Verizon Purchase of Vodafone Verizon Wireless Assets Might Highlight Strategic Value of Fixed Networks

Assuming the proposed Vodafone sale of its 45 percent stake in Verizon Wireless is completed and approved by regulators, observers wonder what Vodafone will do with the proceeds.

Many assume much of the proceeds will be given directly to shareholders. Some think as much as $90 billion or so will be distributed in that way, leaving perhaps a war chest of $40 billion for acquisitions and infrastructure investment. 

Some have suggested Vodafone will try to buy fixed network assets in Europe so that it can offer bundles of broadband, mobile and TV services.

That, some might argue, suggests something about the strategic value of fixed network assets, namely its value in supporting quadruple-play services. Others might point to the growing value of mobile offload capabiltiies as well. 

On the other hand, many also would say there are clear differences of opinion about the value of fixed network assets. Verizon, one might say, is making a statement about growth opportunities in the U.S. mobile market. 

Others might disagree. Much depends on one's assessment of where growth can be found in the global telecom business. 

One way of looking at the matter is that Verizon sees revenue growth in the European and U.S. mobile businesses, and likes what it sees. Others are worried that Verizon is banking too much on continued strong rates of revenue growth in the U.S. market.

On one hand, it is hard to argue with the facts, at the moment. In Europe, wireless revenue declined 4.3 percent in 2012, while U.S. revenue growth accelerated about nine percent, according to CTIA.

So it makes sense, in that view, to capture more of the value of the growth by getting full ownership of the Verizon Wireless asset.

AT&T, on the other hand, is said to be looking at global assets, indicating a less sanguine view of the U.S. market, in terms of revenue growth. Of course, AT&T has a bigger footprint in the U.S. market than does Verizon, so AT&T might reasonably conclude it has less room to grow domestically.

There are other differences as well. Vodafone has indicated it wants to buy fixed network assets in Europe, to complement its mobile assets. Basically, Vodafone wants to replicate the Verizon Communications and AT&T strategy in the United States, where those firms are able to sell quadruple play offers.

AT&T, on the other hand, is said to be exclusively interested in acquiring mobile assets in Europe, where the belief is, new Long Term Evolution networks will reignite revenue growth.

So where Vodafone is thinking quad play, AT&T is thinking “mobile only.”

Those strategy differences have become increasingly obvious in a business that once featured virtually homogenous strategies by all leading providers in the monopoly era. Since the advent of deregulation, the disruptive influence of the Internet and the rise of mobile services and video entertainment, companies increasingly have chosen distinct business models.

Vodafone originally had a “mobile only” approach but gradually has taken on more fixed network assets. Both Verizon and AT&T once were primarily fixed network service providers but have evolved to the point where mobile services drive revenue growth at both firms.

Vodafone, on the other hand, also has seen first hand the impact of a disruptive assault from a firm such as SoftBank, which bought Vodafone’s Japan operation and proceeded to attack retail pricing levels.

“Vodafone’s management may be looking at the U.S. and saying to itself, ‘We’ve seen this movie before,’”  Craig Moffett, principal of  Moffett Research, has said.

At least for the moment, those differences in assessment of market potential are going to have clear impact on firm strategies.

Microsoft to Buy Nokia's Handset Business

So much for avoiding channel conflict: Microsoft is buying Nokia's handset business in a Microsoft $7.2 billion deal that makes Microsoft a direct competitor to its Windows licensees. 

Microsoft already had taken some steps in that direction earlier, by creating its own gaming business and platform. Microsoft then created its own branded tablet. Now Microsoft has moved directly into the branded mobile phone business, a move that finally makes Microsoft a supplier of branded phones, at retail, in competition with its operating system licensees.

To be sure, such channel conflict has been growing in the mobile ecosystem for some time. Google has had to face the challenge in supporting Android and also owning Motorola, which has made Google a competitor of device firms using Android. 

So far, the channel conflicts primarily have been an issue for operating system providers and their licensees. But application providers generally increasingly looking at getting into the branded device business. Barnes and Noble and Amazon are the best examples in the tablet business.

What hasn't yet happened, but would take the channel conflict further, is a move by a major application provider directly into the mobile access provider business. On the fixed network side of the business, Google already has made that conceptual leap with Google Fiber, and now as a supplier of Wi-Fi at U.S. Starbucks locations. 

