How Much Difference Will LTE Make in U.K. Market?

U.K. consumers increasingly are using mobile devices to connect to the Internet, but as is the case elsewhere, increasingly they also are using Wi-Fi to do so. In fact, some studies suggest as much as 80 percent of U.K. Internet access using a mobile handset uses a Wi-Fi connection for access.

That could have important implications for fourth generation network Long Term Evolution demand. If 80 percent of Internet access is at home, on a Wi-Fi network, what is the value of out of home 4G access?

Even if 4G access provides a better experience than 3G, what is the value of better experience 20 percent of the time, especially if the out of home use is mostly for applications that do not necessarily require or benefit much from the faster speed?

According to the Oxford Internet Institute, 57 percent of web users in Great Britain will access the Internet using a mobile device in 2013.

Some observers including eMarketer, think the increased availability of 4G access will change consumer behavior. Others might be so sure.

Is Nokia a Metaphor for European Mobile Business?

Is Nokia in some ways a metaphor for Europe’s mobile industry? On the supply side, what I mean by that is simply that Nokia had such a great understanding and leadership of the feature phone market that it could not shift to the different smart phone market.

On the demand side, it might be argued that consumer preferences in Europe and the United States simply are different. Nokia had such a lead in many markets because Nokia supplied what consumers wanted.

In that sense, are we at a point where European consumer demand for 4G services actually is limited, in the way demand for 3G once was limited, irrespective of supply?

In other words, though regulators and mobile service providers alike seem to agree more can be done to stimulate deployment of 4G Long Term Evolution networks in Europe, one wonders whether consumer preferences create barriers in that regard.

U.S. consumers use five times more voice minutes and nearly twice as much data as European consumers on a monthly basis. But Stéphane Téral, Infonetics Research principal analyst notes that mobile broadband is the revenue growth driver, even if European consumers seem to prefer to spend less on mobile Internet access than U.S. consumers prefer.

On the other hand, the question might be whether, at the moment, 3G is viewed by consumers as satisfactory. In the absence of a 4G alternative, it is hard to know for sure.

LTE broadband is growing the fastest of any mobile services category, Téral says. That might be why AT&T sees European expansion as potentially lucrative, and why regulators want faster 4G network deployment.

U.S. consumers might be more engaged with Internet apps than consumers in Europe might be, and use and value mobile broadband and fast data access more than European consumers do, at least for the moment.

That is not a matter of “ahead or behind,” but simply of “difference.” And demand can change.

As U.S. consumers once valued mobile phones and text messaging less than Europeans, that eventually changed. European demand for LTE 4G could change as well. The issue, for some, might be “when” demand changes.

To be sure, a lag in LTE is viewed as a problem. In May 2013, GSMA issued a report arguing Europe was “falling behind” the United States in next generation mobile deployment. Ignoring for the moment past claims of that sort that had the United States lagging Europe, which only suggests markets change, the GSMA worries about fourth generation network in Europe.

On average, U.S. consumers spend more each month than their EU counterparts and use mobile services much more intensely, consuming five times more voice minutes and nearly twice as much data.

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

One expression of the problem is that mobile Internet access revenue in Europe is not growing fast enough to offset losses of voice revenue, though some hope the decline can be arrested.

But why that is the case is the strategic issue, with respect to 4G investment. Perhaps mobile data consumption is not growing as fast because that is what consumers prefer, and not because the networks are limited in some way. If that is the case, building 4G will only cause more financial losses.

And it might be hard to dismiss the argument that consumers are being careful about paying more for mobile service because of current economic conditions, suggesting a slower introduction of LTE is not as big a problem as the level of consumer demand.

Mobile accounts continue to shrink in Spain, for example, a problem that some hoped had reached an end in May 2013, when accounts actually grew after 10 months of decline. But June 2013 showed another drop.

Spanish mobile accounts in service were 51.9 million at the end of June 2013, down 4.9 percent from 54.6 million for the same month of 2012. With the exception of acquisition-aided growth, every mobile operator lost customers.

Movistar, Spain’s biggest mobile operator, lost 102,000 lines during the month, Vodafone lost 90,000, and Yoigo lost 121,900 lines. Orange gained 41,000 based on acquired firm Simyo.

source: Analysys Mason

                     

         EU27: Average Revenue Per User (ARPU) 2007-2010

How Big a Problem are Smart Phone Device Subsidies?

Device subsidies are an issue for mobile service providers, as they are a drag on earnings, but device subsidies might not as big a problem as being viewed as a commodity provider of dumb pipe access.

Some argue mobile service providers would be better off not subsidizing devices at all. Others might agree in principle, but note that the device subsidies reduce a key barrier to end user adoption of more-capable devices that drive mobile Internet access revenue.

