Mobile Internet Access is Big with Users 18-34; VoIP Much Less So

When asked what was most important in choosing their next mobile service provider, younger European users 18 to 34 reported they value “more data,” not more texting allowances or bigger voice buckets of use, a survey by Analysys Mason suggests.

The survey also suggests that use of mobile VoIP isn’t as common as sometimes thought.

In fact, Analysys Mason concludes, the conditions for mass market adoption of VoIP on smartphones “do not currently exist.”

Still, VoIP services are most popular with the youngest age group, with more than 10 percent of those under the age of 35 using a VoIP service, Analysys Mason says.

Nor has IP-based messaging fully displaced text messaging, though the process is underway, one might argue.

“Operators will note that despite the high penetration levels of IP-based alternatives, full messaging service substitution has not yet occurred,” says Stephen Sale, Analysys Mason principal analyst.

On the other hand, a bigger bucket of voice usage was the top desire of users in every age bracket other than 18 to 34.

The 18 to 24 and 25 to 34 age groups have widely contrasting approaches compared with older smart phone users, particularly in relation to VoIP, IP messaging and social media services such as Skype, WhatsApp Messenger and Facebook. That won’t surprise you.

More than half of surveyed smart phone respondents 18 to 24 year in the United Kingdom, for example,  use IP-based messaging.

The survey of 6610 consumers 18 or older in France, Germany, Poland, Spain, the United Kingdom and United States also found that only 20 percent of those 65 and over do so.

Text messaging is used by 91 percent of those 18 to 34 but only 67 percent of those 65 and over.

That isn’t to say mobile VoIP or IP messaging are not threats anywhere. In some markets, there seems to be quite a lot of substitution, in others the problem still is rather minimal.

But the survey results do show the wisdom of making Internet access the variable cost portion of a mobile bill. That is the service people increasingly value, above voice and texting, at least in terms of usage quotas.

Criteria for choosing next mobile service

Question: "Which of the following factors would most attract you to your next mobile tariff/contract?" n = 1073

UPC Bumps Top Speed to 500 Mbps, Responding to Reggefiber 1 Gbps

ISPs facing disruptive offers, such as Google Fiber, will have to respond, even if not countering such offers head to head. In the Netherlands, Liberty Global’s UPC operation in the Netherlands faces a competitor--Reggefiber--already offering a symmetrical 1-Gbps service.

“We had to address it head on,” says Bill Warga, Liberty Global VP. technology. By bonding more than 16 6-MHz channels, UPC was able to create a 500 Mbps service.

“We had to build a special modem because (DOCSIS) 3.1 chips aren’t out yet,” he said. “That was a reaction but that tells you how quickly in a marketplace that something can move.”

UPC’s most popular product is the 25 Mbps service costing 25 euros.

AT&T's Europe Interest is "Internet Access"

AT&T is looking to Europe for expansion in large part because U.S. regulators have signaled they will not let AT&T get any bigger in the U.S. market, because the U.S. mobile market is nearly saturated and because Europe, though arguably as saturated as the U.S. market is, holds more promise for broadband access revenue growth.

Chief Executive Officer Randall Stephenson has said Europe is ripe for high-speed Internet access innovation, for example. 

The GSM Association, for example, argues that the United States "has opened up a large lead in deployment of next-generation technologies."

By the end of 2013, nearly 20 percent of U.S. connections will be on Long Term Evolution networks, compared to fewer than two percent in the European Union. 

Average mobile data connection speeds in the U.S. are now 75 percent faster than those in Europe and by 2017 will be more than twice as fast.

Mobile investment in the United States has outpaced that in Europe, with capital expenditure in the U.S. growing by 70 percent since 2007 while declining in the EU.

All of that creates conditions for revenue growth, AT&T seems to believe. 

Myanmar to License More ISPs, Long Haul Network

Myanmar is planning to invite bids for providing Internet services and building a national fiber optic network, after awarding two new national mobile licenses.

“There are lots of opportunities in Myanmar’s telecom sector. While we have called for tenders for the two telecom licenses, our plan is to invite participation for providing Internet services,” said Thaung Tin, Myanmar deputy minister for communications and information technology.

What is not so clear is how Myanmar might go about licensing ISPs or infrastructure providers.

Myanmar Teleport (formerly Bagan Cybertech), Yatanarpon Teleport, Information Technology Central Services (ITCS), Red Link Communications, and the state-owned Myanmar Post and Telecommunication are the Internet service providers in Myanmar at the moment.

Winners of Myanmar Telecom Licenses Won't Have Much Spectrum to Work With

With the two winners of new Myanmar telecom licenses set to be announced June 27, 2013, some firms are starting to line up local mobile network employees.

Qatar Telecom has said it would invest $15 billion in rolling out a telecommunications network across Myanmar, should it win one of two licences being tendered in the Southeast Asian country.

