Peak Mobile Revenue in 2017?

Though it was not always the case, today’s communications service providers face a business that genuinely requires continual innovation. It matters not whether service providers are especially good at innovation, quick to move or have a clear glide path.

What matters is that we now know the global communications business lives or dies by lead revenue generators that clearly are products with a life cycle. And the industry already has seen enough to understand that from now on, the revenue underpinnings of the  business must be recreated about every decade or so.

To be clear, that means something like a need to replace perhaps half of existing revenue every 10 years or so, as first, one, then the succeeding revenue model matures. Fixed network voice is being displaced by Internet access as the foundational revenue driver.

Mobile voice displaced fixed network revenues as the global revenue driver. Then text messaging began to drive revenue growth. Now mobile Internet access  is driving growth.

And the only certainty is that more transitions are coming. The issue is to identify, as soon as possible, what those replacement products are, and bring them to market, in a scalable way, as soon as possible.

In 2018, for the first time ever, global mobile service provider revenue will drop, declining from 2017 levels by one percent or US$7.8 billion, according to analysts at Ovum, though the number of connections will continue to grow. That suggests 2017 could be the “peak” year for mobile revenues, unless big new sources can be found to both replace lost revenues and then ignite a new round of industry growth.

As has proven to be the case in the past, the issue is whether new revenues can be added fast enough to cover the declines in legacy products.

Global mobile connections will grow from 6.5 billion in 2012 to reach 8.1 billion by 2018, while annual mobile service revenues will rise from US$968 billion to US$1.1 trillion.

Decline already is happening in Western Europe, with total revenue dropping 1.5 percent on a compound annual rate and connections growing less than one percent, Ovum predicts.

The U.S. market, robust and growing, will slow. Global connections still will grow, at a less than four percent compound annual growth rate between 2012 and 2018, while global revenues will grow at less than half that rate.

Africa, on the other hand,  presents the largest growth opportunity, revenues expected to grow at a compound annual growth rate of 4.2 percent.

Since mobility services have driven global service provider revenue growth for at least a decade, current efforts to discover new sources of revenue obviously are required. The forecast assumes that the current growth driver, mobile Internet access, will saturate by about 2018.

“What drives revenue next?” is a question with no accepted answer, which is why so many initiatives are underway, ranging from mobile commerce and mobile payments to connected car, mobile video, home security, home automation, mobile advertising and other potential new sources of revenue.  

One reason you are hearing so much about the Internet of Things, or machine-to-machine services, is that selling mobile connections to enterprises selling services using sensor networks is one obvious way to tap new customers and activate millions of new accounts.

According to Ovum, operators in developed markets face particularly challenging times. Aside from troubles in Western Europe, several other developed markets will see year-on-year revenue declines in 2018, including the United States,  Ovum maintains.

Much of the revenue decline will be driven by falling average revenue per user, which will continue to decline across all markets by a 2.7 percent global CAGR between 2012 and 2018.

If you want to know why tier one service providers are so focused on new revenue sources, the Ovum data is one compelling reason.

The greatest average revenue per user decline will be in the Middle East, where ARPU will fall by a 2.5 percent CAGR.  

Despite the global trend, some growth opportunities will still exist, particularly in Africa, where revenues are expected to grow at a CAGR of 4.2 percent throughout the forecast, Ovum says.

No other region in the world will see revenue growth at a CAGR above three percent during the forecast period.

Select markets in Asia-Pacific and South & Central America will also drive growth over the next five years.

Africa will also have the fastest-growing connections, increasing at a CAGR of 5.6 percent between 2012 and 2018, and ending the period with just over one billion connections.

Growth in Asia-Pacific will slow, but this region will remain the biggest contributor of new connections, driven largely by China, India and Indonesia.  

Connections in the Asia-Pacific region will total 4.2 billion in 2018 and will account for 57 percent of net additions globally through the forecast period.

What Market are Dish Network, DirecTV In?