Some observers think Microsoft Mobile will have to rely on the Nokia assets to win a bigger share of the mobile OS market. The acquisition essentially confirms that thesis.

The other angle is what Nokia will do, after the sale. Nokia then becomes a mobile infrastructure supplier, through Nokia Siemens Networks. That is a huge shift. 

But some think BlackBerry will have to make some similar change as well, becoming a more focused supplier of services infrastructure, and less a supplier of handsets, if in fact BlackBerry can stay in the handset business at all. 

Cloud-Based UC is Growing in U.S., Still Lags Globally

The cloud-based “unified communications as a service” business remains a market heavily tilted to the United States. In fact, the leaders of the UCaaS business globally are determined in large part by their market positions in North America, and in particular, U.S. market share.

Each of the top four global UCaaS providers by market share hold the same position in North America. North America  accounted for 87 percent of UCaaS subscribers in the first quarter of  2013, followed by the EMEA(Europe, Middle East, and Africa) region, which had 10 percent of worldwide UCaaS subscribers.

One would be very hard pressed to name another communications service that is so concentrated in terms of buyers (by region). One would therefore be tempted to say that cloud-based UC has not yet gotten much traction anywhere outside North America.

Whether that means there is huge unmet potential (undoubtedly true) or huge indifference, is hard to say. If the cloud trend is real, and most would agree that it is, then most of the eventual sales have yet to be made.

Cloud computing is important, some might argue, because cloud computing represents the next wave of computing architecture, as there were earlier waves of mainframe, minicomputer and PC-based computing.

IDC predicts  that the collaborative applications segment of the U.S. SaaS applications market grew 10.6 percent year over year in 2012 to over $2.6 billion in revenue.

Current market research indicates that Web conferencing and videoconferencing and UC are at or near the top of the list of applications most likely to move to the cloud, IDC says.

IDC estimates that collaborative applications (including instant communications,

enterprise social software, conferencing, team collaboration, and email) account for 14 percent of the total U.S. cloud applications market and 51 percent of the total U.S. collaborative applications segment revenue in 2012.

Synergy Research Group suggests a handful of leading U.S. cloud UC services suppliers, representing about half the U.S. market, earned about $84 million a quarter in the second quarter of 2013, suggesting those firms represent an annual market north of $340 million. If one assumes that is half the U.S. cloud UC market, then annual revenues would be in the $680 million range.

New data from Synergy Research Group show that between the first quarter of  2010 and the first quarter of  2013, unified communications as a service (UCaaS) subscribers nearly tripled to reach 1.6 million, and now account for 24 percent of total cloud UC subscribers. This is up from 21 percent three years earlier, Synergy Research estimates.

Together, four providers account for nearly half of UCaaS subscribers. 8×8 is the market leader, with 19 percent of subscribers. RingCentral, Vocalocity, and ShoreTel follow, with 10 percent, nine percent, and eight percent, respectively.

While the cloud UCaaS market as a whole grew 22 percent year over year in the second quarter of 2013, Vocalocity grew 45 percent while ShoreTel grew 37 percent.

Suppliers iCore, RingCentral and 8x8 all saw year-on-year revenue growth in the 18 percent to 22 percent range. In aggregate the six market leaders accounted for 54 percent of total quarterly UCaaS revenues, with 8x8 maintaining its overall market share lead at 15 percent.

UCAAS BUSINESS SUITE WORLDWIDE REVENUES, Q3 2010-Q3 2012

source: Synergy Research

For some of us, the big question is why cloud-based UC resonates in the U.S. and North American market so well, and yet appears to lag so much in most other world markets.

Vodafone Agrees to Sell its Stake in Verizon Wireless for $130 Billion

Vodafone and Verizon Communications seem to have agreed on a $130 billion price for the sale of Vodafone's 45 percent stake in Verizon Wireless to Verizon Communications. The deal still has to be approved the boards of both companies, but there would seem to be little danger of a complication on that front. 

Verizon would pay for the stake in roughly equal portions of cash and stock, so Vodafone would become a minority investor in Verizon Communications, though holding publicly tradeable stock that could be sold gradually to liquify the rest of the sale proceeds. 

