Smart Phones are Closing Internet Gaps Everywhere

Over 6.6 billion mobile phones will be in use by the end of 2017, according to CCS Insight's new market forecast. About 66 percent  of them will be smart phones, up from less than 25 percent in 2012.

In the first three months of 2013, smartphone shipments exceeded those of non-smartphones for the first time ever. Sales of smartphones have been helped by new, cheaper devices, especially, but not only, in emerging markets. The mobile and media analyst firm expects 1.86 billion mobile phones to be shipped in 2013, of which 53 percent will be smart phones

That means smart phone markets in Western Europe and North America will see penetration levels approaching saturation point in these markets within three years.

More than 50 percent of the mobile phones in use in these regions are already smart phones. CCS Insight predicts this figure will grow to more than 80 percent in 2015. Beyond 2015, much of the growth will come from emerging markets.

At the same time, sales of tablets are rising at a staggering rate. Altogether, global shipments of smart mobile devices (smartphones and tablets) will increase 2.5 times between 2012 and 2017, to reach 2.1 billion units. CCS Insight predicts that by 2017 the combined number of mobile phones and tablets in use will exceed the world's population.

Nor shouild we  underestimate the role of smart phone access in narrowing “gaps” between regions, states and population segments in use of the Internet, either in developing or developed regions.

It now is clear that the ways people choose to use the Internet is becoming more segmented, and that many users prefer to use smart phones rather than fixed Internet connections.

According to a 2013 analysis conducted by the Pew Internet and American Life Project, the digital divide between Latinos and whites is smaller than what it had been just a few years ago.

Between 2009 and 2012, the share of Latino adults who say they go online at least occasionally increased 14 percentage points, rising from 64 percent to 78 percent.

Among whites, Internet use rates also increased, but only by half as much—from 80 percent in 2009 to 87 percent in 2012, Pew researchers say.

Over the same period, the gap in mobile phone ownership between Latinos and other groups either diminished or disappeared.

In 2012, 86 percent of Latinos said they owned a cellphone, up from 76 percent in 2009.

In 2011, 76.2 percent of non-Hispanic white households and 82.7 percent of Asian households reported Internet use at home, compared with 58.3 percent of Hispanic homes and 56.9 percent of black households, according to the U.S. Census Bureau.

Race and ethnicity did not in 2011 seem to be particularly strongly related to  

smart phone use. Although smart phone use was significantly higher for Asian respondents (51.6 percent), reported rates  for white non-Hispanics and blacks

were not statistically different from one another (about 48 percent each, respectively).

In 2011, a plurality of Americans connected to the Internet from multiple locations and multiple devices (27.0 percent).

These individuals were considered “high connectivity” individuals. The second most common position on the continuum was the opposite extreme—individuals without any computer or Internet activity at all (15.9 percent), or “no connectivity”

Mobile Adoption: A Prime Example of Why "Investment" Beats "Aid"

One of the arguable delusions the "aid community" and probably most people have had over the past few decades is that government-to-government actually works. The issue here is not "feeling virtuous," but being virtuous. 

And there is growing evidence that most government-to-government foreign aid actually retards economic development. It is, in other words, a case of "feeling good" instead of "doing good."

Some would argue such foreign aid does not work, or actually has made things worse. 

Some might argue the whole point is doing good, not "feeling good." Most might agree that results are problematic, at best, and harmful at worst. 

On the other hand, there is an argument that some forms of assistance do work, namely the small, non-governmental organization types of aid that have more chance of being put to work by the people the aid is supposed to reach. 

Beyond that, investment, not aid, is what is needed. There's a big difference. Those of you in the communications business might note the huge "development" impact of making it possible for people everywhere to communicate using mobile phones. Since about 2003 or so, the industry has witnessed an unprecedented adoption of communications by people everywhere. 

All that was done with investment, not aid. 

Spectrum Auction Outcomes Might Hinge on Bidding Rules

The Federal Communications Commission in 2014 is scheduled to conduct an auction to re-allocate as much as 120 MHz of radio spectrum from television broadcasters to mobile service providers.

As much as 102 MHz  worth of new usable spectrum is possible, after accounting for guard bands and spectrum adjustments.

