What is "Most Important" in ISP Marketing?

Most ISPs--whether mobile, fixed or satellite--historically have highlighted speed and price. Whether those attributes are the best ways to compete, or the most relevant attributes of service, is some minor extent debatable. But that is how it often is assumed consumers are evaluating competing offers.

That might not be correct. In fact, one study of U.K. consumers suggests quality and reliability of a broadband connection (36 percent) is the most important factor when selecting a broadband service. That might surprise many observers.

Speed turns out to be the most-important factor for 21 percent of respondents. Price was paramount for just 15 percent of respondents.

A different set of drivers might drive churn, though. “Download speed” is the most important factor for those considering switching.

Some 33 percent of respondents rate “speed”as primary reason for wanting to switch providers.   Fully 64 percent consider it a factor.

But price (47 percent) and service quality (43 percent) also were ranked as key drivers of a desire to change. About 18 percent each said price or service quality were the most-important reasons they were thinking about switching service providers.

So although customer-perceived “service quality” was the single most-important reason for choosing a provider, speed is the single most important element for driving a change of ISPs.

Subjective quality assessments therefore are among the top three reasons for choosing an ISP, or for changing an ISP. Other potential criteria seem seldom used. Few consumers probably buy based on “price per megabyte” or “price per megabit per second.”

It is a truism that products should not be sold on “price alone.” And yet that often happens in markets. Granted, a product must work. But there are many examples of firms leading with price.

Leading with quality is more difficult, as it is hard to quantify in a simple way, and rarely can be evaluated until a single consumer has tried several, or in some times all, the available providers.

Speed has the salient advantage of being quantifiable and easy to understand. Like price, it is quantifiable and easy to understand.

Still, as a practical matter, it is tough to know whether price, speed, reliability, usage caps or other factors are "most important" for an ISP's retail packaging, especially when high speed access is part of a bundle.

Nor is it so clear whether the same attributes are most important for an initial purchase or as drivers of dissatisfaction, leading to churn. In fact, almost by definition, an ISP might agree that price is most important for the "price conscious consumer." Those potential customers might be people who only use the Internet occasionally, and mostly for email, not just budget-minded consumers.

Other consumers--especially those who have used many ISPs in the past, or those experiencing lots of outages--might be especially attracted to a "quality of service" pitch, though it generally is difficult to quantify "quality."

In yet another segment are consumers who have become unhappy with some "speed related" element of their experience.

It is possible a new segment is the "heavy video user," who might need not so much speed, quality or even price but a large usage bucket.

The bottom line is that it isn't so drop dead obvious what the right positioning should be, for any ISP.

By 2017, 66% of Verizon Wireless Traffic Will be Video

Video already accounts for 50 percent of Verizon Wireless'network traffic today and by 2017 video will represent about 66 percent of all Verizon Wirelessll traffic, saysVerizon Communications CEO Lowell McAdam. 

Most ISP networks probably are in the same situation. 

Service Providers Must Expect to Lose 50% of Legacy Revenue in 10 Years

One fundamental rule of thumb I use when looking at revenue sources in the global communications business is that service providers must plan for a loss of about half of current revenue every decade or so, as markets continue to evolve. 

This graph illustrates the point. In 2001, about 65 percent of total consumer end user spending for all things related to communications and video services went to "voice." In 2011, voice represented only about 28 percent of total consumer end user spending. That is easily a reduction by half. 

To be sure, this graph only shows relative spending, not absolute amounts. But you get the point. 

Over that same period, mobile spending grew from about 25 percent to about 48 percent. Again, you see the pattern: growth of about 100 percent (losses of 50 percent require gains of 100 percent, to return to an original level,  as equity traders will tell you).

Video entertainment spending likewise doubled. 

In the U.S. market, one can note roughly the same pattern for long distance and mobile services revenue. Basically, mobile replaced long distance revenue over roughly a decade. 

It is worth noting that voice revenue trends have been through two fundamental cycles, with a third on the way. 

At one time, international long distance was the highest-margin product, followed by domestic long distance. 

That changed fundamentally between 1997 and 2007. 

Over that 10-year period, long distance, which represented nearly half of all revenue, was displaced by mobile voice services.

In the next displacement, broadband is going to displace voice. 