So mobile service providers might be said to face a “lesser of two evils” problem. Not subsidizing smart phones would improve operating results, but at the risk of slower adoption of mobile devices benefiting from mobile Internet access plans that now drive revenue growth.

And that is why, problem or not, mobile service providers face significant challenges getting “out of the device subsidy business.” Device subsidies or installment plans are a problem, but probably a lesser problem than jeopardizing demand for mobile Internet access.

There are other imponderables as well. Historically, it has been very difficult to create a positive brand image for a service provider. Consider, by way of comparison, the intense or at least significant importance of brand affiliation for personal care products, clothing, automobiles or other “personal” products.

You might argue that the smart phone is the first tangible expression, in the history of the telecommunications business, of an attribute of the communications experience that is truly “personal.” The problem is that the affiliation still is with a device, not with the actual “access service” or the provider of the access service, necessarily.

In getting out of the device business, service providers might forfeit even more distinctiveness in the market, shift end user affiliation even further in the direction of emotional bonding with the device, not the access provider brand, and have less leverage over consumer accounts.

So, yes, the cost of financing handsets is a “problem,” but it might well be less a problem than becoming more of a dumb pipe supplier of access than mobile service providers already face.

“Mobile carriers are subsidizing handsets, but not reaping the return on investment as over the top service providers take revenue share,” says ABI Research. That is true, but is true of the business, in some parts of the world, not a particular function of the device subsidies or installment plans.

That might be true even if a device subsidy is the single largest cost for a carrier over the lifetime of a subscriber’s contract. ABI Research argues that 68 percent of the revenue derived from a typical 24 month contract has to cover the cost of the device.

Some might quibble with the precise figure, but the point is that a device subsidy or installment plan does represent a significant part of the cost of customer account over a two-year period.

Some might argue the mobile cost of service is high “because of the subsidies.” Others might disagree. The posted retail prices in any country are hard to compare directly. What makes more sense is the affordability or cost of mobile service in terms of local purchasing power or income.

In fact, some might argue the price of mobile service in the United States is among the lowest in the world, expressed as a percent of personal income.

One might argue that is a good reason for improving the transparency of the device purchase. But one might also argue that mobile service providers already are doing so, creating installment plans that separate device acquisition from recurring service cost, for example.

U.S. Mobile Service Prices Actually are Quite Low

Comparing retail prices for anything across countries is difficult, largely because income and costs for anything are different across countries. For that reason, some believe the better gauge is not actual prices for anything, but the price as a percentage of income and costs in any single country.

The bottom line is that where a U.S. mobile service customer might represent a percent or two percent of income, in many countries in the Americas mobile service costs five percent to 15 percent of income, and the same situation prevails in many of the Pacific Islands, for example.

Beyond that, there are lots of other issues that make such determinations complicated. Light users will spend less than heavy users, prepaid users might pay less than postpaid users. Feature phone users might pay less than smart phone users. Users on shared service plans might pay less, per user, than single-person accounts.

Structural or Cyclical Problems?

One good reason for studying and understanding economics is that it can concentrate the mind and alleviate any tendencies to think “one side or the other” is evil and incompetent, as so much of U.S. political discourse would illustrate.

And with the caveat that long-term trends are difficult to discern without lots of data, collected over long periods of time (I am sitting at 5,278 feet, in an area that once was an inland sea), a rational person might at least hold open for discussion the notion that something “big” has changed, regarding the U.S. economy.

Look at the history of labor force participation rates (recessions marked by gray columns). The data might suggest there is something structural going on. And that is a tougher problem than a shorter-term cyclical problem.

If you care about people being able to find jobs, this is a big problem.

Australia to Study Impact of Broadband: Issue Really is Cost, Timing

The Australian government will conduct an independent cost-benefit analysis of the National Broadband Network and a review of the regulations relating to broadband, as new questions about the cost of the fiber-to-home network has come into question. 

The more-abstract study of economic benefits of faster broadband is almost beside the point. It is not likely any truly-useful predictions can be made about the economic impact of various speeds and network architectures.

The more-important conclusions are likely going to be the projected cost of fiber-to-home versus fiber-to-neighborhood network architectures, speed to market and projected growth of consumer demand for higher speeds that would justify spending more, immediately, on one access method versus the other. 

The Australian National Broadband Network has been unable to meet its planned construction targets, and the government now questions the cost, as well. 

The change to a less fiber-intensive network is said to represent a final cost of A$20.4 billion (US$18.4 billion), well below the A$38 billion ($33.8 billion) originally stimated for the fiber to home plan, and far less than the $94 billion critics now say the former network would cost.