Are DirecTV and Dish Network competitors in the subscription video entertainment business, or contestants in the satellite TV business? The answer might actually matter.

Antitrust regulators always are forced to decide what a relevant market is when considering proposed mergers and acquisitions. Back in 2002, a proposed merger of DirecTV and Dish Network was blocked by the Federal Communications Commission and Department of Justice because of antitrust concerns. At the time, the relevant market was deemed to be “satellite-delivered video entertainment,” in essence.

Whether that still is the relevant market could become an issue if another merger of the two satellite companies is considered. The new issues are a dramatic drop in cable TV market share, a halt to satellite market share growth and entry of telcos into the business.

Then there is the clear sense that alternatives such as streaming delivery are about to start displacing all the traditional providers. As a rule, one might argue, it is a waste of time and money to spend too much effort adding regulatory burdens for declining businesses.

Some might argue that was basically what happened with the Telecommunications Act of 1996, the first major reset of U.S. communications law since 1934. The theory was that breaking down barriers to provision of voice services would spur innovation in the business.

One might argue the theory worked, enabling cable operators to seize huge chunks of the voice business. One might also argue the focus of innovation also shifted to the Internet, something unforeseen by regulators and lawmakers.

That’s the same sort of context that could become an issue in further consolidation in the satellite portion of the video entertainment business.

In other words, regulators would have to take another look at the relevant market parameters if

a DirecTV-DISH merger were to be proposed again.

What might have been viewed as an unwanted creation of a monopoly satellite video provider at one point in time might not make so much sense in a mature, perhaps saturated video enterainment business where the clear market leader is losing share, satellite share has stopped growing and powerful new competitors are taking customer share.

Also, there is the sense that the economic fortunes of the video entertainment business are changing, in any case, in ways that could threaten all providers of traditional subscription video entertainment services.

U.K. Mobile Operators Face New £244.5 Million in Annual Spectrum Costs

U.K. mobile service provider costs of doing business are going to rise in 2014, by about £244.5 million, because spectrum fees are rising.

Ofcom, the United Kingdom communications regulator, which has authority to reset spectrum fees to market value, has concluded that 900 MHz and 1800 MHz spectrum used by mobile network operators now is far more valuable, based on the latest fourth generation spectrum auctions.

Ofcom has been considering the fees since late 2010.

Mobile network operators currently pay a combined total of £24.8m per year for 900 MHz spectrum and £39.7m for 1800 MHz spectrum. The new fees will be substantially higher: £138.5m per year for 900 MHz spectrum and £170.4m for 1800 MHz spectrum.

To be sure, spectrum is a nationally-owned resource, and the value of new spectrum has grown, as reflected in auction prices. Ofcom has authority to revise fees in view of market value. One might also note that pricing is one way of allocating spectrum to its highest and best use.

Some also will argue, not without reason,  that giving service providers exclusive control of some blocks of spectrum actually promotes effective and efficient use of allocated spectrum, compared to unlicensed and shared use, where there is no single manager of contention and access.

But service providers will also bear higher costs as a result of the revised fees, all of which will be recovered from customer fees or partner payments.

At some level, one might also note that, in principle, making some unlicensed and shared spectrum available also will create incentives for innovation by providers of access and other services at lower cost than is possible when providers have to recover spectrum acquisition costs.

Annual license fees for 900 MHz and 1800 MHz spectrum

Vodafone		O2		EE*		H3G*
Current	Proposed	Current	Proposed	Current	Proposed	Current	Proposed
£15.6m	£83.1m	£15.6m	£83.1m	£24.9m	£107.1m	£8.3m	£35.7m

* EE and H3G figures relate to holdings after EE’s divestment of 1800 MHz spectrum to H3G, to be completed in October 2015.

No Challengers in Belgium 800-MHz Spectrum Auction

Belgacom, Mobistar and KPN-owned BASE are the only three bidders for new 800-MHz spectrum being auctioned in Belgium. 

