EC Digital Commissioner Backs Off 90% Roaming Rate Cuts

European Commissioner for Digital Agenda head Neelie Kroes apparently has decided to back off a plan to massively reduce wholesale interconnection rates between 70 percent and 90 percent within the 28-country European Union region.

But she tweeted "roaming fees will still end - debate is over how, not whether."

— Neelie Kroes (@NeelieKroesEU) August 29, 2013

Some would credit opposition from EU service providers. Others would say opposition from EC competition officials is the more likely reason for the change.

The revised proposal is scheduled to be released on September 10, 2013.

To become law, the proposal requires approval from the 28 EU members countries and European Parliament.

The abandonment of the severe rate reduction plan illustrates some policy tensions beyond the normal friction between industry interests and regulator desires.

As sometimes happens, different influencers within the government regulatory sphere appear to have had dramatically different views about what should be done.

At least in part, those differences reflect the inherent tension between policies that appear to be beneficial to consumers (mandated lower rates and enhanced competition) in the short term, but are harmful in the long term (less investment in next generation networks).

In an earlier draft of her proposals seen by Reuters, Kroes proposed a cap of €3 cents per minute for voice calls from July, 2014 to June 2022, a 70 percent reduction from the €10 cent cap which came into effect in July 2013.

She also wanted to slash the wholesale cap for data roaming to €1.5 cents per megabyte from the current limit of €15 cents.

European Commission officials, according to the Financial Times, already had been thinking about amending the wholesale roaming proposals put forward by Kroes.

As was the case in the U.S. market, regulators are grappling with ways to balance two contradictory goals: expanding competition and also encouraging investment.

There has been concern that the big reductions in wholesale rates, intended as a way of encouraging the creation of a single EC communications market, would further depress service provider revenues and so hinder investment in next-generation networks.

Service providers were concerned, among other things, about the opportunity for arbitrage opportunities. That typically happens in communications when there is a wide disparity between wholesale rates and retail rates in any market.

Some had estimated that as much as £7 billion a year could be earned by wholesalers taking advantage of the rate spread. Such arbitrage discourages investment in facilities on the part of incumbents and over the top or wholesale-based competitors as well.

Analysts at Bernstein Research had estimated the rate reduction proposals would allow non-facilities-based rivals to undercut major network operators by between zero and 65 per cent, depending on prices in each country.

The biggest potential impact, they say, would be in some of Europe’s biggest markets, Bernstein Research argued.

Skype Marks 10th Anniversary

It hardly seems possible that we are upon the 10th anniversary of the launch of Skype on Aug. 29, 2003. A decade later, 300 million users make two billion minutes of online video calls a day.

Perhaps to mark the occasion, there is news that Skype is working to create 3D calling. That would be a welcome bit of innovation for a service that some think has not innovated so well in quite some years.

“In some ways Skype is a victim of its own success,” said Taavet Hinrikus, the company’s first employee. “It stopped innovating. The last meaningful thing to be launched by Skype was video calling in 2005.”

Others might argue that acquisition first by eBay, then by Microsoft, explains Skype’s inability to compete with messaging apps, for example.

Microsoft paid $8.5 billion for Skype in 2011.

Will Verizon Sell its Fixed Network, After Buying Vodafone's Verizon Wireless Stake?

Verizon and Vodafone might once again be talking about allowing Verizon Wireless to acquire all of Vodafone's stake in Verizon Wireless. For some of us, the big question is not whether the deal finally will succeed. 

Instead, the big question, assuming Verizon Communications is able to take full equity ownership of Verizon Wireless, is what Verizon might later decide to do about its fixed network assets.

Though it might come as a shock, in its most recent quarter, Verizon Communications earned only a bit more than 14 percent of its total revenue from fixed network services. 

About 86 percent is earned from mobile services.

That is one good reason why Verizon Communications has wanted to acquire full ownership of Verizon Wireless. Doing so funnels all of the revenue growth and profit back to Verizon Communications, instead of just 55 percent of the growth.

But some of us do wonder whether it actually makes good sense for Verizon to own assets that contribute 14 percent of revenue, and less growth or profit margin, when it might be able to sell the assets and then purchase other mobile assets in new markets.

So, for some of us, the big issue is not whether Verizon Wireless will be fully owned by Verizon Communications. The huge implication is whether Verizon might get out of the business of being a fixed network services provider.

That could have huge implications for any number of competitors and allies.