But spectrum auctions always entail some degree of friction between rival bidders, and equally contentious thinking about the best policies to govern such auctions.

The U.S. Department of Justice, for example, thinks there are strategic and marketplace advantages to lower-frequency spectrum (below 1 GHz), and that the two weaker U.S. carriers are at a disadvantage in that regard.

The solution DoJ has proposed is preference for Sprint and T-Mobile USA in bidding for those lower-frequency airwaves. But some economists argue that the greatest efficiency and consumer benefit will arise if no restrictions are placed on the bidding.

The upcoming auction will be different than most prior mobile spectrum auctions, though. The most important difference is that current licensees will have to be induced to sell their spectrum. Obviously, the more money they are offered, the greater the odds they will agree to sell.

The FCC will first take bids in a reverse auction in which television broadcasters will set the prices at which they are prepared to sell their spectrum licenses. The Commission then will conduct a forward auction to allocate that reclaimed spectrum to mobile service providers.

For that reason, any rules that limit the amount of money the FCC can raise will decrease the likelihood that the spectrum actually gets sold, and then redeployed to support mobile communications.

And some argue reserving spectrum for firms such as Sprint and T-Mobile USA will have the effect of reducing the amount of money buyers are willing to pay, thereby reducing the amount of spectrum that actually gets reallocated, a new analysis suggests.

That analysis by Robert J. Shapiro, Douglas Holtz‐Eakin and Coleman Bazelon, published by the Georgetown University Center on Business and Public Policy, argues that the best way to deploy the new spectrum is not to bar AT&T and Verizon Wireless, or any other bidders, from the auctions.

Others argue that the spectrum will be most usefully deployed if the entities best positioned to use it are the entities that win the new spectrum, and also barring some bidders will reduce auction revenues, in turn reducing the amount of spectrum that can be shifted to support new mobile service.

It is counter intuitive, but fiddling with auction rules to bar leading providers, or to favor other contestants, might result in worse outcomes than simply letting all bidders compete. In part, that is because market concentration and consumer welfare are not necessarily and always opposites, as Phoenix Center has argued.

It is understandable that either T-Mobile USA or Sprint might prefer rules that favor them, just as AT&T and Verizon Wireless would prefer not to be limited or barred from participating. 

Those obvious economic interests aside, the matter of what policy is "best," in terms of getting the most new spectrum allocated, sometimes requires analysis. As often is the case, different policies will produce different outcomes.

And the desired outcomes might vary. Some might want "more competition." Others will want "maximum new spectrum," or "greatest efficiency" or "fastest investment." Bid rules can affect and shape desired outcomes.

EE Launches Price War in U.K. Fixed Network Internet Access Market

EE (Everything Everywhere) has launched an attack on BT prices for Internet access services, dropping all usage caps on its six home broadband packages, and setting an entry level plan price of £5 per month plus line rental.

Access speed packages start at 14 Mbps and feature additional tiers of 38 Mbps, up to 76 Mbps on fiber to cabinet lines. Calling prices also have been reduced.

The original 38 Mbps fiber-to-cabinet service with a 40 GB usage allowance has been upgraded to offer unlimited usage while remaining at £15 per month for new customers.

BT’s  unlimited-usage price is £23/month, while Sky sells unlimited usage at £20/month, while TalkTalk’s price is £16.50/month.

Clearly, EE is hoping to disrupt the market by offering dramatically lower prices.

Mexico Communications, TV Markets to See Market Share Shifts

Mexico now has become a focal point for potential market change after Mexican President Enrique Peña Nieto signed into law a new framework for competition in the telecommunications and TV broadcast industries that has the express aim of limiting market power and shifting market share  in Mexico’s communications and media businesses.

In essence, the bill allows for something like the 1984 breakup of the AT&T Bell system, though it isn’t clear that is the preferred method for altering market share in the Mexican markets.

At least initially, regulators are likely to try new network unbundling and interconnection rates that will favor competitors. Just how much share could change is the big question. In the U.S. market and in Western Europe, competition has in many cases reduced the former market leader’s share to as little as 30 percent to 35 percent.

