Price, Not Availability, is 100-Mbps Problem

The real problem with very high speed (100 Mbps or higher) Internet access in the United States is the cost, not the availability, one might argue.

Some 82 percent of U.S. homes can buy Internet access of speeds of at least 100 Mbps, from a cable operator. About 18 percent of homes can buy fiber to home services.

Vectored DSL might allow many telcos to offer 50 Mbps to 100 Mbps, even if fiber is not pulled all the way to the home.

At least 235 U.S. service providers offer services at 50 Mbps or more, 136 offer 100 Mbps or more and 64 offer gigabit speeds. Most of the 100 Mbps and gigabit providers focus on the business market, given the retail prices, it is fair to say. But most cable operators happily sell 100 Mbps to consumers.

The issue really is price. Not many consumers are willing to pay $110 for a 100-Mbps connection bought with a triple play offer, or $200 on a standalone basis. In the past, such services cost as much as $300 a month.

The good news is that prices per Mbps prices per Mbps have been dropping as headline speeds have grown. Google Fiber has a cost per Mbps of about seven cents, where many offers have costs of $2 or more per Mbps of speed.

Gigabit Access Availability Grew 300% from 2010 to 2012

The availability of 100 Mbps to 1 Gbps Internet access services grew the fastest, from 2010 to 2012, according to a new study by the  National Telecommunications and Information Administration (NTIA). Though growing from a low base, availability of 1-Gbps services grew nearly 300 percent between 2010 and 2012.

Availability fo 100 Mbps services grew even more: 448 percent between 2010 and 2012. Availability of 50 Mbps services grew 160 percent between 2010 and 2012.

Services operating at 25 Mbps, arguably the speeds most consumers tend to buy, grew about 57 percent, in terms of availability.

Availability of lower-speed services has reached virtual ubiquity. Some 98 percent of U.S. residents can buy Internet access at speeds of 3 Mbps or greater and upload speeds of 768 kbps or greater.

About 91 percent of U.S. residents can buy access at 10 Mbps downstream. Some 78 percent can buy access services operating at 25 Mbps downstream.

Also, about 81 percent of U.S. residents can buy mobile broadband access at speeds of 6 Mbps or greater.

And nearly 26 percent of the population can buy fixed wireless service with download speeds at 6 Mbps.

Up to this point, cable operators have been the primary providers of high speed access services of at least 25 Mbps or greater but less than 1 Gbps. That should start to change as more telcos begin to upgrade to networks offering speeds up to 1 Gbps.

Still, at the moment, 82 percent of U.S. homes have access to speeds in excess of 100 megabits per second, while in Europe, only two percent of the population has access to these speeds, Comcast notes.

If You Want High Take Rates for High Speed Access, Price Matters

Price matters, Verizon has found. By making it easy for consumers to upgrade FiOS Quantum high speed access services to 50 Mbps for an incremental $10 or $20 a month, Verizon is seeing a "huge take rate," said Fran Shammo, Verizon Communications CFO.

"With the tools that we have with FiOS and delivering messages to our consumers on the TV or on their broadband connection, that they have the ability to just click and upgrade to 50 megabits for an extra $10, we are seeing a huge take rate on that click," Shammo said.

To be sure, Verizon often has very good reasons for wanting customers to upgrade. As it converts customers fro digital subscriber line to FiOS, it must allow consumers to keep the legacy price. So that generally means a former DSL customer gets the 25 Mbps service, for the same price as the older DSL. 

That effectively means Verizon has invested in FiOS but is unable to reap any incremental revenue for doing so, in terms of high speed access. The upgrade offer allows Verizon to generate some incremental revenue. 

In fact, Shammo suggests the upgrade policy is driving four percent growth in consumer revenues, year over year. 


Shammo also says Verizon believes use of Long Term Evolution in place of fixed access can work in rural areas, but not in urban areas. What Verizon found from its tests of LTE-plus-DirecTV was that data consumption was so high that mobile network performance suffered.

The other issue is that LTE will not deliver the 50 Mbps or 100 Mbps access Verizon believes will be needed in urban areas. 

The larger point is that price matters, when ISPs try to migrate consumers to higher-speed service plans. Take rates for 50 Mbps, 100 Mbps or 1-Gbps service plans can be significant, when retail prices are deemed to offer value. 

The point is that take rates will not be too high when prices are in the $100 a month rate. Take rates climb dramatically when the cost of a much-faster plan is only $10 or $20 a month over the existing basic plans. 

Where it comes to very high speed Internet access, price really does matter.