Verizon Communications owns 55 percent of Verizon Wireless and has wanted to buy the rest for years. The deal might involve something north of $100 billion, up to perhaps $130 billion. “Why now?” is a good question, as rumors about a sale of the Vodafone stake to Verizon Communications have been held on and off for years.

Some would say the expectation of rising interest rates is a very good reason for moving

now. Most expect any Verizon Wireless purchase of the Vodafone stake would involve a combination of stock and cash. And that cash would be borrowed.

Hence, moving now would save Verizon quite a lot of interest expense. Some believe Verizon would have to borrow about $60 billion. At a five-percent annual interest rate, interest would initially amount to $3 billion or so. At six percent interest rates, annual interest payments would grow $600 million. At seven percent interest, annual interest payments would rise to perhaps $4.2 billion.

From Vodafone’s perspective, the big issue is what to do with the proceeds of the sale, after tax payments of perhaps $10 billion. Most observers have assumed Vodafone would use some of the proceeds to reduce its own debt, and part of the funds to make capital investments or buy additional assets.

For observers of the U.S. communications market, the big issue is how Verizon might view the value of its fixed network assets. As crazy as it might seem, Verizon might consider selling off its fixed network assets. Those assets contribute 14 percent of revenue and likely will continute to drop as a percentage of total revenues.

Comcast to Launch 250 Mbps in Provo for $80 a month

Can an offer of 250 Mbps for $80 a month compete with an offer of 1 Gbps, symmetrical, for $7-0 a month? Comcast will find out sometime over the next year or so, as it launches a new 250 Mbps service for $80 a month that resets teh value-price relationship for access bandwidth and pricing. 

Debate over "Fiber to Home" Versus "Fiber to Node" Erupts Again in Australia

Oddly enough, for some of us, a debate over access network architecture, specifically fiber to the home or fiber to the node, appears to be an issue in upcoming Australian elections.

The reason is that the two main contenders disagree on which network architecture to use for the National Broadband Network.

One might argue that, given escalating demands for bandwidth, and national policies aiming to boost speeds to 100 Mbps by 2020, for example, that fiber to the home makes more sense. But others argue that the less-expensive fiber to node architecture will suffice.

The argument is an old one. Verizon Communications opted for fiber to the home. AT&T opted for fiber to the neighborhood (essentially, fiber to the node). U.S. cable operators likewise have opted for a fiber to the neighborhood approach.

But those older debates are more complicated than in the past, because of huge changes in revenue expectations. It never was necessary to build fiber access networks to support voice. All-copper networks work just fine for that application.

The other problem is that the voice business is shrinking, as users opt for mobile phones as their preferred way of calling. Mobile also is the preferred platform for messaging.

So the argument for fiber to the home explicitly relies on an assumption that new revenue sources can be found. In that respect, the argument is that fiber to the home works better, long term, for high speed access, and that video services also can be supported.

The former argument makes sense, but has not yet proven to be a show stopper, though Google Fiber’s symmetrical 1 Gbps for $70 a month could help settle the argument.

The latter argument, that fiber to the home is required for linear TV, likewise has not proven decisive, as both Verizon and AT&T are able to deliver linear TV services using either architecture.

Beyond that, there are concerns about the longevity of the video revenue stream, and questions about how much speed consumers will really want to pay for. Of course, Google Fiber hopes to upset those expectations.

Given all that, ironically, the debate over network architecture remains unsettled. Some rationally will argue the best policy is to invest as little as possible in fixed networks and emphasize mobile networks.

Under either scenario--fiber to home or fiber to node--the NBN would be a wholesale network. The fiber to home network has been estimated to cost A$44.1 billion and be finished about 2021.

The FTTN network could be finished by 2019, at a total cost of A$29.5 billion.

The FTTN network will provide download speeds of 50 Mbps network, while the fiber to home network will initially provide download speeds up to 1 Gbps.

But the analysis is more complicated than that. Under either scenario, rural areas will be served by satellites. But the access in other areas is mixed. The “fiber to home” proposal actually uses fixed wireless in many moderately-dense areas while only urban areas get fiber to the home.

Under the “fiber to the node” plan, satellites still would be the only viable option in rural areas, while fiber to the node would be used for retrofit areas, and fiber to the home deployed in all areas of new home construction.

The differences are exacerbated by uncertainty about future demand. The average Internet connection speed in Australia is currently 4.2 Mbps, for example.

But usage also seems to climb over time. For that reason, some believe broadband customers will be buying services of more than 100 Mbps by 2020 and about 1 Gbps by 2035.

Some argue that it simply makes more sense to put in fiber to the home now, even if it costs more.