Will Regulators Allow ISPs to Build Where There is Demand?

Should AT&T get municipal authority to build its proposed 1-Gbps access network in Austin, Texas, new issues will be raised. Some providers, such as Sonic.net, have been extending 1-Gbps service first to the places Sonic.net believes there will be the highest demand. 

Sonic.net is "prioritizing our fiber build-out efforts on communities where we see very high uptake of our Fusion Broadband Phone service." Google has done the same in Kansas City, Mo. and Kansas City, Kan. 

And now AT&T says it wants the same terms and conditions as Google Fiber got, before starting its own 1-Gbps upgrade in Austin. 

That raises an issue. Traditionally, municipal franchise authorities have required universal coverage of all homes in a franchise area as a condition of getting a franchise. That can raise overall deployment costs high enough that many would-be providers are discouraged from trying to do so. 

So the broader issue is whether regulators will relent, allowing suppliers to build where there is demand, rather than stipulating that facilities be built where there is little demand, or requiring suppliers to build low-demand areas roughly as fast as they build high-demand areas.

Other proponents of gigablit service, including Gig.U and Ignite, as well as the Federal Communications Commission, recognize that gigabit service has to occur first in selected parts of communities. 

The issue is whether it is not realistic to recognize that similar priorities might be necessary if the fastest extension of gigabit service is desirable. The point is that gigabit networks are expensive. And it might be that the best way to encourage such upgrades is to foster "spot deployments" as widely as possible, without immediately worrying about "universal service."

That isn't the way regulated communications has been governed in the past. But new policies that do not require universal access might speed up investment. There are public policy issues, to be sure. But gigabit networks are a gamble. 

Perhaps we should encourage providers to make the gamble by loosening requirements for universal service, in preference for "build everywhere you can make money, as fast as possible." Oddly enough, if prices do not fall until there is competition and scale, which will lead to applications innovation and then more scale, one has to "prime the pump."

What Google is Up to In Travel

It isn't unusual when a firm buys an asset that will help build an important new business. It is rare for a firm to buy a key asset and then sell it again, in less than 12 months. And that's what Google did with Frommer's Travel, part of a broader effort to build a mobile commerce revenue stream to augment its advertising revenue streams.

In saying it wants to turn intention into action, Google is providing more of its own content to Web surfers by adding information on hotels and restaurants around the world, a bid to attract users and advertisers from sites such as Yelp.

Travel is an important category for Google as it allows Google sites to become a destination. That's why Google bought Zagat and travel information provider ITA Software. 

Google looks to become a one-stop-shop for not only product search but anything to do with the process of gathering information about travel and destinations. But 


Google has other travel related interests, ranging from mobile payments to "local deals." In some ways, airline schedules are another form of "search." But Google would seem to have ambitions across a broader swath of the shopping process. 

The Reason Why Broadcasters Want to Kill Aereo

In 2012, local TV stations earned about 6.5 percent of total revenue from fees paid by cable TV, satellite TV and telco TV video service providers to carry the local TV signals on their video subscription services.

By 2017, that could grow to 9.5 percent of total revenue, according to  BIA/Kelsey. Some might note that affiliate fees also are paid to the broadcasting network with which each local broadcaster has affiliated. 

Such retransmission fees are the reason broadcasters are trying to kill Aereo and Aereokiller. 

10% of U.K. Mobile Users Routinely Use a Shopping App

More than half of European online adults owning two or more connected devices, Forrester Research now says. As you would guess, that has indirect and direct implications for mobile commerce and e-commerce and other parts of the Internet ecosystem.

The United Kingdom has the highest percentage of consumers going online regularly, the most online shopping and the most mobile Internet usage. Some 10 percent  of U.K. consumers with a mobile phone have used a shopping app in the past month.

Germany has the largest online audience in Europe. Almost three in four German online adults have ordered products or services online in the past three months, spending an average of €225. But Germans do not use  newer e-commerce modes such as social or mobile commerce.

Compared with Spain and the United Kingdom, French online consumers are less likely to own multiple connected devices; they are also, overall, the least likely across the five countries to own a laptop, tablet, smartphone, or netbook.