The proposed third generation mobile network would reach 90 percent of the population within two years, according to Qatar Telecom Chief Strategy Officer Jeremy Sell.

The licenses are based on 2×5 MHz worth of spectrum at 900 MHz, as well as 2×10 MHz worth of spectrum at 2.1 GHz. Some might say that limited amount of spectrum is not going to support much use of mobile Internet.

You might think a market where only 10 percent of people use a mobile phone is a huge opportunity. But there might be issues.

For whatever reason, China Mobile and Vodafone, bidding as a consortium, voluntarily withdrew from the license competition.

The Myanmar government has distributed low-cost SIM cards (about US$2) through a lottery system. That indicates people will not be able to buy and use a mobile phone as freely as one might otherwise believe.

Mobile Will in 2013 Surpass Radio as a Content Consumption Platform

At current rates of growth, mobile soon will overtake radio as the third biggest media consumption "platform," possibly in 2013, if current rates of change continue at their present magnitude. 

In fact, with the exception of "online" content consumption, all other channels except mobile are losing share of end user time spent  with media. 

"Smart" or "Dumb," Value is the Issue for Networks

The chief business reason communications executives hate the term “dumb pipe” is that it has the connotation of “low gross revenue” or “low margin” earned by services without distinctiveness. The term implies that communications services are “commodities.”

The real problem therefore is not whether the “pipes” (networks) are dumb or smart, but whether the profit margin is high or low.

So the problem with competitive markets and new technology often is that profit margin gets wrung out of a business.

That appears now to be the case for high-frequency trading, which relies on ultra-low latency communications connections. At least some communications service providers care about high-frequency trading because they supply the ultra-low latency connections that help provide the trading advantages.

Fast, powerful computers and algorithms are the primary driver of high-frequency trading. But acting on what the algorithms suggest is where the low-latency connections come in.

Trading firms have spent millions to maintain millisecond advantages by constantly updating their computers, collocating in data centers and connecting distant computers using low-latency networks.

Of course, once the trading exchanges saw how valuable thousandths of a second were, they raised fees to collocate, and hiked the prices of their data feeds.

“Speed has been commoditized,” says Bernie Dan, CEO of Chicago-based Sun Trading, one of the largest high-frequency market-making trading firms.

And that is precisely the problem: when real advantage is seen, a competitive market tends to reduce the value of the advantages when all competitors adopt the latest technology and approaches.

But the economic downturn is a factor. Overall trading has declined since the 2008 Great Recession, and high-frequency trading might now represent about half of all U.S. trades, according to the Wall Street Journal.

At one point high-frequency trading represented more than 80 percent of transactions, according to the Financial Times.

But U.S. stock-trading volumes declined since at least 2010 and in 2013 are running 35 percent below the industry's peak in 2009, when an average 9.8 billion shares changed hands a day, according to Sandler O'Neill + Partners.

Precisely how much additional value service providers can create in their networks is a legitimate issue. Ultra-low latency networks to link exchanges are one example of how even “dumb networks” can add value.

The problem isn’t whether the networks are dumb or smart: the low latency networks are no smarter than the “normal” networks. They simply use the shortest routes.

Value is the issue.

You Might Question the Value of a College Education: Google Now Does

"One of the things we’ve seen from all our data crunching is that G.P.A.’s are worthless as a criteria for hiring, and test scores are worthless — no correlation at all except for brand-new college grads, where there’s a slight correlation," says Laszlo Bock, senior vice president of people operations at Google. 

Google doesn't ask for transcipts, test scores or GPA, unless a candidate is straight out of school and hasn't worked anywhere else. "We found that they don’t predict anything," Bock says. 

In fact, some teams at Google have about 14 percent of associates who never have gone to college.

Anecdotes such as this are a reason some believe a big disruption of higher education both is coming, and is needed. People might be essentially wasting money and time in hopes of getting a job, when the experience does not predict success at work. 

Clearwire Board Now Recommends Sprint Buyout Offer

Sprint has raised its buyout offer for Clearwire Corp to $5 per share, causing the board to reverse course again, and recommend that shareholders accept the Sprint offer, after previously recommending support for the Dish Network offer of $4.40 a share. 

In addition to reversing course again, Clearwire also postponed a June 24 shareholder vote until July 8, meaning there is yet more time for more developments in the see-saw battle between Sprint and Dish Network for control of Clearwire and its spectrum. 

As fixated as investors might be on the outcome both of the SoftBank and Clearwire acquisition efforts, some might say it is time for the deals to be finalized, so the eventual victors can try and gain some traction in a U.S. mobile market that Verizon and AT&T simply dominate. 