In August 2000, only 4.4 percent of U.S. households had a home broadband connection, while  41.5 percent of households had dial-up access. At that time, the effective price for a 1-Mbps connection might have been $234.

A decade later, dial-up subscribers declined to 2.8 percent of households in 2010, 68.2 percent of households subscribed to broadband service, with effective prices per Mbps of perhaps a couple to a few dollars.

That suggests what will happen, eventually, with take rates for 50 Mbps, 100 Mbps or 1 Gbps services. As prices per Mbps of service drop sharply, take rates will climb rapidly.

Up to this point, most consumers have not felt the need to upgrade to the fastest available speeds, in part because retail prices reflect costs per Mbps of service that are seen as “too high.”

In the U.K. market, for example, though service at 30 Mbps is available to at least 60 percent of homes,  buy rates were, in mid-2012, at about seven percent (to say nothing of demand for 100 Mbps).

But price arguably has much to do with the resistance. By June 2012 about 75 percent of U.S. households could buy a service of at least 50 Mbps, while half could buy service at 100 Mbps. Relatively few chose to do so.

For the sake of argument, assume a price per Mbps of $3. That implies a 20 Mbps connection would cost about $60 a month. Typically, the faster a connection is, the lower the per-Mbps price actually becomes. So assume a $1.50 per Mbps price for 50 Mbps services. That implies a monthly price of $75  a month.

A 100-Mbps service might sell for about $1 per Mbps, implying that a 100-Mbps service costs $100 a month.

Google Fiber, of course, deliberately disrupts those pricing metrics, offering 1,000 Mbps for $70, or seven cents per Mbps.

When price per Mbps of service drops two orders of magnitude, most people will upgrade to much faster service.

Top Countries for Mobile Payments Potential

Singapore, Canada, the United States, Kenya, South Korea, Japan and the United Kingdom are among the countries where mobile payments are poised to get traction, according to Business Insider.

The index measures the ability to completely replace use of credit and debit cards with mobile devices. But each of the countries ranks high in terms of readiness for different reasons.

Access is where Singapore shines. It  has 100 percent mobile coverage, while 70 percent of the nation’s residents have internet access and 68 percent own a mobile phone.

Canada, according to MasterCard, has the best cooperation among mobile networks, financial institutions, and government agencies. Plus, Canada is the global leader in Internet penetration with 82 percent of consumers online.

The United States has the most mobile-payment potential, in terms of household spending per capita, at $33,000, the highest in the world.

Kenya already has 68 percent of residents frequently using mobile payments, more than in any other nation.

South Korea is notable because Koreans use mobile payments to transfer money between two individuals about three times more often than they do to make point-of-sale purchases.

Japan has potential because, on average, each person in Japan has 14.98 credit or debit cards, creating a huge opportunity for displacement.

The U.A.E. is the global leader in business adoption of new technologies.

The United Kingdom makes the top of the list because of its extremely high household mobile-phone (85 percent) and Internet penetration (80 percent).

Saudi Arabia has potential because more consumers who use mobile payments are making point-of-sale purchases in Saudi Arabia than in any other country.

China potential comes from its sheer population size.

Negroponte Switch for Mobile Traffic?

To the extent that tablets and smart phones are displacing time formerly spent with PCs, there is potential for a shift in demand for access from mobile and fixed networks. That's what offloading of mobile traffic to Wi-Fi networks is all about. 

On the other hand, users also are shifting application use formerly occurring on PCs to their smart phones and tablets. So some traffic formerly on the fixed network is loaded to the mobile network. 

But the composition of the traffic is uneven. Where once television was delivered "over the air," it has over the past several decades moved to the fixed network, while "narrowband" traffic (voice and messaging) has moved to the air (mobile networks). 

Some might remember that this was known as the "Negroponte Switch." 

Something along similar lines is happening with "mobile" traffic. The bandwidth-intensive applications, especially video, is moving to the fixed network. The real-time communications traffic (chat, messaging, voice) and real-time application traffic (navigation, some transactions) is moving to the mobile network. 

"Wi-Fi-Only" Works About Half the Time: Issue is What Might be Possible in Future

Historically, the big value mobile phones represented was the untethering of "calling" from places. In fact, so great was the value that mobile calling displaced less expensive place-based calling. 

More recently, the value of a BlackBerry was the ability to use email anywhere. In the latest iteration of the untethering trend, people now expect to be able to get access to the Internet anywhere they are. 


But there is another trend happening as well, namely that people find it useful to shift Internet app consumption to stationary or fixed modes, to avoid mobile Internet access charges. In other words, mobile networks are for mobility, fixed networks are for capacity. 