But that required asset divestitures. In the absence of such asset disposals, some of the existing competitors might expect to gain perhaps 10 percent to 15 percent share.

What is clear is that the “problem” is seen to be excessive market control by one company, in this case América Móvil, which has 80 percent share of fixed lines and also 70 percent share of mobile accounts as well.

The new law creates a brand new regulatory body, Ifetel, which will have the ability to apply more restrictive regulations on dominant competitors or force them to sell assets.

But Grupo Televisa likewise controls 70 percent of the broadcast TV market, and also is expected to see new competition, ironically from Carlos Slim, who controls América Móvil.

One way or the other, regulators will take actions to reduce the market share held by the leaders of the fixed line, mobile and TV broadcast industries. That, of course, is the whole point of inducing new competition: the leaders lose market share.

Two new national television networks will be authorized, and existing satellite and cable TV companies will be required to carry those signals at no charge to the new networks.

Aside from changes in interconnection rates to favor attackers, foreign businesses will be permitted to own up to 49 percent (up from zero percent) of radio firms, and can increase their stake to 100 percent (up from 49 percent) in other telecommunications operations.

SoftBank Raises Sprint Bid

Though SoftBank had said it would not alter its original bid to buy Sprint Nextel Corporation, SoftBank has raised its offer for Sprint. Essentially, the offer funnels more cash to shareholders, and less to Sprint in the form of additional capital.

Sprint’s Special Committee and Board of Directors have unanimously approved an amended merger agreement and again have unanimously recommended to stockholders to vote for the revised SoftBank transaction.

Under the amended Merger Agreement, SoftBank will pay an additional $4.5 billion of cash to Sprint stockholders at closing, bringing the total cash consideration available to Sprint stockholders to $16.64 billion.

The cash available to stockholders has increased by $1.48 per share, from $4.02 to $5.50, based on the June 7, 2013 share count.

Sprint also says it has ended talks with Dish Network about that firm's rival bid for Sprint. Perhaps significantly, one significant shareholder Paulson, now seems willing to vote for the sale of Sprint to SoftBank. That could tip the votes in favor of the SoftBank bid. 

But expect another, and higher, bid from Dish Network. Though T-Mobile USA offers a fallback position, Dish Network seems to believe Sprint, with its Clearwire spectrum assets, are a better fit.

And Dish is highly motivated. The billions worth of valuation for its Long Term Evolution spectrum will fall dramatically if it cannot be used as part of a viable operating network, with significant market share.

SDN Will Follow "Big Data" Through the Peak of Hype

Software defined networks already have started down the path of “hype” that is a normal part of the adoption process for any new technology.

Big data is the trend that will precede software defined networking along the typical hype cycle, many would argue. The point is that SDN value is going to vastly disappoint many would-be users, for quite some time.

That typically happens with most new technologies that ultimately prove to have value. In the meantime, there will be the normal jockeying for position, with the odd result that some of the touted advantages (multivendor support, lower cost of network elements) will emerge only within specific ecosystems.

Apple Could be a Dangerous Mobile Service Provider

A new global survey conducted by Accenture suggests Apple might be a formidable Internet service or mobile service provider.

The global survey of mobile users by Accenture finds that 31 percent of all respondents surveyed prefer that their device supplier also supply their communication needs, including Internet access service.

In fact, 40 percent of Apple owners prefer all communications needs to be met by Apple.  

A majority of mobile Internet users prefer device makers over their mobile provider as their unified provider of communication needs. Mobile providers actually rank third in preference.

This preference is exceptionally strong in emerging markets, where more than 40 percent of mobile Internet users prefer mobile device or OS makers to fulfill all their communication needs, compared to only 17 percent who prefer the mobile provider.

In emerging markets, fully 42 percent of respondents would prefer that their device supplier also provide communications and Internet access.

About 28 percent of all respondents do not care what entity provides their Internet access, as long as those needs are met. The study indicates how big the opportunity for new ISPs might be.

Only 21 percent of all respondents indicated that their mobile service provider was their “preferred supplier.”

Accenture’s Mobile Web Watch 2013 study surveyed nearly 31,000 consumers in 26 countries.