About 58 percent of Italian adults and 69 percent of Spanish adults go online monthly.. However, those who are online are very active social media users. In both countries, 66 percent of the online population has a Facebook account, and they are more likely to be active content creators.

"Nobody Rides for Free: Issue in Mobile Payments and Telecom

MasterCard recently has instituted a new fee structure for “staged” digital wallet providers such as Google Wallet, PayPal and Square, In practical terms, it means the cost of doing business, for those digital wallets, is higher than it used to be, when using MasterCard bank-issued cards are invoked by wallet users.

The point is that although the mobile commerce ecosystem now is a battleground on many fronts, upstart disruption agents now have to confront incumbent resistance. 

The process is reminiscent of what happened when U.S. local telecommunications stopped being a monopoly after 1996. There was an explosion of new competition. Regulatory rules favored the attackers, up to a point. 

But incumbents counterattacked, with prices charged for use of their networks being one element of the resistance. 

Chris A. McWilton, MasterCard’s U.S. Markets president, said PayPal “rides for free"  on the back of other business models." Does that sound familiar? 

Back in 2006, then AT&T CEO, Ed Whitacre complained that “some people” want AT&T to act as a “dumb pipe that just keeps getting bigger and bigger.”

“If you build it, you have to make a return on that,” Whitacre said.  “Nobody gets a free ride , that’s all.”

It's the same language, and with similar justifications. Of course, there are differences. Business partners cannot use the MasterCard network or the public switched telephone network without paying the network owners. Both of those networks are "closed."

The actual problem AT&T was complaining about was use of the Internet access service. There's a key difference, or at least an important nuance. Use of the global voice network is a fee for service, as is use of MasterCard's clearing and settlements network.

Though users pay a fee to get access to the Internet from an ISP, they do not pay for use of the Internet.

Still, you get the point. Incumbents faced with disruptive challenges to their business model will eventually use all the powers of incumbency, when they can, to fight back. Veterans of the U.S. competitive local exchange carrier business will recall just how effective incumbents can be. 

Despite the familiar refrain that "the present year" is the year of mobile wallet or mobile commerce or mobile payments disruption, we are a long ways from knowing how the full story will play out. 

If Google Can Do Google Fiber, Can Telcos and Cable Companies?

AT&T says it is prepared to build an advanced fiber optic infrastructure in Austin, Texas, capable of delivering speeds up to 1 gigabit per second, provided it gets the same terms and conditions as did Google Fiber. That’s interesting.

Some of us have been skeptical that Google Fiber would be able to build its 1-Gbps fiber to home network at costs markedly different from what a telco might expect to be able to do, in the same markets.

But always also has meant that if a telco really wanted to do so, it could build a 1-Gbps access network, today, particularly if “spot upgrades” in the way Google Fiber builds, prequalifying neighborhoods by requiring a certain percentage of households to indicate they will buy.

To be sure, there are overhead and other operating cost issues. But AT&T’s indication of interest also shows that, when push comes to shove, AT&T will respond to new competition in its markets.

Google Fiber buys from the same suppliers and uses the same construction contractors ad a telco would do.

Some might argue that inducements provided by Kansas City, Kan., Kansas City, Mo. or Austin, Texas can materially affect network cost. Some have doubted that, all along.

Google should have lower overhead, and perhaps lower operating and marketing costs based on the way it is prequalifying construction. But nothing of that sort should be meaningful enough for Google Fiber to magically undercut current telco FTTH pricing.

Instead, the issue is the business model, in particular the ability to make money selling 1-Gbps Internet access for $70 a month, while giving away free 5-Mbps service, and selling a video entertainment-plus-broadband package for $120 a month.

AT&T says it will build a 1-Gbps network in Austin if is gets the same geographic scope of offerings, rights of way, permitting, state licenses and any investment incentives Google Fiber has gotten.

Google insists the deal it has with Austin is non-exclusive, and involves no economic incentives, so it is possible AT&T could get such permission.

AT&T also says doing so in Austin would not materially affect its announced 2013 capital investment plans. How could that work? Assume AT&T already has allocated capital for Austin network upgrade purposes in 2013.

AT&T might do what Google does, polling neighborhoods and setting minimum thresholds for take rates before agreeing to build. So, in principle, AT&T could do its own polls, find out where a critical mass of potential customers exists, and then spot build in those neighborhoods, just as Google will do.

