rule, in terms of time of engagement. On PCs, the web arguably remains key.

Gaming apps remain the largest category of all apps used, representing 32 percent of time spent on a smart phone or tablet. Facebook is second with 18 percent.

One might argue that the amount of web usage is understated, since many people consume web content from inside the Facebook app, for example.

For example, when a Facebook user clicks on a friend’s link or article, that content is shown inside the app without launching a native web browser.

The average number of apps launched per day by consumers climbs from 7.2 in 2010 to 7.5 in 2011 and finally to 7.9 in 2012.

Assertions that people are using fewer apps in 2012 than they did in 2010 appear to be incorrect, Flurry argues. Consumers use about eight apps each day.

Does this mean the web is dead? “We don’t believe so,” Flurry says. “On the contrary, we believe that the web will change and adapt to the reality of smartphones and tablets.”

That likely means websites will look and behave more like apps. Websites will be optimized for user experience first and search engine optimization second.

The launch on April 4, 2013 of Facebook Home provides one example of the growing “mobile first” orientation app providers are adopting.

Consumers are spending an average of nearly 30 minutes per day on Facebook, on mobiles, Flurry suggests.  The 30 minutes a day is a worldwide average which means a large group spends even more time on Facebook (possibly hours).

Service Providers Have 3 or 4 Possible Business Models

There are any number of ways to describe the growing stress on communications service provider business models in Europe. Service providers are adopting three distinct business models, according to Bart Bastiaans and Lars van Zomeren, consultants with KPMG in the Netherlands.

Those models include the “private access network” model, the “shared access” model and the “mobile virtual network operator” model. Only the first model uses the traditional “owned infrastructure” approach.

The “shared access” model uses one or more levels of network sharing, while the MVNO model is a wholesale-based model with no network ownership.

Traditionally, network ownership has conferred business value. That works when access is expensive and therefore scarce. The model doesn’t work nearly so well when there are multiple access providers competing in a single market.

“In markets where networks are no longer seen as a differentiator, private access network models most often result in high capital costs with little added value,” the KPMG analysts say.

In the shared access model. assets are shared between competitors. In some cases, only the passive assets (such as towers but not antennas) are shared while in other cases entire active mobile networks are shared and jointly managed.

Traditionally, the mobile virtual network operator model is among the non-facilities-based ways service providers can do business.

Others have argued there are just four future models. Researchers at Booz and Company have argued that there are four basic business models.

Half the models essentially are wholesale in orientation; one requires global operations and one is the traditional model, but with operators moving further up the value chain.

The "network guarantor" model has network infrastructure providers operating in a wholesale mode, providing other retail providers network services.

The "business enabler" is a mixed model, including both retail broadband services as well as wholesale broadband, managed services, transaction and billing support, and platforms such as hosting and cloud computing.

The "experience creator" is closest to the current retail model used by most service providers globally. Experience creators will look to move up the telecom value chain and provide end-users, both consumers and business customers, with the ubiquitous connectivity they demand, with targeted applications, fresh content, and a distinctive experience, and with the ability to create and distribute their own content.

The "global multimarketer" model is a retail model, but requires global operations and scale beyond a single nation.  Already, more than 75 percent of telecom subscribers in regions such as Europe and the Middle East are owned by global operators,” Booz & Co. says.

There are challenges for service providers in all four scenarios. The "wholesale only, network guarantor" model offers a trade off. There is less sales, marketing and customer service cost, since the products are wholesale, sold only to retailers, not to actual end users. On the other hand, gross revenues likely are smaller, and profit margins also will tend to be lower than is typical for retail operations.

To the extent that executives are worried about being reduced to the role of "low margin dumb pipe providers," this model guarantees it. In this scenario, service providers supply connectivity and other network services to all other retail entities, who have the actual relationship with end users. Also, companies that want to "own the customer relationship" will find this model unattractive, since it abdicates that role.

The "business enabler" model has a mix of advantages and disadvantages. It retains the retail role, implying both higher sales, marketing and customer support costs, but also higher gross revenue potential and higher margins for those retail services. But this model also includes sale of infrastructure services to third parties, on a wholesale basis.