That means mobile service providers potentially could be disrupted, as Google Fiber now is disrupting consumer expectations of fixed network services.

Fixed network Internet service providers, whether they will admit it or not, are feeling a disruptive challenge from Google Fiber, simply because Google Fiber is resetting consumer expectations about what a state of the art Internet access service looks like.

All prior offers are challenged on both the value and price front, by Google Fiber’s $70 a month 1 Gbps symmetrical service, which provides two to three orders of magnitude more bandwidth in the downstream direction, and three orders of magnitude more bandwidth upstream, than other offers, at prices that are close to what users already pay for vastly slower services.

Users Willing to Pay for Faster Internet Access, Global Study Finds

A global survey of mobile users by Accenture finds that the speed of mobile Internet connection was important to 97 percent of all respondents. That is not too surprising, given the overwhelming prevalence of 2G and 3G network connections globally.

About 78 percent of respondents said there is some room for improvement in mobile Internet access speeds. For ISPs, the equally important finding was that 63 percent of all respondents said they would pay additional monthly fees for mobile Internet service.

But there is a caveat: that willingness to pay is based on the assumption that the new service is an order of magnitude (10 times) faster than their current connection.

For mobile service providers hoping to monetize their Long Term Evolution investments, that is good news. Sort of. It depends on where a service provider is operating.

In mature (developed nations) markets, the willingness to pay extra for 4G is lower (57 percent of all respondents in these markets), except in Italy (71 percent) and Finland (70 percent)

In emerging markets, three-quarters (76 percent) of mobile Internet users would pay more for 4G; customers in Brazil and Russia (83 percent in each country) are willing to pay more.

The more important issue, though, is not what people say they might do, or will do. What matters is what they actually do.

On that score, one might argue that even if consumers in developed markets are not so apparently willing to pay more for 4G, many likely are paying more, if only because of the well-known observation that users of faster networks consume more data.

According to Federal Communications Commission data, users of satellite Internet access services, which arguably face the toughest bandwidth challenges, consume orders of magnitude less data than users of digital subscriber line, cable modem or fiber to home networks.

Currently, a 4G connection generates 19 times more traffic than a non-4G connection, Cisco notes. In part, that is because many 4G connections are used for residential broadband routers and laptops, which have a higher average usage.

But the other issue is simply that when users have access to faster networks, they consume more data. A smart phone on a 4G network is likely to generate 50 percent more traffic than the same model smartphone on a 3G or 3.5G network, Cisco says.

The survey also showed that almost all respondents (96 percent) said the quality of network is important, closely followed by its area of coverage (95 percent).

About 94 percent of respondents said the cost of data is slightly less important than quality, coverage, or connection speed, and even less, 89 percent, cited customer service as being important.    

Accenture’s Mobile Web Watch 2013 study surveyed nearly 31,000 consumers in 26 countries.

Global Mobile Devices and Connections by 2G, 3G and 4G

Although 4G connections represent only 0.9 percent of mobile connections today, they already account for 14 percent of mobile data traffic, according to Cisco.  In 2017, 4G will represent 10 percent of connections, but 45 percent of total traffic, Cisco estimates.

4G will be 10 Percent of Connections and 45 Percent of Traffic in 2017

Apple to Launch iTunes Radio

Apple is launching “iTunes Radio,” a free Internet radio service featuring over 200 stations and an incredible catalog of music from the iTunes Store, available in the fall of 2013.

“Featured Stations” curated by Apple and genre-focused stations that are personalized will evolve based on the music users play and download. To begin with, iTunes Radio will base its personalization experience on user listening history and past purchases from iTunes.

In addition, if you’re listening to a song you like from iTunes Radio or your music library you will be able to have a station built around those songs.

Users will be able to create and customize stations based on artists, songs, or genres.

Rwanda LTE Coming by Government-KT Corp. Joint Venture

Rwanda is building a new fourth generation Long Term Evolution network in a 25-year joint venture with KT Corporation of South Korea. KT Corp. is contributing $140 million in investment. 

The Rwandan government is contributing 3,000 kilometers of long haul optical fiber, spectrum and a wholesale-only operator licence. Additional financing will be added in the form of debt and vendor financing. 