The deal would not change U.S. mobile market share at all, and should not trigger unusual regulator scrutiny. 

The drama might follow, though. Will Vodafone itself go on a buying spree? Will another major global carrier make a bid to buy Vodafone? And what will other European service providers conclude they must do?

At the very least, executives have to make fundamental decisions about whether they are going to be buyers or sellers. 

Microsoft Research Study Shows People are Rational About Internet Access Choices

A study by Microsoft Research India, while investigating one question, might also suggest an answer to other questions, among them the rationality of Internet consumers, the important role played by retail tariffs and usage caps, as well as user ability to maximize overall use of all Internet access resources available in any market, in ways that maximize end user satisfaction and value.

The specific question the researchers asked was  “if you have the internet in your pocket, why do you still visit a public access venue?” They studied teenager behavior in Cape Town, South Africa.

Most grade-11 teens in low-income township schools in Cape Town have used their mobiles to access the internet since 2008, the researchers note. By 2010, South Africa had over 100 percent mobile penetration (50 million subscriptions) but only 743,000 fixed broadband subscribers, they also say.

The findings were that teenagers “who could, in theory, be ‘mobile-only’ Internet users have instead constructed a ‘mobile-centric’ repertoire.” They used their more-expensive mobile access when needed for some tasks, but shifted resource-intensive operations to public access venues, including libraries and cybercafes.

Doing so saves them money and also offers a better end user experience. Mobiles are used for quick, non-intensive apps. Libraries get used for quick-turnaround search-copy-paste-print operations, when sessions are limited to 15 minutes, for example.

Internet cafes tended to be used when video editing and visual design as well as integration with handwritten and photocopied material was required.

The larger point is that Internet users, one might argue, is that people  in low-income parts of Cape Town, South Africa, or in developed nations, are rational and competent judges of ways they use access services.

They shape their own usage behavior based on accurate assessments of what forms of access save them money and best match the purposes for which they are using the Internet.

Some may use Internet cafes because of the better hardware (faster PCs, better printers and peripherals), since PC hardware is expensive in South Africa, due to import duties and

lack of domestic manufacturing.

Mobile coverage is good but data tariffs are relatively expensive. Usage caps for digital subscriber line services are frequently capped with monthly limits as low as 1GB.

Wireless data is purchased in a way similar to prepaid airtime, encouraging end user attention to “running meters.”

The implications are clear enough. “Broadband policy” consists of more than building faster networks of all types. The way tariffs are structured has a powerful impact on user behavior, leading people to consume access in logical ways.

That is why Wi-Fi offload has become such a pronounced activity in many developed markets.

Verizon, Vodafone Making Different Bets on Market Growth?

Either way you look at the strategic challenges, both Vodafone and Verizon Communications are making big bets in assessing whether the U.S. or European markets are better places to invest for growth.

You might argue Verizon Communications is betting that the U.S. market is going to remain robust, so capturing all of the returns from Verizon Wireless makes sense.

You might also argue that in selling its highest-revenue operation, Vodafone is making the opposite calculation, namely that despite a clear revenue down trend in Europe, Vodafone’s prospects actually are higher in Europe than in the U.S. market, which virtually all observers currently estimate will grow revenues .

AT&T appears to agree with Vodafone, specifically because the undeveloped state of Long Term Evolution in Europe will allow for revenue growth, once the networks are activated.

Others might argue that Verizon Communications is gambling a bit that the U.S. market has not reached a revenue peak, in terms of revenues. Some would argue that increasingly competent new attacks by a revitalized T-Mobile US and a SoftBank-driven Sprint will lead to a major price war that will depress industry revenues.

In Western Europe, for example, revenue is forecast to drop through 2020, for example. Some would attribute that weakness to competitive pressures.

By way of comparison, the U.S. market is viewed as less competitive, and Verizon is betting that it will do better by essentially increasing its U.S. mobile exposure, since mobile contributes about 86 percent of total Verizon Communications revenue. Fixed network operations contribute only about 14 percent.

Keep in mind that it was Vodafone that sold its struggling Japanese asset to SoftBank in 2006. Vodafone executives might expect that something similar will happen in the U.S. market, as a SoftBank-owned Sprint attacks U.S. mobile industry pricing structure.