And there are precious few new accounts to be activated in the U.S. market. In the first quarter of 2013, 1.1 million net new mobile connections were activated, a decline of 60 percent, year over year. But most of those net additions were of the prepaid variety.

U.S. operators added 200,000 postpaid subs and 1.2 million total net new subscribers. Verizon got 720,000 of the net adds. AT&T got 291,000 and T-Mobile added 5,000.

So between them, Verizon and AT&T accounted for 86 percent of the net adds.  

On top of that, Verizon and AT&T have at least 66 percent share of the U.S. mobile market, by customers.

Data Revenues Might Hit 50% of Total in 2013

Data revenues now represent nearly 45 percent of U.S. mobile industry service revenues and the 50-percent level might happen in 2013.

After that point, data will represent the majority of U.S. service provider revenue, for the first time, according to projections by analyst Chetan Sharma.

The U.S. mobile data market grew 14 percent year-over-year to reach $21 billion in mobile data revenues, according to Sharma.

In 2013, U.S. mobile service providers will earn $90 billion in mobile data service revenues. Verizon and AT&T between them represent 70 percent of the mobile data services revenue and 66 percent of the customer base.

The data also illustrates how the maturing market now will be lead by changes in revenues per account, as the number of new human accounts (not machine to machine connections) that can be added is dwindling.

In the first quarter of 2013, 1.1 million new connections were activated, a decline of 60 percent, year over year, Sharma says. But most of those net additions were of the prepaid variety.

U.S. operators added 200,000 postpaid subs and 1.2 million total net new subscribers. Verizon got 720,000 of the net adds. AT&T got 291,000 and T-Mobile added 5,000.

So between them, Verizon and AT&T accounted for 86 percent of the net adds.  

Though overall average revenue per user increased 35 cents, voice ARPU declined by 42 cents. Average data ARPU grew by 87 cents, sequentially.

Smart phones represented about 85 percent of the devices sold in the first quarter of 2013.

And it never is too soon for service providers to get ready for the next wave of growth after mobile data.

The next wave of growth might be significantly more challenging, though, as it might involve creating new lines of business beyond today’s voice, messaging, Internet access framework, and involve multiple lines of business such as cloud computing, commerce, payments, connected home or connected automobile, identity management and analytics that each will face serious competitors.

Beyond that, each of the new businesses are vertical rather than horizontal, meaning each new opportunity is a niche, compared to the universal “voice, data, messaging” appeal of basic mobility.

Investing in Dumb Pipe Not so "Dumb"

Telco executives sometimes appear to be “conflicted” about their core revenue strategies.

Many decry “dumb pipe” access revenues, even though those dumb pipe access revenues now provide the growth engine for fixed line telco, cable TV and mobile service providers alike.

Others say service providers will be able to overcome that “dumb pipe” issue by creating new content or application or enabling businesses.

Some say “over the top messaging” is a revenue opportunity; others say it will destroy most of the revenue now earned by text messaging services. In part, that is because many users seem to prefer OTT messaging to text messaging.

Half of US users claimed they prefer OTT messaging services over text messaging, a study by Acision suggests. “Speed” was viewed as an advantage, but also “rich features,” such as the ability to see when a message is delivered, and reliability.

In the United Kingdom, speed likewise was said to be a top reason users preferred OTT messaging over text messaging. In the U.K. market, cost also was a key value, presumably because fewer U.K. users have unlimited domestic texting plans.

Granted, both types of statements will be true for some suppliers, in some roles, in some markets, to some degree. In a service provider’s core markets, over the top messaging might be a revenue threat. Outside a service provider’s area of service, OTT messaging or apps could well be a net revenue generator.

But some might say that, for the most part, more significant revenue results will be obtained by improving the value provided by dumb pipe access, compared to all the new initiatives.

Part of the reason is that small changes to existing services can generate vastly more revenue than brand new business ventures.

Consider a “small change” to post paid customer bills. AT&T mobile customers on postpaid accounts will be paying a new 61 cent a month “administration fee” that will raise $512 million a year in revenue ($7.32 per year per post paid customer), on a base of roughly 70 million customers.

That might seem a "small" thing, and in one sense it is. But it another sense it is a big deal. The amount of money AT&T makes from that 61-cent charge will be roughly equal, every month, to the amount of gross revenue Verizon Communications fixed network operations makes from all small business customer operations every month.

That is a practical example of the ways large telcos most easily can create new $1 billion annual revenue streams, namely by creating small revenue enhancements to products most of their customers already buy.

Generating $1 a month in incremental revenue from 70 million customers creates $840 million a year in incremental revenue.

By way of comparison there probably are very few “new lines of business” initiatives launched by telcos that have reached that level, if any have done so.

In the messaging business, mobile service providers might well make more money by changing the way they package text messaging, than by investing in new OTT services of their own.