So far, there isn’t too much evidence that Google has been able to make a dramatic breakthrough in terms of basic infrastructure cost, one might conclude from an analysis of Google Fiber costs in Kansas City, Kan. and Kansas City, Mo.

That doesn’t mean Google Fiber has “failed.” AT&T’s offer suggests Google Fiber already has won.

Already, Google Fiber might be showing that it is possible to build 1-Gbps fixed networks at costs roughly comparable to what others are spending to create slower-speed networks.

Bernstein analysts Carlos Kirjner and Ram Parameswaran estimate that it costs Google $464 to connect a Google Fiber “broadband access only” service, and $794 to connect a customer buying broadband and video service.

That first wave, of 12,000 homes on “day one” of the service equates to an eight percent penetration rate, and implies a cost of $10 million for Google, further implying a total cost of $94 million for the Kansas City project. That includes about $42 million for the Kansas portion and $52 million for the Missouri.portion.

But those are the “activate a customer” costs, and do not include the cost of the actual backbone network.

Kirjner and Parameswaran say it will cost $84 million to pass (but not actually connect) 149,000 homes. Some $38 million will go into Kansas City, Kan., and $46 million into Kansas City, Mo., with the cost per home, for the network, costing  $674 in Kansas and $500 in Missouri.

The actual cost “per customer” then hinges on assumptions about take rate. If a third of homes passed actually buy service, then the full cost of the network is apportioned against 33 percent of passings. At that level of adoption, the network alone will cost about $1500 to $2000 per customer.

That is quite consistent with what other service providers could reasonably expect. You might also argue that $120 revenue per household likewise is within general norms for the fixed network business.

Bernstein says “the incremental cash investment to grow to 18 percent penetration in the first year will be of approximately $2 million, with $15 million in incremental cash costs offset by $13 million of contribution from users.”

Bernstein estimates that double-play customers will bring in $64 a month and broadband-only customers will bring in $47 a month.

Kirjner and Parameswaran estimate that a wider rollout around Kansas City for 300,000 homes would more than double build-out costs to $170 million (before acquiring customers and connecting those homes).

The point is that Google Fiber might be succeeding, at least for the moment in Austin, in prodding AT& to upgrade to 1-Gbps.

AT&T Says it Will Build 1-Gbps in Austin

AT&T says it is prepared to build an advanced fiber optic infrastructure in Austin, Texas, capable of delivering speeds up to 1 gigabit per second, provided it gets the same terms and conditions as did Google Fiber.

AT&T says it means by that the same geographic scope of offerings, rights of way, permitting, state licenses and any investment incentives Google Fiber has gotten. 

What is not so clear is whether Austin is willing to do so, given AT&T's different regulatory status, existing cable TV franchise and so forth. But Google insists the deal it has with Austin is non-exclusive, and involves no economic incentives. 

Intriguingly, AT&T says doing so in Austin would not materially affect its announced 2013 capital investment plans. 

AT&T might do what Google does, polling neighborhoods and setting minimum thresholds for take rates before agreeing to build. So, in principle, AT&T could do its own polls, find out where a critical mass of potential customers exists, and then spot build in those neighborhoods, just as Google will do. 

Austin, Texas is a Google Fiber City

Austin, Texas is becoming a Google Fiber city, the Google Fiber Blog finally says.

Google Fiber for Austin, Texas: One More Premature Press Release

We will know with absolute certainty today, April 9, 2012, that Google Fiber is officially coming to Austin, Texas.

But there has been another premature leak, as Gig.U first posted a congratulatory message, then pulled it back down.

"Today, Google announced it will add Austin, Texas to the Google Fiber project, joining Kansas City, Kansas and Missouri as American communities that have the power to bring next generation networks home," the  Gig.U press release said.

WhatsApp Says "No Acquisition Talks" with Google

WhatsApp says it is not in talks with Google about a purchase by Google, after reports indicated that might happen. Of course, as always is the case, discussions could have ended because the two sides could not agree on a valuation. Facebook might step in, or Google could reassess its offer, reigniting discussions.