Will End of Moore's Law Impair ISP Ability to Rapidly Grow Bandwidth?

Theoretical physicist Michio Kaku believes Moore's Law has about 10 years of life left before ever-shrinking transistor sizes smack up against limitations imposed by the laws of thermodynamics and quantum physics.

Signs of the coming end are already here, according to AMD. AMD Chief Product Architect John Gustafson believes AMD’s difficulties in transitioning from 28-nanometer chips to 20-nanometer silicon shows we’ve reached the beginning of the end.

"You can see how Moore's Law is slowing down," Gustafson said. "We've been waiting for that transition from 28nm to 20nm to happen and it's taking longer than Moore's Law would have predicted.”

The coming limits mean processing power will not double every 18 months, Broadcom believes.

Some say we will postpone hitting the wall by tweaking architecture. Others think a non-silicon approach might shift us to a new curve.

Maybe it will be proteins or other molecules or something else that provides the physical basis for a new wave of computing advances.

Some think chip manufacturing economics will be a bigger problem. At some point, it might not make financial sense to produce a faster processor or denser memory, because buyers will not pay what that latest group of devices would cost, at retail.

Whether an end to Moore’s Law will have dire consequences for access and transport providers is not clear. Much of the cost of communications infrastructure comes from construction, not the cost of processing and storage.

90% of Republic Wireless Traffic Moves Over Wi-Fi

Almost 90 percent of mobile service provider Republic Wireless data traffic goes over Wi-Fi, leaving 11.5 percent traveling over Sprint’s 3G network. 

That does not mean a mobile service provider can provide service using only Wi-Fi, only that most of the consumed bandwidth can be shifted to Wi-Fi and stay off the mobile network.

About 50 percent of Republic Wireless customers appear to be able to use Wi-Fi for 93 percent of their total data consumption, Republic Wireless says.  

    Cellular Data Usage Across Republic Wireless Members

Cox Communications Offers Wi-Fi Hotspot Access

Cox Communications says its customers with its Preferred, Premier or Ultimate High Speed Internet service now have access to the nation's "largest Wi-Fi network,"  with public hotspots strategically located in high-traffic areas such as restaurants, malls, sports arenas, parks and beaches in cities like Washington D.C., Boston, Richmond, Philadelphia and San Francisco.

Some would argue that Wi-Fi hotspots have become the preferred way U.S. cable operators attain relevance in the untethered access business, even if they do not directly own full mobile networks.

To be sure, enabling such public hotspot access also creates additional value for the high speed access services cable operators have relied on for revenue growth.

But today’s proliferating tablet and smart phone installed bases, all enabled for Wi-Fi access, create potential new revenue models for any number of ISPs. Though creating direct revenue models remains a challenge, ownership of extensive public Wi-Fi hotspot networks creates at least a potential business for mobile and untethered device data offload, even when a cable company does not own the actual direct revenue relationship with the mobile customer.

The issue, as always, is to create a viable revenue model for a public Wi-Fi hotspot business. Some of the benefits are indirect and valuable, even when not creating a direct revenue model. Lower churn, higher customer retention and higher retail rates for one ISP service compared to another are some typical value drivers for an ISP.

And some think it also increasingly will be possible to create Wi-Fi-dominant untethered access models, especially as Internet access becomes a dominant underpinning for Internet application businesses.

For cable companies, extending the range of any future video business beyond the home could provide a direct or important indirect value driver.

Why U.S. Cable and Telcos are Chasing Home Automation and Home Security

There are a couple of reasons why telcos and cable companies in the U.S. market are putting sales effort and development effort into the home automation and security businesses. First, such businesses, while perhaps not of so much interest in a pre-Internet era, and in an era where other revenue opportunities simply were vastly larger, have become more important as legacy revenue sources have begun to wither.

As a line extension using the core features of telco and cable access networks, home automation and security offer a logical way to add more application value to an access network.

Also, the change in access from narrowband to broadband mean some new features, especially the use of cameras, now are possible.

At the same time, the availability of tablets and smart phones might dramatically affect the ease of use, as well as value of home automation and home security systems.

At the same time, the better technology now available to support alarm systems, surveillance systems, intercom systems, access control and energy management services are key changes on the supply side of the business.

Simply, broadband access, Internet Protocol and easy to use mobile and untethered devices increase capabilities and ease of use in new ways.

Security, as such, is becoming a huge market worldwide, as well.

And the U.S. market is among the most lucrative globally. In terms of revenue generation as of 2011, North America held the highest share of revenue, at about 56 percent, followed by Asia-Pacific at 28 percent, according to Marketsandmarkets.com.