Without implying too much, or extrapolating beyond this one auction, in one market, the lack of bids by new contestants (some thought cable operator Telenet might bid) suggests contestants are not confident about their business prospects, should they win spectrum and be able to enter the Belgian mobile market.

That's a rational conclusion. The three licenses up for award each offer only 2 paired 10 MHz spectrum allotments (10 MHz up, 10 MHz down), not enough for a competitive operation, would-be contestants seem to have rationally concluded.

Some Regulators Want More Investment, But European Telcos Have a Profit Problem

Neelie Kroes, European Commission Vice President of the European Commission, responsible for the Digital Agenda for Europe, has a tough job, and so do telecom service providers these days.

It would be fair to say European communication tariffs have been relatively high, compared to U.S. tariffs, perhaps for obvious reasons, such as the fact the the U.S. market is continent-sized, meaning international tariffs do not apply, where in Europe a substantial amount of calling, texting and Internet usage occurs on an international basis. 

It is fair enough to argue that European regulators believe promoting competition leads to benefits for consumers (lower prices, more choices). It would also be fair to say pro-competitive policies in Europe have worked as predicted. 

It would also be fair to note that what is good for consumers sometimes is not so good for providers, since one person's cost is another person's revenue. 

The conundrum is that policies that promote competition also can depress service provider ability and willingness to make investments in next generation networks. Since telcos operate in private capital markets, inability to generate financial returns sufficient to assure lenders they safely can make loans to telcos is a big problem. 

Distressing though it might be, the service provider business case for next generation network investments is harmed, not helped, by pro-competitive policies that have the effect of depressing earning potential.

Competitive service providers who lease wholesale facilities would disagree, as they are helped by the pro-competitive policies. But investment in the networks everybody uses is an arguably different matter.

Kroes objects to cash being funneled to shareholders, rather than invested in the network. 
"My wish is that the money will be spent in your sector, and not put in shareholder's pockets," Kroes says. 

The problem is that unless carriers pay shareholders the expected dividends, and maintain share prices, the ability to attract investment also wanes. So the catch is that profits, dividends and share prices bear directly on ability to invest in networks. 

In that regard, roaming rate reductions, which are good for consumers, paradoxically also make it harder for service providers to justify next generation network investment. 

Europe is not alone in facing that challenge. U.S. regulators likewise confronted the issue, and concluded that for structural reasons (the existence of two fixed network competitors in virtually every market), wholesale access (which depressed network owner revenue) was not preferable to competition between network owners. 

In other words, where Europe had tended to favor policies that promote competition but arguably reduce incentives to invest in next generation networks, U.S. regulators chose to spur investment, while trusting that fixed network operator competition would be sufficiently robust to yield consumer benefits as well.

Some (not most competitive providers, for obvious reasons) service providers would disagree about the degree of competition, but how many end users, in any customer segment, would claim they really are worse off, pay more and have fewer choices and new services than before? Precious few, one guesses.

That is not to say European regulators or service providers can make the same choice. The U.S. market structure (competing cable and telco broadband networks in virtually every market) cannot be replicated easily in Europe, if at all. 

So a tough balancing act will have to happen. Oddly enough, the benefits of competition and investment stand opposed, to a large extent. 

Mobile Internet Access Drives Telecom Industry Growth

Between 2013 and 2018, U.S. mobile Internet access will drive revenue growth in the mobile business, which in turn drives revenue in the telecom business as a whole, according to Atlantic-ACM.

Atlantic-ACM predicts mobile data (mobile broadband and mobile Internet access) will grow from $79 billion in 2013 to $130 billion in 2018, including access revenues and services bundled with that access.

The vast majority of this growth and revenue has been, and will continue to be, concentrated among the big four mobile operators, AT&T Mobility, Verizon Wireless, Sprint and T-Mobile US, Atlantic-ACM says.

Mobile TV Winners and Losers

Mobile video consumption is reaching levels that will conceivably enable new businesses, recast several industries and likely accelerate change within the video ecosystem. Netflix and YouTube might be clear winners. Leading mobile service providers could be big winners. Smaller programming networks could be winners.