And since perhaps 80 percent of Internet data consumption now occurs "indoors," capacity increasingly has become the value, rather than mobility, even for mobile devices. 

That is not to say nomadic access is not important, only that essentially tethered access has become more important. Just how important remains to be seen. 

Generally, one might say that "synchronous" or "real time" communications and apps benefit from "anywhere, anytime" access. Asynchronous apps and communications (email, voice mail, blog and social posts) can tolerate some periods of disconnection, and are better suited to place-based access. 

So the issue is the degree to which growing use of asynchronous apps means access can be useful if it is "not always connected," as is the case for any user relying on devices with Wi-Fi access only, and not full mobile network access. 

At least so far, voice and messaging devices (phones) have benefited from "anywhere, anytime" access. PCs and now tablets often can provide high value even when connectable only sometimes. 

The big zone of uncertainty is whether smart phone Internet access demand will change to any great extent. The possible change is voice and messaging on the mobile network, with Internet access mostly or even exclusively based on Wi-Fi access. 

Smart phone owners know they can use Wi-Fi access inside and outside the home, and there is a financial benefit to doing so.

Mobile service providers also realize they can avoid capital investment by encouraging their users to switch their devices to Wi-Fi whenever possible, as well.

Voice-based or communication-based applications generally are not the best candidates for “Wi-Fi-only” networks. But tablets, PCs and Chromebooks are a different matter. And smart phone Internet access already is a case where mixed access is the norm. That already is allowing creation of business models based primarily on fixed access (Wi-Fi) with a mobile overlay.

34 Percent of Global Tablets will be Cellular Connected by 2017

BT, for example, appears to be thinking along those lines.

Having won 4G spectrum (2x15 MHz of FDD and 20 MHz of TDD 2.6GHz spectrum), BT suggested it would not build a retail mobile network, but use 4G to augment BT's fixed networks.

Now BT says it will launch its own retail network.

The thinking is that BT will source wholesale mobile connectivity from one of the U.K. mobile service providers to provide full mobile access, while using its own spectrum largely for fixed or location access.

That is analogous in many ways to the ways mobile service providers already blend full mobile access plus Wi-Fi access. The potentially big challenge is whether it might eventually be possible to create 

Wi-Fi only  

access services that have high value even if there is no mobile access, as once was thought feasible around the turn of the century. 

Those of you who travel outside your home country already do this: you turn off your mobile Internet access and rely only on  

Wi-Fi  

when out of country. 

Lower Prices Spur India 3G Data Consumption

Mobile data traffic on India’s 3G networks grew 196 percent between December 2011 and December 2012, according to Nokia Siemens Networks. Mobile data traffic on 2G and 3G networks grew 92 percent over the same period, while 2G network traffic grew 66 percent.

According to the study, each 3G user currently consumes close to 300 percent more data on an average than a 2G user. Currently, a 3G user consumes 434 MB per month on an average while a 2G user consumes 115 MB per month.

In the first half of the research period, December 2011 to June 2012, data traffic generated by 3G services increased by 78 percent while that of 2G services increased by 47 percent.

In the second half, July 2012 to December 2012, data traffic generated by 3G services increased by 54 percent while that of 2G services increased by 18 percent.

Lower 3G prices contributed to growth of 3G usage, Nokia Siemens says.



Robust competition probably will ensure that prices continue to drop. 

"Build Where the Demand is Greatest" Even if "Universal Service" Suffers

One key innovation Google Fiber has brought to the construction of fiber to home networks is the “build first where there is greatest demand” principle.

Veterans of the telecom and cable TV business immediately will recognize that this flies in the face of established precedent that “universal service right now” is more the legacy principle. But proponents of gigabit networks already have moved to embrace the idea of “building where you can, right now” as a way to stimulate the building of gigabit networks on a wider basis.

That might now be the thinking of analysts at Point Topic, looking at building of new 30-Mbps networks throughout the European Union. In other words, the greatest progress, at the lowest cost, will happen when urban networks get built first, rather than giving priority to rural areas.

But analysts at Point Topic also do estimate it will cost far less than previously estimated to provide 30 Mbps service on a ubiquitous basis across the European Union.

Point Topic estimates it could cost €82 billion, though other estimates have ranged as high as that produced by the European Commission of €180 to €270 billion.

The FTTH Council quotes an estimate of €202 billion as the total cost of meeting the Digital Agenda targets with fiber-to-the-home networks.

The Point Topic estimate is dominated by the €52 billion cost for reaching rural areas, defined as those areas with a population density of less than 100 persons per square kilometer.