The project aims to provide LTE broadband coverage to 95 percent of Rwanda’s 12 million population within the three years.

More than half the population of Rwanda now uses mobile phones. There were in March 2013 about 6,039,615 mobile subscribers, representing a penetration rate of about 57 percent.

The country's largest mobile company, MTN Rwanda lost 2,088 subscribers between the same periods, according to RURA with 3,452,182 active lines down from 3,454,270 in January.

With over 3.4 million subscribers, MTN remains the dominant player controlling more than half of the total market share with Tigo in second spot. 

The newest entrant, Airtel Rwanda, boasts a rise in subscriber base of 781,162 in March from 570,739 in January 2013. 

Rwanda’s mobile penetration at the start of 2012 was about 40 percent (4.3 million people), with Internet access penetration at seven percent, according to the Rwanda Utilities Regulatory Agency. By the end of 2012, mobile adoption had grown to about 5.7 million people.

MTN and Tigo’s networks each reach more than 98 percent of the population, whereas Airtel’s population coverage currently stands at 15 percent.

MTN group is Africa’s largest telecommunications operator with more than 130 million cellular subscribers in the region and in the Middle East.

Tablet Adoption Reaches 50% of Broadband Homes

It makes sense that personal devices used by people will outnumber shared devices used by households (TVs, refrigerators). 

At the moment, smart phones have become the consumer electronics product with the highest penetration, among smart phones, tablets, smart TVs, game consoles or digital media devices, according to Parks Associates.

Parks Associates predicts the number of U.S. tablet users will increase by 61 percent from 2013 to 2014.

Tablet adoption already is close to 50 percent of all U.S. broadband households, said Heather Way, Parks Associates senior research analyst.

Separately, researchers at the Pew Internet and American Life Project now estimate that about 34 percent of U.S. adults ages 18 and older own a tablet computer like an iPad, Samsung Galaxy Tab, Google Nexus, or Kindle Fire, up nearly 100 percent, year over year.

In 2012, about 18 percent of surveyed respondents owned a tablet.

As you might guess, there are differences in rates of adoption, as there were with smart phones.

As was true for Apple iPhone owners, households with higher incomes are more likely to be tablet owners. About 56 percent of households earning at least $75,000 per year own tablets, compared to 38 percent of people in households earning between $50,000 and $74,999.

About 28 percent of respondents in households with $30,000 to $49,999 in income own tablets, compared to 20 percent of respondents in households below $30,000 annual household income.

Unlike smart phones, which are most popular with younger adults ages 18 to 34, the highest rates of tablet ownership occur among adults 35 to 44. In that age bracket, 49 percent of respondents report owning a tablet.

In the 25 to 34 age bracket, 37 percent of respondents own a tablet. About 18 percent of adults ages 65 and older are less likely to own a tablet.

Tablet adoption, as did iPhone adoption, also is directly related to education. About 49 percent of adults with at least a college degree own a tablet. Only 17 percent of those who did not graduate high school own a tablet.

The findings might suggest that smart phones are “mission critical” devices, while tablets are more discretionary.

Intel Might Have to Pay 75% More for Content Than Other Video Service Providers

The problem attackers will have, when trying to disrupt the traditional TV business, is that if the content owners control the value proposition, disruption is not possible unless those content owners agree to be disrupted.

In other words, it is the content, or programming, that provides the value, not so much the delivery network. To disintermediate the distributors, the content owners will have to conclude that they can make as much, if not more money, by supporting Internet-direct suppliers such as Intel. 

For consumers, there are direct implications as well. Most people probably assume that one advantage of Internet delivery is the ability to watch content on any device, nearly anywhere, for less money.

To be sure, those value dimensions are not necessarily linked. Value could be "watch on any device," or "watch anywhere" or "watch for less money" or any combination.

But the "watch for less money" remains one of the assumptions nobody can be too sure about.  Intel, for example, is offering to pay as much as 75 percent more than cable operators do, to get the content Intel needs to provide a viable competitor to cable, satellite or telco TV offers. 

There are other elements of its business plan, of course, but it is hard to sell at a discount to the market leaders when the cost of goods might be that much higher.