Prospects are less obviously helpful for fixed network service providers unable to provide a mobile consumption option, local TV broadcasters or some larger programming networks. 

There is a growing reason why mobile service providers and likely traditional TV subscription providers are looking at mobile delivery: that is where consumption is growing fastest, and where perhaps half of all video gets consumed in the U.S. market.

You would be hard pressed to figure out whether changing consumer demand or different supply modes drive revenue changes in the video entertainment market, though it takes a mix of both.

For the first time ever, customers of Verizon’s FiOS TV service are being allowed to watch live television on their mobile devices when they’re out of their homes, and disconnected from their home’s Wi-Fi network. That’s a big step, but just a step, as the new feature applies to just nine channels, including BBC America, BBC World News, EPIX, NFL Network (iPad-only), HGTV, DIY, the Tennis Channel and Scripps Networks Interactive channels, Food Network and Travel Channel.

As often is the case, smaller competitors have taken the lead, not the biggest networks. Just how much pressure for change will now be exerted is the question.

The other question is how much of a boost the new Verizon feature, and others that assuredly will eventually follow, will increase the importance of mobile video as a revenue stream for mobile service providers.

AT&T, for example, plans to launch a TV delivery service using some Long Term Evolution spectrum. It seems unlikely AT&T will launch a “standard” subscription video service, as it has limited spectrum.

Some suspect AT&T will want to provide localized broadcasting of events, or other information services (weather, news, alerts) of broad interest in a local market. Think of that application as making AT&T something of a local over the air TV broadcaster.

That isn’t to say fixed network providers without mobile assets have no options. Verizon is allied with major U.S. cable operators in agency agreements that allow each to sell the other firm’s products.

But there still are gross revenue and profit margin implications, as simply acting as a sales agent does not provide the gross revenue or profit margin of a service sold on an “owned” basis.

So video subscription providers will want to move with their audiences, delivering the same content on mobile and tablet devices, out of home or in home, as they now do inside the home. That’s the whole idea behind TV Everywhere efforts.

Whether that represents a “new” market, or simply a new way to support an older market, is a matter of debate, in some ways. In some cases, it is both. You might argue that Netflix and other streaming services are a “new” business, while out of home streaming offered by cable, satellite and telco TV services is an extension of an existing business.

In any event, 2013 probably will be the first year ever in the United States that video consumption on devices other than televisions surpasses traditional TV viewing. That’s the demand side of the equation, but that consumption pattern also is enabled by availability of Netflix and YouTube, among other suppliers.

The most significant growth area is on mobile. U.S. adults will in 2013 spend an average of two hours and 21 minutes per day on non-voice mobile activities.

That includes mobile Internet usage on phones and tablet, while mobile device is up nearly an hour from 2012 levels.

The report says that adults are watching their televisions slightly less—with a daily intake of four hours and 31 minutes this year, seven minutes less than in 2012.

The typical U.S. adult will spend over five hours per day online, on non-voice mobile activities or with other digital media, compared to four hours and 31 minutes watching television.

Daily TV time will actually be down slightly in 2013, while digital media consumption will be up 15.8 percent.

Measurement, in an era where people frequently multitask, is a key issue. Estimates by eMarketer include all time spent within each medium, regardless of multitasking.

Consumers who spend an hour watching TV while multitasking on tablet devices, for example, are counted as spending an hour with TV and an additional hour on mobile.

Such multitasking also drives an increase in the overall time people spend with media each day, which eMarketer expects to rise from 11 hours and 49 minutes in 2012 to 12 hours and 05 minutes in 2013.

The key finding is that time spent with mobile has come to represent a little more than half of TV’s share of total media consumption.

In-App Purchases are Becoming a Dominant Mobile App Revenue Model

Once upon a time, some observers gushed about the revenue opportunities mobile apps represented for developers, though it always has been clear how important mobile apps were for the device and mobile operating system suppliers.