That means there is inherently a possibility of channel conflict, as the service provider essentially competes with its wholesale customers in the retail market.

The experience creator model is the closest to today's model, where a service provider sells retail services to end users. It offers the least dramatic changes to the current model, but arguably also offers the smallest chance of dramatic changes in overhead and operating costs.

The global multimarketer role is most logical for larger, well-capitalized firms with some ability to leverage a strong brand in additional markets. This strategy probably is not viable for small national firms with weak brand name assets and small market capitalization. This strategy also is likely to prove attractive only for firms with the ability to provide mobile services.

Does Device Screen Size Affect Data Consumption? Yes and No.

Is there a relationship between screen size and data consumption? One might think the answer clearly is “yes,” based on the difference between typical data consumption for smart phones and that of PCs.

Some studies of heavy smart phone users show consumption of perhaps 1.3 Gbytes. Other studies show average smart phone data consumption might already be up to 2 Gbytes. Still others suggest typical consumption runs between 600 Mbytes and 1.2 Gbytes a month. But smart phones on 3G networks might still consume a few hundred megabytes a month.

But PC users consume more data than tablet users or smart phone users. So it is reasonable enough to argue there is a relationship between screen size and data consumption.

Device Usage Growth, MBytes per Month

Device Type	2012	2017
Non-smart phone	6.8	31
M2M Module	64	330
Smart phone	342	2,660
4G Smart phone	1,302	5,114
Tablet	820	5,387
Laptop	2,503	5,731

Source: Cisco VNI Mobile Forecast, 2013

But there are nuances. As screen sizes get bigger, people consume considerably more data, at least when connected using a Wi-Fi network, a study by OpenSignal suggests.

The study also suggests that when connected using the mobile network, mobile device screen size actually does not have much impact on the amount of data consumed.

For example, data use over Wi-Fi doubles from a device with a six inches square surface area screen (like a Galaxy Ace) to a device with a nine inches square screen (like a Galaxy SIII).

On the other hand, there is only a weak correlation between screen size and data use over a mobile network connection. What this suggests it that people broadly use their mobile phones in the same way when on the move. Screen size does not change behavior.

Behavior does seem to change when larger screen devices have access to a Wi-Fi connection.  As screen sizes get bigger, people consume considerably more data.

SCREEN SIZE VS DATA USE OVER A WI-FI CONNECTION

Emerging Markets Take Lead for Smart Phone Growth

Global smart phone growth now is driven, in terms of volume, by buyers in emerging markets. 

In total, developing markets will contribute 70 percent to 80 percent of the growth in 2013. 

The BRIIC  (Brazil, Russia, India, Indonesia and China markets) will drive much of the volume growth in the global market in 2013 and beyond.  

China likely  became the leading country-level market for smartphone shipments in 2012, moving ahead of the the United States,

IDC says.

By 2016, India and Brazil also will have entered the ranks of the top-five  country markets for smart phone shipments. India will be the third largest smart phone market by 2017.

But those emerging markets will require low-cost devices, in the sub-US$50 range, IDC estimates.

NPD DisplaySearch forecasts that l

ow-cost smartphone shipments will double every year from 2010 to 2016, increasing from 4.5 to 311 million.

Skype Users Consume 2 Billion Minutes a Day

Skype users now use two billion minutes a day. It's difficult to estimate how much of that usage represents cannibalization of international traffic or messaging. Not all of that usage would have occurred, were Skype unavailable.

But much of the usage does represent a shift of existing usage from the public network (cannibalizes existing demand) and some represents avoided usage usage (minutes of use that would have been added to public networks, but was shifted to Skype instead).

International Long Distance Traffic Growth, Carriers vs. Skype 

Source: TeleGeography

According to TeleGeography, international long distance traffic grew four percent in 2011, to 438 billion minutes. 

That growth rate was less than one-third of the industry’s long-run historical average of 13 percent annual growth. 