Among the various end-products used for home security solutions (electronic locks, sensors, alarms, cameras, panic buttons), cameras are observed to be the most potential product market with a market share of approximately 27 percent as of 2011.

By definition, camera security requires a broadband connection. Revenues for suppliers of security systems, energy management systems are estimated to grow between 25 percent and 31 percent annually between 2012 to 2017, Marketsandmarkets has estimated.

The global home security solutions market is expected to grow from $20.64 billion in 2011 to $34.46 billion in 2017 at a compound annual growth rate  of 9.1 percent from 2012 to 2017.

Africa Might be Among the Best Places for Fast Internet Access Growth

“Emerging markets” enjoyed quite a run in the equities markets over the last decade, but have sputtered of late over concern about the legitimate impact of U.S. interest rate policies. It is too early to say whether the big emerging markets equity run is over, or only taking a pause.

What seems clear, though, is that growth prospects in Africa now are higher than has been the case over much of the last couple of decades. In fact, growth prospects, and therefore prospects for broadband access and any other Internet-related business, have grown, according to Gartner analyst Richard Gordon.

Gordon provides as evidence the growth of inquiries from Gartner clients, which are up significantly over 2012 levels, he points out.

“Most African countries are growing at seven percent to nine percent” rates, he notes.

So despite the likelihood that interest in investing in emerging markets will face a key test over the next couple of years, Gordon suggests Africa might well be a bright spot.

That should be true for providers of Internet access as well.

Google Names Top U.S. "eCities"

Google has ranked communities in all 50 U.S. States for “eCity” awards that “recognize the digital capitals of each state,” Google says. “These cities’ businesses are using the web to find new customers, connect with existing customers and fuel their local economies.”

The research methodology used AdWords data, combined with the base of small businesses in an area, to develop an online index of Internet intensity among small businesses in each community.

"Net Neutrality" Will Kill the Teleconm Business

If you are the sort of person who enjoys deep thinking about the future of the telecom business, it always makes sense to listen to Martin Geddes. Here's a new presentation he's worked up. The formal topic was how to deal with over the top apps.

As has been the case recently, Martin's thinking about access as a trading space figure prominently into the analysis of what's wrong, and how to fix it. 

What I also found significant was Martin's thinking about what others might call value-based pricing. And that means "network neutrality," such as policies that forbid offering consumers class of service or quality of service mechanisms, will doom access providers to an unprofitable future. 

Meeting the OTT challenge from Martin Geddes

20% of U.S. Residents "Can't Get" Broadband, or "Don't Want to Buy It?"

"One in five Americans still don’t have broadband," a story headline says. Read the story. The writer does not say "one in five Americans cannot get broadband." The writer correctly says that one in five choose not to buy fixed network broadband. 

There's a difference--an important difference--between being unable to buy a product because it is not available, and not wanting to buy the product when it is available. 

The headline can easily be construed as arguing "people can't buy it, because it isn't available," which is an "access to broadband" problem.

If people choose not to buy broadband, those represent a different set of problems, ranging from indifference to lack of funds to lack of knowledge about how to benefit from the Internet or having some other means for getting access that makes more sense, in terms of value and price.

Very often, the people who write stories are not the people who write headlines. And, sometimes, headline writers appear to have missed the actual point a writer intended. 

One sees this often when people talk about, or write about, broadband access. Not being able to buy is one problem. Being able to buy, and choosing not to, is a different problem. 

In some cases, it is not even a "problem." At one home location for example, I voluntarily choose to use two mobile 4G connections instead of a fixed connection. There is no access problem. I could buy either a fast cable or a fast fiber-backed telco access service. I simply choose not to, because I have another solution that works.

Mobile Revenue: Voice 21%. Where's the Rest?

Mobile analyst Chetan Sharma has been looking at the next waves of mobile service provider revenues for some time, using the phrase "the fourth wave."

At present, perhaps 55 percent of revenue was contributed by voice services. Recently, data access has contributed 17 percent, and the over-the-top and digital services a mere three percent.

Over the next 10 years, Sharma expects those percentages to change dramatically. Mobile digital services other than access might grow to 30 percent of total revenue, while voice will represent less than 21 percent.

If mobile digital services are the single biggest category at 30 percent, the implication is that mobile Internet access will represent less than 30 percent of total revenue. 

One assumes that means about 49 percent of revenue will come from messaging revenues, mobile Internet access and handset revenues. 