It is starting to look as though the direct app purchase opportunity is more limited than expected, while in-application purchases (mobile commerce) are emerging as the key revenue model for developers, at least in Asian markets.

In other words, the freemium model has gotten traction, where developers give away free access to an app, and then features and add-ons for those apps.

In-app purchases generated 76 percent of all revenue in the Apple App Store for iPhone in the United States in February 2013, for example.

At least 90 percent of all such revenue was generated by in-app purchases in the Asian markets, which include Hong Kong, Japan, China and South Korea, Distimo data suggests.

Why Budgets Matter: Debt Load is "Unsustainable"

The current impasse over U.S. federal government spending really is not the big issue. Debt and structural obligations constitute the sword of Damocles hanging over the federal and most state governments. It's math, not politics. 

The U.S Congressional Budget Office simply says federal debt held by the public would reach 100 percent of gross domestic product in 2038, while clearly harming economic growth as well.

That debt load "could not be sustained indefinitely." A broken economy and a bankrupt United States that would find it had to break many "promises" is the real problem. Either the country will learn to live within its means, or it will be forced to do so, by debt burdens growing faster than gross domestic product, and hence ability to "tax our way out of the problem."

"Increased borrowing by the federal government would eventually reduce private investment in productive capital," CBO warns. 

States have the same underlying problem. Spending driven increasingly by obligations already incurred will outstrip tax revenue to support current obligations. 

In simple terms, at some mathmatically inevitable point, virtually 100 percent of local property taxes used to support public education will be consumed by retiree retiree obligations. The problem has been known for more than a decade. 

Already, in Michigan, 66 percent of all education funding goes not to teaching children but to paying retiree benefits and health care costs. That's a structural problem. 

Huawei, Nokia in Top-4 Hanset Sales Ranks, But Samsung Leads

Smart phones are the focus of most attention paid to supplier trends and consumer preferences, even though feature phones continue to represent a significant number of new sales. 

Looking at all phone sales, sales volume is not a Samsung-Apple battle, but includes Nokia and Huawei, on the strength of feature phone sales.

Are U.S. Mobile Prepaid Data Plans Really Out of Whack?

There is a recurring problem when comparing Internet access or mobile data costs across countries, beyond the obvious problem that all local prices are meaningful primarily in relation to other consumer goods in any particular country. In other words, wealthier countries are going to have higher prices for just about anything.  

The other problem is that when making a comparison of rates, one has to make a choice about what sorts of plans to compare. Prepaid mobile is the dominant way most end users in the world buy their service. But that is not the way most people buy service in most parts of North America, with the exception of Central America, where prepaid is dominant.  

In terms of “actual” prices, prepaid prepaid mobile data data plans in the United States are among the highest in the world, an International Telecommunication Union study suggests.

The average prepaid U.S. phone plan with 500 MB of data costs $85 in the United States, compared to $24.10 in China and $8.80 in the U.K., in terms of U.S. dollar Purchasing-power Parity (PPP).

Whether those findings are correct, some will contest. The issue is that most people do not buy prepaid plans in the United States. And the new Target brightspot service, for example, costs just $50 a month, and comes with unlimited domestic voice, text messaging and mobile data access, with 1 Gb of data access on T-Mobile US 4G networks (HSPA+ and Long Term Evolution), the balance on T-Mobile's 3G data network.

Beyond that, one might question which U.S. prepaid data plans were chosen for analysis, as some of us would have a tough time finding prepaid plans with charges that high, even if the selected plans were those available only to consumers with no credit history and no banking relationships.

According to the analysis, the cheapest countries around the world to pick up a prepaid phone plan with data are India, Indonesia, Germany, Italy and the U.K, where $10 plans (PPP) cost $85 in the United States.

That aside, the more important insight is simply that prices make sense mostly within the context of all other goods and services in a single country.

Even if you accept the logic that the prepaid data plans are high, and ignoring the fact that most consumers do not buy those plans, that $85 phone plan is just 2.1 percent of the Gross National Income in the United States, whereas in Botswana the cost of a prepaid mobile data plan  is nine percent of GNI, and in Morocco is 20 percent of GNI.