NTT DoCoMo was the dominant service provider then, as Verizon Wireless is now. NTT DoCoMo still holds that position, but gross revenue and profit margins have been battered.

“If you’ve watched what happens when Softbank enters a wireless market, you might not want to watch it again,” said Craig Moffett, senior analyst at Moffett Research.

Right now, observers expect U.S. mobile revenue growth, just as they expect declines in many parts of Europe. 

What Happened to Free Speech in the U.S.?

Seriously, this is more than stupid. It shows imperial arrogance.

http://feedly.com/k/19Vv4oS

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Mobile Spending Now 10% of all E-Commerce

Almost always, an important new consumer electronics product or application hits an adoption inflection point st about 10 percent adoption.

It now appears th at inflection point has been reached, for mobile commerce.

ComScore Chairman Gian Fulgoni. “One out of every ten consumer e-commerce dollars is now spent using either a smartphone or a tablet, and growth in this segment of the market is outpacing that of traditional e-commerce by a factor of 2x, which itself is growing at rates in the mid-teens. 

Tablets Might be Fastest-Growing Consumer Electronics Technology, Ever

Important consumer electronics innovations used to take decades to reach majority adoption.

Digital techologies get adopted much faster.  Years are more typical. Tablets might be the new benchmark.

Netbiscuits reported that the tablet market had a year-on-year growth of 65 percent by 2013. It was also revealed that the market has made room for new competitors other than Apple's iPad. In 2012, 60 percent of tablet sales were attributed to Apple, but that number has fallen to just 33 percent in 2013. Android tablet sales were reported at 38 percent in 2012, and rose to 63 percent in 2013.

Tablet adoption in India rose 400 per cent in 2012 and sales in Southeast Asia have spiked 101 percent. 

Will Vodafone Survive Verizon Wireless Sale?

Any Vodafone sale of its stake in Verizon Wireless could trigger additional deals. AT&T might want to buy Vodafone, some theorize. 

AT&T could pay about 80 billion pounds ($124 billion) for what’s left of Vodafone, according to Robin Bienenstock, an analyst at Sanford C. Bernstein, basing her estimate on a valuation of six times earnings before interest, tax, depreciation and amortization.

AT&T has examined takeover candidates including Vodafone, U.K. mobile carrier EE (a joint venture between Deutsche Telekom and Orange), as well as parts of Spain’s Telefonica.

That might strike some as odd, given the declining amount of revenue being earned by European mobile service providers. But AT&T seems to be thinking, as does SoftBank’s Sprint, about ways to boost revenue by emphasizing fourth generation Long Term Evolution services.
Compared to the United States, for example, 4G is undeveloped in much of Europe.

But it would also be fair to say that if Verizon Wireless does buy out Vodafone, then Vodafone would be in position to be a buyer itself. And subsequent deals could set off a major round of consolidation. 

"Once you have companies that are after global scale, it becomes a case of eat or be eaten," said Robin Bienenstock, an analyst for Bernstein Research. "The chessboard is going to re-form really, really rapidly."

AT&T’s Contract-Free Prepaid Aio Service Goes National in September 2013

Aio, AT&T's new prepaid, contract-free service, will launch nationwide in the United States in mid-September.

And make no mistake, Aio is designed to blunt T-Mobile US market share gains at AT&T's expense. 

Many observers would say it is AT&T that is more vulnerable to attacks by T-Mobile US and the aggressive Sprint attack that is expected to follow.

Verizon Wireless should be relatively safter from such attacks, as Verizon is positioned as the "highest quality, most expensive" end of the U.S. mobile market. 

America Movil Encounters Obstacle in Effort to Buy KPN

America Movil, which has made an offer to buy Netherlands service provider KPN, has encountered an obstacle. A KPN shareholder foundation set up to protect key national infrastructure when the former state-owned monopoly was being privatized now has exercised an option to buy almost half of KPN's voting shares.

America Movil, which already owns 29.8 percent of KPN, has been planning to make an offer of €2.40 ($3.18) a share to take control of the Dutch company. But the foundation considers the move a “hostile” takeover bid, and is resisting the buyout.

That has lead America Movil to say it will walk away from its €8.55 billion ($11.32 billion) takeover of KPN. That would undoubtedly cause KPN share prices to fall.