Some critics estimate that the Australian National Broadband Network (NBN) will cost A$94 billion dollars, not the A$44 billion its supporters have claimed. At least in part, that is because

of delays of several types and overly-optimistic assumptions.

The original business plan assumes wholesale revenue will start at $22 per month and then climb to $62 by 2020 or 2021 when the NBN is finished. That is growth of nine percent a year beyond inflation. 

Other major ISPs might say average prices for Internet access do not climb more than nine percent a year.

So critics say revenue projections are wildly overestimated.

What study of the benefits of broadband access has ever found anything but "it is a good thing?" The choice in this case is between faster networks and slower networks, not so much between the "fastest network" and a "fast network."

The problem is that the Internet is an ecosystem. So upgrading access speeds on one end of a connection delivers only so much benefit, if the rest of the ecosystem is not upgraded for those speeds, at the same time. And, of course, that never happens. Change comes incrementally.

Still, some would argue it is better to "waste" bandwidth and capital by moving immediately to fiber-to-home architectures. Others would say the immediate benefits, for consumers, businesses and the economy, would not be so much greater for fiber to home that the extra time and capital should be invested.

What probably will happen is that a mix of technologies will be used, as originally was planned. Satellite will continue to be used in rural areas. Fiber to home will continue to be used where it is feasible. But a greater percentage of locations might use fiber to the neighborhood.

It never was envisioned that fiber to home would be the architecture for all areas.

Do Phablets Cannibalize Tablet Sales?

The Samsung Galaxy Note was the first successful “phablet” (a smart phone with a big screen). Notably, though Flurry suggests about seven percent of devices globally are phablets, in South Korea the percentage of phablets is 41 percent.

Also notably, the use of phablets seems to depress adoption of tablets. Globally, 19 percent of the devices tracked by Flurry are tablets, compared to only five percent  in South Korea.

That might suggest that phablets cannibalize some amount of tablet demand.

Even as growth in its domestic market has slowed, Samsung continues to dominate the South Korean connected device market. It had a 60 percent share of a random sample of devices tracked by Flurry in South Korea that run iOS or Android apps.

Between them, two other South Korean device manufacturers, LG and Pantech, had another 25 percent of the market, meaning that the vast majority of the smartphones and tablets being used in South Korea (85 percent) are manufactured in South Korea.

That dominance of local manufacturers is unique in the world, so there is room to disagree about whether the phablet trend will reach similar levels, or whether tablet demand also will be affected in the same way.

Canadian Lawmakers to Introduce "A La Carte" Plan

With the caveat that lots of bills get introduced into national legislatures, with no chance of enactment, Canadian Parliament legislation to mandate a la carte retail packaging of video entertainment channels appears headed for introduction.

The legislation would mandate that video service providers provide a la carte video options for consumers of cable and satellite TV services.

The Canadian Radio-television and Telecommunications Commission already in 2011 had urged cable and satellite companies to adopt the a la carte pricing model.

If the legislation passes--there is no certainty about passage--it would provide a test of the economics of such unbundling, as well as a test of consumer appetite, that would certainly have at least some repercussions in the U.S. market as well. 

Nobody can be sure precisely what would happen to service provider and content provider revenues is such a change were to be made. 

There is a huge disconnect between consumer and content owner or service provider expectations about what a TV channel should cost, if it were possible to buy channels one by one. Consumers think they will save money; distributors and content owners are just as certain they would not save money.

A study by PricewaterhouseCoopers indicates that 44 percent of consumers would like a the ability to buy all their channels one at a time.

But it is not clear that the economics of the video subscription business can match consumer expectations about the retail price of a single channel. 

The expected pricing “per channel” is where the biggest disconnect exists. About 16 percent of respondents say they would not pay more than 99 cents a month for a channel. Some 24 percent will pay $1.99 and 22 percent will pay $2.99.

Studies by the Federal Communications Commission seem to have concluded that unbundling could save money, or wouldn't save money, depending on how many channels a consumer buys under an a la carte regime, compared to what they buy now.

One of the studies suggested “consumers that purchase at least nine networks would likely face an increase in their monthly bills" when buying a la carte.

Likewise, one of the FCC studies suggested bill increases ranging from 14 percent to 30 percent under a la carte, while the other suggests a consumer purchasing 11 cable channels would face a change of bill ranging from a 13 percent decrease to a four percent increase, with a decrease in three out of four cases.

The point is that it is very hard to tell, conclusively, what might happen if providers shifted to a la carte viewing.

When multichannel video distributors say a bundled approach creates economics that favor smaller, niche networks to thrive, they are right, economists might say.