Mobile Commerce is Getting Bigger, Perhaps On Small Transactions

Some 29 percent of U.S. mobile users already have used their smart phones to make a purchase, according to Business Insider. 

You might argue that most of those purchases are relatively small transactions, and you would be right. 

But that might be the point. Lots of small transactions, conducted by lots of people, wind up representing large amounts of transaction value. 

Bank of America predicts $67.1 billion in revenue from smart phone and tablet retail purchasing by European and U.S. shoppers in 2015.

Galaxy Mega Will Have a 6-Inch Screen: Is There a Market?

The Samsung Galaxy Mega reportedly will have a 5.8” screen, with a second device sporting a 6.3-inch screen. Still, some surveys would suggest there is no market for "phablets." 

A recent analysis by Flurry suggests 16 percent of devices used by consumers have screen sizes that are 3.5 inches or fewer in diagonal length. 69 percent of devices are between 3.5 inches and 4.9 inches. About seven percent of the devices are full sized tablets such as the iPad. 

The study suggests 

phablets are a "fad," since only about two percent of users carry them. One might suggest that is not the only way to look at the adoption pattern. One might as well argue that the persistent overall trend for phones is toward larger screen sizes, and that it will take some time for a greater percentage of users to switch to phablet-sized displays.

Saudis to Regulate Skype?

The government of Saudi Arabia is seeking to regulate local use of Internet-based voice and messaging services such as Skype and Whatsapp.

Such moves are not unheard of. In fact, outright blocking of VoIP has happened in numerous countries, at numerous times.  Skype in the past has been blocked in the United Arab Emirates. Even Sweden's Telia has said it might block use of Skype on mobile devices. 

But blocking is only one problem faced by over the top voice applications, In other cases, over the top voice apps face regulation as providers of traditional voice services, moves which in most cases would destroy or vastly impair the over the top VoIP value proposition. 

Over time, the effectiveness of over the top VoIP blocking is questionable. But that never seems to stop some regulators or service providers from trying. 

Vodafone Once Tried to Buy AT&T. Will AT&T Now Buy Vodafone?

Verizon Communications denies the rumor, but reportedly had been considering a deal of as much as $245 billion to buy all of Vodafone. 

That deal, which Verizon would make with AT&T, would then have Verizon getting the U.S. assets, while AT&T got the rest of Vodafone's global assets.

That rumored deal would allow Verizon Wireless to fully own its own business, but might have even bigger implications for AT&T.

Vodafone is the second-largest global mobile communications company, with approximately 403 million customers in its controlled and jointly controlled markets.

Vodafone currently has equity interests in over 30 countries across five continents and more than 50 partner networks worldwide.

So even after losing the Verizon Wireless customers and assets, AT&T would still stand to expand in a major way as a global carrier. Any sale of Vodafone to the U.S. mobile giants would end speculation about “who will buy whom,” and not just for Verizon and Vodafone.

In September 1999, Vodafone Airtouch announced a $70-billion joint venture with Bell Atlantic Corp., which gave rise to Verizon Wireless. That partnership has been troubling for both partners, in some ways. leading to periodic rumors about one or the other partners buying out the other.

AT&T also figures into the story, though. In 2004, Vodafone made a bid for the entirety of AT&T Wireless when that company was for sale.

Had that bid been successful, Vodafone presumably wouldhave sold its stake in Verizon Wireless, and then rebranded the former AT&T Wireless business as Vodafone.

Cingular Wireless, at the time a joint venture of SBC Communications and BellSouth ultimately outbid Vodafone and took control of AT&T Wireless, which now is known as AT&T Mobility.  

So in an odd turn of events, Vodafone, which tried to buy AT&T Wireless, would then be acquired by its former target.

Earlier rumors (2012 and 2013) had Verizon Communications weighing a smaller deal to acquire more of Verizon Wireless equity, or buying out Vodafone’s stake.

The latest rumor has the two U.S. giants buying all of Vodafone, with Verizon essentially acquiring the remainder of Verizon Wireless, while AT&T gets the rest of Vodafone’s global assets.