The KPN bid is part of America Movil’s effort to acquire stakes in the European mobile services market. But the effort to acquire all of KPN also is related to the proposed Telefonica purchase of KPN’s interest in E-Plus in Germany.

Telefonica has raised its offer by six percent to 8.55 billion euros to win America Movil's support for the deal. The move by America Movil into Europe by acquiring just under a 30-percent stake in KPN, the proposed Telefonica purchase of KPN and the America Movil proposed buyout of the rest of KPN are examples of an expected major consolidation wave in the European telecom market.

But as often happens, proposed deals face opposition from other bidders or shareholders. Also, Europe's competition regulators still would need to approve the Telefonica purchase of E-Plus or the America Movil purchase of the rest of KPN.

Three U.K. Offers Domestic Tariffs for Roaming Call, Texting and Internet Access in 7 Countries

U.K. mobile service provider Three has launched “Feel At Home,” a retail plan that assures domestic U.K. prices for voice calls, text messages and use of mobile broadband when customers travel abroad in seven countries and call back to the United Kingdom.

In other words, Feel at Home customers will only pay U.K. prices instead of incurring international roaming charges, when contacting peoplein the U.K., Three says.

Initially available in Republic of Ireland, Australia, Italy, Austria, Hong Kong, Sweden and Denmark, Feel At Home will automatically activate as soon as a customer arrives in one of the countries.

Three is the first U.K. operator to offer customers the same in-country mobile phone and mobile broadband rates for no additional charge as if you’re at home or abroad. Those sorts of moves are one reason why some would argue that EU-mandated lower roaming costs ultimately will be happen as a normal part of the competitive process.

Some within the EU might agree.

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.

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.

Gigablit Libraries Network to Test TV White Spaces for Internet Access

The Gigabit Libraries Network (GLN) has picked six library systems across the United States for tests of TV white spaces based Internet access for libraries.

More than 50 library systems and consortia applied for projects. Six projects, one each in Kansas, New Hampshire, Mississippi, Illinois, California and Colorado) have been accepted and will receive equipment to run trials through the end of 2013, using Wi-Fi access points on “e-bookmobiles” and in other publicly accessible places in their communities.

The pilot will demonstrate how integrating these two wireless communication technologies can benefit library users by combining the near universal compatibility of Wi-Fi with the range of TV white spaces equipment.

Participating libraries will have an option to purchase the gear and the end of the trial. The national pilot project grew out of a local wireless initiative of the Kansas City K20-Librarians Consortium, announced in May to upgrade bandwidth to a remote Kansas City, Kan. public library branch having only a T1 connection.

Carlson Wireless,  KTS Wireless and Adaptrum Inc. and iconectiv  are the four suppliers of gear and database services for the tests.

Participating library systems and consortia are located in Delta County, Colo.; Pascagoula, Miss.; Skokie, Ill.; Humboldt County, Calif.; Kansas City, Lawrence, Manhattan, Topeka/Shawnee, Kansas, in addition to New Hampshire.

Slovakia Begins 4G Spectrum Auction

Slovakia has begun auctioning 4G spectrum in multiple bands. The country’s regulator TUSR has stated that bidders have until October 7th to submit offers for frequencies in the 800MHz, 1800MHz and 2.6GHz bands.

It is expected that some 1800 MHz spectrum will be reserved for a fourth player to compete with Slovakia’s “big three” of Orange, Slovak Telecom and O2.

Orange is the biggest operator in Slovakia with 2.8 million subscribers, followed by Slovak Telecom (2.3 million) and then O2 (1.4 million). One should expect all of the three dominant providers to place bids to win spectrum. The question is which new firm might be a fourth winner of spectrum.

Czech investment group PPF, headed by Petr Kellner, has confirmed its interest in bidding in the auction. The group’s subsidiary PPF Mobile Services (PPFMS) wants to become the country’s fourth mobile operator.

Other potential bidders include broadcaster Towercom, video services provider Satro and broadband operator SWAN.

Telecom regulator TU SR says new 4G license winners must build networks covering 50 percent of the population with its own network by the end of 2018. In a switch, though, 4G license winners will not have mandatory wholesale obligations, and instead will be allowed to negotiate any such wholesale deals on a commercial basis.