The bad news is that it appears ecosystem participants other than mobile service providers will be positioned to earn much of the gross revenue from which mobile service providers collectively earn 30 percent. 

If you look at the way machine-to-machine, connected car, mobile payments, mobile banking and mobile commerce initiatives split revenue between app providers, merchants, clearinghouses and others, you might see the problem. 

To earn their 30 percent, mobile service providers will have to work with many other firms generating substantially bigger gross revenues. That assumption is based on the likelihood that telcos will supply some key enabling features to third parties who largely will operate the new mobile digital services. 

Wi-Fi is Valuable for a Service Provider, Just Hard to Quantify

The funny thing about the Wi-Fi "market" is the somewhat unusual size of hardware supplier and end user revenue magnitudes. 

In some ways, the Wi-Fi end user market is somewhat like the end user toaster market. 

Money is spent buying toasters. Electricity is consumed using toasters. 

But there is not much of a direct toaster usage revenue stream.

The Wi-Fi markets are similar, since the sales we can easily quantify are akin to "annual toaster sales," while usage is non-paid.

Of course, the value of Wi-Fi routers and network gear has a value far exceeding the value of network elements and routers sold. It just is hard to quantify, since nearly all Wi-Fi usage has no incremental cost of usage. 

By IDC's reckoning, the equipment supplier market is more than $4 billion annually. 

The market for Wi-Fi capable handsets is larger, at perhaps $30 billion to $40 billion annually. But neither of those sets of figures represents the value of Wi-Fi to application or Internet service providers. People don't buy Wi-Fi-capable handsets for the Wi-Fi, but for the full bundle of values a smart phone represents. 

Consulting firm Infonetics projects that dual-mode Wi-Fi handsets (required for some approaches to FMC) represent a market of approximately 591 million handsets in 2008-2010, growing from 119.5 to 288 million handsets (forecast as of July 2007).

For service providers, most of the benefits of Wi-Fi offload are indirect, coming in the form of reduced customer churn, increased customer satisfaction, some revenue lift and significant avoided capital cost.

Some have tried to model a direct revenue effect.

According to Cisco, a mobile service provider can offload data and voice traffic to the Wi-Fi network, freeing up possibly scarce spectrum and thereby avoiding some amount of network investment. 

If up to 50 percent of calls made on mobile devices are made on the business premises or at home, shifting those calls to Wi-Fi frees up spectrum for use by other customers and applications. 

Assume, for example, that you have an average per-family revenue of US$80 per month, and three phones sharing a pool of 700 minutes. 

With a dual-mode fee of $30 per home location, permitting free calls over Wi-Fi and assuming a reduction in minutes per plan of $20 per month (because at-home calls are now free over the Wi-Fi/broadband haul), the net increase in revenue per family is $10 or $2.50 per person (family plan of $80 + FMC family fee of $30 adjusted for the smaller 500 minutes program, which subtracts $20), Cisco argues.

Assume that 66 percent of total cellular minutes move to the free Wi-Fi calling technology and that the mobile service provider has freed up 231 minutes per month (66 percent x 50 percent x 700 minutes).

Not only has the service provider gained $10 per family per month in revenue, it also has  freed up enough spectrum to support approximately $42 worth of spectrum per month (assuming the new family also adopts the FMC solution).

This new capacity could translate into a $470 million opportunity over a million households.

For the consumer, the free "at home minutes" plus data access via Wi-Fi increase the value of the mobile dual-mode phone (which has Wi-Fi and cellular capability) even from service providers without 3G networks. And both consumers and businesses like putting a cap on total costs.

Informa U.K. researchers suggest a market for Wi-Fi offload services of between US$13 billion and US$37 billion by 2011, depending upon assumptions about the aggressiveness with which FMC services are promoted.

FMC's forecast number of subscribers reaches between 35 and 112 million consumers by that date. The enterprise forecast varies from 10-14 million subscribers by 2011. In other words, 20-27 percent of the revenue will be enterprise-based and enterprises will spend more on FMC per capita.

You can make your own judgments about whether selling Wi-Fi access will be a big deal or not. In the U.S market, Wi-Fi access simply comes as a feature with smart phones, so there is not direct revenue beyond some apportioned share of the basic data plan a smart phone user must pay.

Some us would be more comfortable with a non-direct revenue model lead by lower churn, higher customer satisfaction, capital investment savings and avoided demand on mobile network resources. 

The point is that it is easier to quantify the value of Wi-Fi network gear, routers and some contribution to value when Wi-Fi capability is built into a smart phone, than to quantify the value Wi-Fi represents for a mobile service provider. 

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