Covering the semi-rural areas, home to 15 percent of the EU’s population, would cost another €22 billion.

Completing coverage in the urban areas, those with a population density of 600 per square kilometre or more, would cost only €8 billion and reach 71 percent of the population.

That new estimate illustrates the problem all fixed networks face, namely the high cost of building networks in areas of low population density.

The cost of rural networks also accounts for the country by country costs of construction.

France has the biggest requirement of all at €17.5 billion, whereas the United Kingdom, similar in population but with only 37 percent of the land area, needs only €7.5 billion to build its national network. The reason is the higher percentage of rural areas in France.

The key insight here is perhaps not that the actual cost of building a fiber to home network has changed significantly. But there is a seemingly growing practical realization that high-capacity networks need a business model, and that model probably only works well in some neighborhoods in any given city.

Other initiatives such as Gig.U use the same principle, recognizing that gigabit networks cannot be build, or sustained, everywhere, right now.

But Google Fiber will test whether it is possible to operate at dramatically lower costs, or with a new business model, depending on take rates for a disruptive value proposition.

Order of Magnitude Lower Mobile Base Station Costs?

An order of magnitude lower costs is the sort of cost reduction that often is crucial in getting Internet access or communications to users in developing regions. Lower power consumption and simplicity also are advantages, and all of that seems to be what Range Networks is after.

Using an open source software approach to costs, Range Networks hopes to provide mobile network infrastructure adapted to the requirements of developing regions.

A low cost single tower mobile service is enabling communities in rural Papua, Indonesia, for example, in a location a four hour drive away from the nearest mobile tower.

The deployment is a collaboration between cellular systems provider Range Networks and the UC Berkeley Technology and Infrastructure for Emerging Regions (TIER) research group.

The deployment uses a satellite connection to reach the backbone telecom networks, but all local traffic (the network can reach a neighboring village one mile distant)  is handled essentially peer to peer, avoiding use of the backhaul.

You Aren't Just a Customer: You are Becoming the Product

In terms of business model, users of "no incremental cost" applications, supported by advertising, make the user the product. Now subscribers to mobile services are similarly becoming the product, as carriers sell marketing data, at least at a "subscriber non-identifiable" level. 

Precision Market Insights offers businesses such as malls, stadiums and billboard owners statistics about the activities and backgrounds of mobile users. 

A Processor View of "Post PC"

At the processor level, here is one way of looking at the "post PC" trend. Because of a fall in sales of PCs, AMD has fallen from the number-two spot for processors to the fourth position, in terms of market share. 

Qualcomm and Samsung moved up, both on the strength of sales of mobile processors. 

AMD's market share dropped 21 percent, year over year, between 2011 and 2012, while Intel dropped one percent. Samsung, which supplies processors for Apple, among others, grew share 78 percent, while Qualcomm grew share 28 percent.

Twitter Starts to Get Traction

The issue some observers have had about Twitter is that, compared to other social networking sites, it was not used by many people.

The other issue has been that, even if some older users availed themselves of Twitter, teens did not use Twitter. 

That seems to be changing. 

Some 24 percent of online teens now use Twitter, a figure that is up from 16 percent in 2011 and eight percent in 2009.

In fact, say researches at the Pew Research Center's Internet and American Life Project,  teenagers’ use of Twitter now outpaces that of adults.

About 16 percent of online adults are Twitter users, up slightly from the 12 percent who were using Twitter in 2011.

As with some other highly popular Internet apps, Twitter suggests that early adopters can come from other demographic segments that teens or even college age users. YouTube, blogging sites and LinkedIn provide examples. 

Mobile Broadband Changes the Way People Use the Internet

There were about 90 million U.S. fixed broadband accounts in service in June 2012, and 153 million mobile broadband accounts, according to the latest report from the Federal Communications Commission.

The study shows that both mobile and fixed networks are evolving towards faster speeds, but also shows how much more nuanced the subject of broadband access has become.

Where once the issue was fixed connections to places, we now confront a mix of fixed connections to places plus many mobile connections directly to persons.

To be sure, fixed connections tend to feature higher speeds than mobile connections. But the ways people use the Internet arguably has changed, with far greater use of “on the go” Internet usage. For the most part, mobile broadband complements fixed broadband.

But perhaps seven percent of users are “mobile only” for their Internet access requirements.

The Media Behavior Institute found that mobile phone and tablet devices were reducing the the percentage of U.S. Internet users who use a computer in a given week.

The percentage of respondents using a desktop PC slipped by five percentage points between the July 2012 and January 2013.