Mobile service provider text messaging revenue will decline on average by around 40 percent across Europe and the Middle East, many telco executives seem to believe. Mobile voice isn't that far behind, with a 20 percent decline foreseen, STL Partners predicts.

As a practical matter, it will be hard to create brand-new revenue streams that equal in magnitude the loss of 40 percent of SMS revenue, or 20 percent of voice revenue. Some might argue retail packaging (making unlimited domestic texting part of a basic connection fee) will have more revenue impact than most new lines of business.

That has implications for investment. Telstra Global Managing Director Martijn Blanken says telcos face "a fine balancing act," when it comes to plowing cash into their networks without having a clear view on what the return on that investment will be.

In other words, there not only still is money to be made in plain old connectivity, and big returns might come from ways to enhance those services, or at least package them in ways that retain significant revenue, if not as much as had been the case in past years.

"You don't want to over-invest," Blanken warns. But that's the issue: what balance of investment in core products and new lines of business.

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.

Backhaul Still a Major Issue in Sub-Saharan Africa

Strategists in urban and other relatively-dense areas in developed markets typically do not worry excessively about wide area backhaul services. That generally is not the case for ISPs or mobile service providers working in rural and thinly-populated areas.

In June 2012, some 341 million people in sub-Saharan Africa lived beyond a 50-kilometer range of a terrestrial fiber optic backhaul network. What that could mean is a huge need for middle-mile connectivity provided by wireless networks, one might argue, since 50 km is a feasible distance for some microwave systems, assuming terrain is favorable.

The average price of a broadband connection represents just 1.5 percent of monthly income in Europe, but can represent over 100 percent to several thousand percent of monthly income for some African countries.

This level of affordability varies tremendously across sub-Saharan Africa, with the cost

of broadband access ranging from 5.7 percent of Gross National Income (GNI) per capita in South Africa, to 59.9 percent in Kenya, 259 percent in Madagascar, 1,070.8 percent in Ethiopia and 2,595 percent in Guinea Conakry, according to the International Telecommunications Union.

And there is no question but that new sources of wide area Internet access are having an impact on costs. In those countries recently connected to submarine cables, broadband has become much more affordable and the growth in broadband subscribers has accelerated.

Following the entry into service of the SEACOM and EASSy submarine cables in Kenya, for example, the price of fixed broadband decreased from 261 percent of GNI per capita in 2008 to 60 percent in 2010, in Mozambique from 312 percent in 2008 to 60 percent in 2010, and in Tanzania from 174 percent in 2008 to 50 percent in 2010.

These include Uganda (through Kenya) where the price of fixed broadband decreased from 375 percent of GNI per capita in 2008 to 36 percent in 2010, Ethiopia (via Sudan and Djibouti) from 2,721 percent in 2008 to 1,071 percent in 2010, and Burkina Faso (through Senegal, Cote d’Ivoire, and Benin) which decreased from 4,466 percent of GNI per capita in 2008 to 194 percent in 2010.

In Guinea Conakry, one of the eight countries that is wholly dependent on satellites, the monthly price of fixed broadband usage has decreased slightly to 2,595 percent of

GNI per capita in 2010 compared to 2,824 percent in 2008.

Growing availability of optical connections has reduced, but hardly eliminated, the need for satellite backhaul.

The supply of international trunk Internet bandwidth supplied by satellite to the sub-Saharan region reached a peak of around 9 Gbps in 2008, but has dropped back since then.

Kenya, for example, peaked at about 2 Gbps of international bandwidth supplied entirely by satellite in July 2009 until the entry of the SEACOM (2009), followed by the TEAMS (2009), EASSy (2010) and LION2 (2012) submarine cables.

That has dramatically increased the supply and decreased the cost of international bandwidth. Within two and half years, Kenya’s international bandwidth had increased from 2 Gbps to 53 Gbps by December 2011, but the amount supplied by satellite had shrunk to 108 Mbps, according to the Commonwealth Telecommunications Organization.

In June 2012, eight African countries remained 100 percent dependent on satellite for their international connectivity. Even in those countries with national fiber backbones, another 298 million or so people lived beyond the reach of terrestrial fiber networks, according to the Commonwealth Telecommunications Organization.

Most of Africa’s main urban hubs are now reached by fiber transmission backbones connected to submarine cable landing points, however.

In June 2012 a total of 40.1 million people lived within a 25 km range of a submarine cable landing point, but 345.1 million people lived within a 25 km range of a terrestrial fiber optic node.

By the time new networks enter service in 2013 to 2014, about 377.9 million people will live with a 25 kilometer range of an optical access point. Over the next three to five years, that range will increase to 438.8 million.

That still will leave 423.2 million people, or 49.1 percent of the population, beyond a 25-km reach of a terrestrial fiber optic node.