Such a blockbuster deal would give the two U.S. mobile service providers a pathway to growth. For Verizon Communications, owning all of its mobile business would immediately boost earnings. For AT&T, the Vodafone deal would catapult AT&T into the global market in a new way.

Despite denials, it appears Verizon and Vodafone recently held full merger talks that apparently did not result in accord on matters such as leadership structure or where the corporate headquarters would be located. That is a common issue for mergers “of equals.”

So the recent rumor that AT&T and Verizon would instead simply buy all of Vodafone is a way around the impasse.

Strategically, the AT&T interest in Vodafone’s global assets is a clear sign that AT&T sees future growth in the U.S. market as problematic. Verizon first has to consolidate its U.S. business before it can consider looking overseas for future growth.

Ironically, any such deal would tend to confirm the belief of European mobile service providers that major consolidation is needed in the European Union markets if the surviving mobile service providers are to achieve economies of scale.

But the deal also would indicate that when government entities limit the amount of growth any single company can have in its home market, typically by mandating market share limits, those firms look offshore for future growth.

Ironically, by limiting domestic market share to preserve competition, regulators also create incentives for domestic providers to shift capital overseas.

Facebook's Plans an Android "Skin," Not a "Fork"

According to Josh Constine at TechCrunch, Facebook plans a "skin" over Android, not a "fork" as Amazon.com did for its Kindle. By "skinning," rather than "forking," Facebook simply provides a new layer of functionality over the top of Android, without making "custom" modifications to Android.

That probably gives Facebook what it wants--a deeper integration of Facebook on an Android device--without the hassle of a deeper modification of the Android operating system.

Will Aereo Redefine Video Service Provider Content Costs?

Aereo, the Web television venture that captures over the air broadcast TV signals and then makes them available as an Internet video stream, is a test case of whether service providers who do so are obligated to pay carriage fees to the broadcasters.

So it is no surprise that Aereo has discussed partnerships with major Internet service providers and video service providers. In principle, video distributors could make carriage deals with Aereo instead of each TV broadcaster in a local market, which might mean lower service provider content fees.

The other issue is that if Aereo can amalgamate a relative handful of additional channels, Aereo might emerge as a supplier of a new sort of low-cost tier of service, positioned somewhere between "antenna service" (broadcast channels only) and "basic cable" (broadcast channels plus 40 or so additional channels).

Video distributors therefore have an interest in seeing whether Aereo survives legal challenge. A new Aereo tier might appeal to some consumers who think a "full" expanded basic tier costs too much.

Will Aereo Redefine Video Service Provider Content Costs?

Aereo, the Web television venture that captures over the air broadcast TV signals and then makes them available as an Internet video stream, is a test case of whether service providers who do so are obligated to pay carriage fees to the broadcasters.

So it is no surprise that Aereo has discussed partnerships with major Internet service providers and video service providers. In principle, video distributors could make carriage deals with Aereo instead of each TV broadcaster in a local market, which might mean lower service provider content fees.

The other issue is that if Aereo can amalgamate a relative handful of additional channels, Aereo might emerge as a supplier of a new sort of low-cost tier of service, positioned somewhere between "antenna service" (broadcast channels only) and "basic cable" (broadcast channels plus 40 or so additional channels).

Video distributors therefore have an interest in seeing whether Aereo survives legal challenge. A new Aereo tier might appeal to some consumers who think a "full" expanded basic tier costs too much.

Cooks Worldwide Rely on Smart Phones When Shopping

What makes mobile "different" is the direct tie to "commerce." People use tablets to consume content, in many of the same ways they use PCs. But people tend to use their smart phones in a commerce setting more often, you might argue.

Cooks everywhere use their smart phones for meal planning and cooking inspiration, a new survey by Allreipes.com has found.

According to the survey results, mobile is a big factor in driving global growth. Nearly half of global consumers are turning to their smartphone for inspiration while shopping for food. 

That should come as no surprise. Increasingly, mobiles are being used for shopping, and merchants are responding.