Some say the recent denial by Verizon Communications that it was in talks to buy all of Vodafone was an example of such an occurrence. Verizon really had been offering to buy all of Vodafone, with partner AT&T poised to take the balance of Vodafone’s assets aside from the Vodafone Verizon Wireless stake. But according to one line of thinking, Vodafone rejected the offer.

Stickiness and engagement would be the primary value, not the revenue. The reason is that if mobile data revenue is about $300 billion annually, global text messaging is about half of that amount, then the legacy revenue stream is about $150 billion annually.

If WhatsApp earns $1 a year from each non-Apple users, and an annual fee of $1 from others, with about 100 million users in total, and if you assume half the users are on iOS devices, then you might estimate 50 million users paying $1 a year, as recurring revenue. That would imply something like a price-earnings ratio of 20, an “Internet multiple.”

The point is that WhatsApp has value not so much as a revenue generator, but as an app with high stickiness, as most communication apps have proven is the case. WhatsApp and other over the top messaging apps stand to destroy much of the $150 billion in global text messaging revenue, not so much to  take market share.

Telecom Italia Mulls Merger

Telecom Italia SpA, Italy’s biggest phone company, said it’s examining a possible merger with Hutchison Whampoa's H3G unit, a combination that would eliminate a competitor offering the cheapest wireless services in the country.

H3G, which uses the "3" brand, is the smallest of Italy’s four facilities-based carriers, with 9.5 million customers. 

“As we have been predicting for some time, the European telecommunications market is set to enter a period of consolidation," says Yankee Group VP of Research Declan Lonergan.

Most of the existing players are under considerable financial pressure financial pressure. Many of the largest operators are carrying large levels of debt. So don't look for Telecom Italia to borrow money to finance the transaction. 

European mobile operators are also seeing their revenues decline due to the combination of difficult economic circumstances, regulatory measures and cannibalization of traditional voice and messaging services by IP-based apps, Lonergan notes.

The issue is whether Italian communications regulators will allow the market to shrink from four national providers to just three. 

"Broadcast" Fox Network Could Become a "Cable Network"

The Fox Network , currently offered as a local broadcast TV station, could become a cable channel if U.S. courts rule that Aereo is lawful, COO Chase Carey has said.  

Given the financial stakes, Fox and other broadcast networks logically will threaten the gravest losses possible to sway opinion.

Television station owners continued to have substantial success in 2012 in growing an increasingly important source of revenue: the fees paid by cable and satellite systems to carry local channels.

While the fees account for less than 10 percent of total station revenue, broadcaster affiliate payments have been growing rapidly. 

CBS-owned stations, for example, almost tripled their fees, from 45 cents a month per subscriber in 2011 to $1.22 in 2012, according to the Pew Research Center. 

SNL Kagan estimates that by 2018, broadcaster affilliate revenue will be more than 20 percent of TV stations’ ad revenues, more than double what it is now.

One reason local broadcast stations have pushed so hard for higher fees is that they have to share some of that income with their networks (ABC, CBS, Fox and so forth) in the form of "reverse compensation." That's a big change. 

“We used to be paying them (local broadcasters) and now they’re paying us (the programming network),” said the CBS chief executive, Les Moonves. 

Within the next five years, Moonves estimated that CBS alone would bring in at least $1 billion a year in affiliate fees from network-owned stations and reverse compensation from non-owned affiliates.

If you want to know why broadcast networks are fighting to block Aereo ane Aereokiller, money is the reason. 



Granted, it would challenge federal regulators who have given the broadcasters their licenses, were Fox Network and other "broadcast" networks go "cable only" (including telco and satellite distribution). But the financial damage Aereo, Aereokiller or others could inflict would be substantial.

Just look at the double digit growth of affiliate revenue and you will get the picture. 

Right now, the legal picture is extremely clouded. Aereo and Aereokiller are two firms that have gotten conflicting legal decisions about whether their services are lawful. In New York, a federal court has affirmed Aereo's legality. In California, the federal court has rendered the opposite opinion, ruling that Aereokiller infringes broadcaster copyrights. 

Both Aereo and Aereokiller create networks of individually-used off-air antennas and then streams that content to customers. Obviously, broadcasters fear a loss of affiliate payments typically paid by cable, telco and satellite TV video subscription services.

In 2013, for example, the Fox Network will earn $472 million from affiliate local broadcasters and video distributors.