Using even the ITU data for mobile prepaid (and that is not the best way to look at U.S. mobile data plans, since most people do not buy prepaid) U.S. prepaid prices are comparable to Canada, Mexico, most all of Europe and Russia, one might argue.

NTT DoCoMo Sees Record Monthly Drop in Subscriptions

NTT DoCoMo reported a "record" drop in net subscriber additions, losing 66,800 accounts in September 2013. On the other hand, keeping matters in perspective,  DoCoMo's market share drop since 2008 has been from 50 percent to 46 percent. 

The figures might be slightly different if considering only 3G market share. 

Some might have expected losses to abate, as September also was the first month DoCoMo had the ability to sell the Apple iPhone. But NTT says it did not have enough devices in stock to meet customer demand. 


DoCoMo said subscriptions dropped by 66,800 in September, in stark contrast to rivals KDDI and SoftBank. 

73% of 4G Retail Price Plans Have Dropped

Mobile data plan retail prices have been dropping, in many countries, since early 2013, according to ABI Research.

ABI Research now has found that Long Term Evolution 4G network tariffs also are falling, either in actual posted prices or as measured by “cost per bit.”

Comparing mobile Internet access pricing between the second quarter of 2012 and fourth quarter of 2012, 73 percent of countries surveyed have reduced the “effective cost” of their 4G tariffs to a significant degree.

The effective cost, measured in terms of “dollar per Gigabyte,” has dropped by 30 percent. In the U.S. market, service providers generally have maintained retail prices, but  introduced larger data quotas.

In Australia, Sweden, Japan, and Saudi Arabia the operators lowered the monthly fee but have kept data quotas unchanged.

That state of affairs poses questions, such as whether mobile service providers actually will be able to drive higher revenue, in the near term, from LTE access services.

“ABI Research is concerned that a number of operators have introduced 4G pricing plans at the same, or even lower, price points than 3G,” stated Jake Saunders, VP for forecasting. “In Norway, Telenor has introduced 4G tariffs that are cheaper than 3G.

At least so far, it appears that some retail pricing plans, such as the “shared data plans” available from Verizon Wireless and AT&T Wireless in the U.S. market, have provided revenue lift.

Verizon’s “Share Everything Plans” arguably helped Verizon achieve a net increase of 2.2 million subscribers in the fourth quarter of 2012, as well as a boost in service revenues by 8.5 percent.

But that is an inference, since lots of other factors are at work, ranging from Verizon’s 4G coverage, reputation for quality and the fact that Verizon has been gaining share rather steadily over the past few years.

When looking at tariffs in the “cheapest 20” markets between the third quarter of 2013 and third quarter of 2012, ABI Research found that the average mobile Internet price dropped by 17.7 percent.

Also, ABI Research estimates that 38 percent of the lowest priced data plans worldwide are 4G tariffs compared to 21 percent a year ago.

Of course, as often is the case for communication services, lower prices spur usage and revenue growth.

While mobile data pricing is on the decline, data revenue has grown because more people are accessing the Internet from smart phones.

Total data revenue will reach $400 billion in 2013 with a year over year increase of 13.4 percent, and is forecast to grow to $527 billion, accounting for 47 percent of global mobile service revenue in 2018.

At the same time, many service providers in developed markets are shifting revenue growth strategies directly to mobile data, and away from voice and texting, often by offering free in-country calling and text messaging.

Multi-device shared data plans represented just six percent of tariff plans, but its share jumped 20 percent, quarter over quarter, ABI Research says. Most common are tiered consumption plans, where pricing varies on the amount of traffic consumed, at about 66 percent of all plans.

India offered the lowest priced plan in ABI Research’s Mobile Internet Pricing study of fourth quarter 2012 prices, and the most-affordable mobile data plans decreased 29.4 percent year-over-year, compared to fourth quarter of 2011, ABI Research has said.