On average, 43.5 percent of participants got access to the internet using a mobile phone each week during the period ending in January 2013, an eight-percentage-point increase over the period ending in July 2012.

Tablets grew their average weekly reach by four percentage points, used by 17 percent of participants at the end of the study period.

In the first quarter of 2013 Experian Marketing Services found that U.S. mobile Internet users spent the greatest percentage of their mobile web time using email, a 23 percent share of time spent, compared to five percent of time spent on desktop.

Social networking was the second most used app on mobile, representing 15 percent of time spent with any Internet app or service.

Travel also occupied a greater share of time on the mobile Internet (nine percent) compared with the desktop (one percent).

80/20 Rules Apply for Service Provider Capital Investment

For large telcos making capital investments, the "80/20" rule holds, a study suggests. Some 80 percent of the attention goes to decisions that produce less than 20 percent of operating results. 

Conversely, decisions that drive 80 percent to 90 percent of operating results tend to get 10 percent to 20 percent of attention, when capital investment choices are to be made.

Firms that earn more from their capex expenditures typically have proposals justified on the basis of improving performance metrics from existing services or territories, a PwC study has found.

Most of the telecoms executives in the survey distinguish between ‘business-as-usual’ capex and ‘project’ capex (also known as ‘innovation’ or ‘growth’ capex).

But though project capex typically represents just 20 percent to 30 percent of an operator’s total capex, it receives 80 percent to 90 percent of the capex committee’s attention. That is not to say innovation and revenue growth is unimportant. It is to note that capital allocation is failing to pay attention to the 20 percent of decisions that drive at least 80 percent of the financial impact (the “80/20 rule”).

That might seem to run counter to the notion that tier-one telcos must find new revenue sources. It isn’t. It means that the emphasis for capital investment has to be related to actual impact on revenue generation.

The logic is simple enough. A $5 a month swing in revenue has huge impact when the revenue-generating units involved number in the scores of millions, compared to a $5 a month revenue swing on a revenue-generating service involving a hundred thousand units.

In other words, $5 a month incremental revenue on a base of 30 million units generates $150 million a month, or $1.8 billion a year. A $5 a month incremental increase in revenue on a service with 100,000 units generates $500,000 a month, or $6 million a year.

PwC analysed the financial performance of 78 fixed-line, mobile and cable telecoms operators around the world and then surveyed 22 senior telecoms executives from a representative cross-section of companies in terms of size, services, location and financial performance.

“The telecoms industry is at an inflection point ,” a PwC report argues. It’s spending lots

of money on new infrastructure, but it’s not optimizing financial returns. PwC claims “most

telecoms executives admit as much.”

European Mobile Revenue: Structural or Cyclical Problems?

Vodafone is the world’s second-largest mobile service provider or perhaps the seventh largest, as measured by revenue. In its past year ending in March 2013, Vodafone revenue fell 4.2 percent  to £44.4 billion.

The shortfall was caused principally by economic conditions in Europe and new EC rules on wholesale termination revenue, both of which are hitting revenues in European markets.

But there is a broader trend at work. In developed markets, revenue drivers continue to evolve.

Before 2000, global telecom revenue growth was driven by voice revenues. After 2000, as voice declined, total revenue was sustained by growth of mobile service revenues, driven by voice, and then supplemented by text messaging revenue.

So mobile service revenues became the growth driver for the global business, which also expanded to include the formerly separate video entertainment business.

In many markets, though, mobile voice revenue now is flagging, as are text messaging revenues. In the business as a whole, growth rates of mobile revenue have been dropping since 2007, while average mobile revenue per subscriber has been under pressure as well, as first voice usage and now text messaging usage has begun a decline.

The obvious next growth driver is mobile data, which grew about 14 percent. But Vodafone’s revenue issues show that is not an easy or foolproof process. Mobile data revenue is growing, to be sure.  

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

But nothing remains the same in the communications business, these days. At some point, as smart phones displace most use of feature or basic phones, and as most consumers therefore start buying mobile data plans, mobile data will itself become a legacy revenue source.

So the big question is “what comes next?” For most service providers, machine-to-machine services are part of the answer. Bigger mobile data plans, generating more revenue, are part of the answer as well. For some, mobile applications will be part of the creation of new revenue sources. Mobile payments, mobile banking and mobile commerce likewise are among the potential new sources of revenue.

The point is that the next big transition for the mobile industry will come rather soon. And that transition will entail the maturation of the mobile data revenue “growth” story and its eventual replacement by a next wave of revenue drivers.

Much will hinge on how fast those new sources can be developed and scale.