Deprived of carriage on a broad "enhanced basic" tier, perhaps 60 percent of networks might find themselves immediately imperiled, as going concerns, some would estimate.

LTE a 'Huge Opportunity' in Europe?

AT&T CEO Randall Stephenson sees a "huge opportunity for somebody" in Europe to invest in mobile broadband, presumably given the relatively slow availability and uptake of Long Term Evolution in Europe, compared to the United States.

As do many other observers, though, Stephenson said spectrum policy adjustments were important, to realize greater benefits. Those changes range from longer spectrum license terms to harmonized spectrum plans. 


Up to this point, 3G has proven to be the mainstary for European mobile Internet access. 

Netflix Move Complicates "Internet TVs"

Netflix now is an app available to consumers who subscribe to Virgin Media cable TV services. And Netflix is said to be seeking similar deals with U.S. cable operators. At one level, the move simply would provide such cable customers more convenience when viewing Netflix on their TVs, turning the cable decoder into an Internet access device. 

At another level, Netflix becomes, if not a "cable channel," then at least a way to create more incentives for those video customers to buy faster broadband connections, and could provide another library of potential programming, as when a temporary programming dispute disrupts programming from one or more channels. 

The new capability, should a deal be worked out, also adds more value to a cable decoder, which otherwise remains largely a tuner and access control box. 

Such a deal also could affect end user appetite for "Internet TVs," as the use of the cable decoder in this way would enhance the experience of displaying Internet-sourced content for viewing on a digital, but not Internet-connected TV, much as an Internet-capable game player already provides such value. 

Though many cable operators might continue to worry about whether such a deal is the first step to Netflix becoming a bigger competitor, others might argue that trend is coming, in any case, and this approach at least makes it easy for cable video subscribers to use Netflix conveniently, as part of their video subscription. 

Dumb Networks, Smart Networks and SDN

It has been some time since there was any significant debate about whether next generation networks should be dumb or smart. 

The essence of the debate was whether it was better to create a flexible network, able to create and deliver new services very rapidly, using a network where control was at the edges, or whether it was better to embed intelligence in the network "in the core," some might have argued. 

As always, the debate was somewhat "religious." Also, as often happens, the debate has been superseded. The current thinking is that networks should operate in a way not envisioned when the earlier debates were happening.

Software defined networks, the new rage, retains the smart network, in the sense of control. But SDN also abstracts that control from the network. In essence, SDN is a smart network but with flexibility gained from an essentially "dumb" transport network. 

Intelligence is not so much "in the core" of the network, but at centralized points. The point is somewhat subtle. In the past, intelligence in the core meant that control was embodied in switches, routers or signaling points scattered throughout the network.

SDN centralizes control, but not using the embedded control points scattered throughout the network. Also, intelligent devices continue to operate in the network, but with their functions controlled from an essentially external and centralized controller.

The central idea is to abstract the network such that the operator can program services instead of creating static network overlays for every new service. 

All network services are moved from the network to data centers as applications on commodity or specialized hardware, depending on performance. The hoped-for advantage is a reduction of time to market from years to hours.

So the older debate about "smart or dumb networks" has in essence been transcended. Networks can be smart, but also transparent. Using SDN, the answer to "smart or dumb" is "both."

PayPal Beacon: Zero Touch Retail Payments

Much of the promise of retail mobile payment systems revolves around changing the checkout experience in some significant way.  As PayPal sees matters, better than swiping a credit card or debit card is a way to walk in a store, and, when you’re ready to pay, money is transferred securely and automatically.

PayPal Beacon is PayPal's answer for how this can be done. Beacon is an add-on technology for merchants that will enable consumers to pay at their favorite stores completely hands-free. 

Basically, users will check in when entering a store. Consumers will have a choice of setting that prompt them to confirm payment, or automatically pay.

The system still is under testing, and not yet a commercially-launched product. 



In the latter case, simply walking in a store will trigger a vibration or sound to confirm a successful check in. 

The buyer's photo appears on the screen of the Point-of-Sale system and the transaction is completed by verbal confirmation. Funds are deducted automatically from the user PayPal account. 

Any store running point of sale systems compatible with PayPal, including Booker, Erply, Leaf, Leapset, Micros, NCR, PayPal Here, Revel, ShopKeep, TouchBistro and Vend can enable the system by plugging a PayPal Beacon device in a power outlet in their store. 

Mobile Service Providers Now are ISPs, Voice and Texting are Features

AT&T has changed its retail packaging in a significant way, now requiring that all new customers buy shared data plans, though existing customers have the option of remaining on their current plans, even when upgrading to a new device carried on the existing plan.

The change begins for all new customers signing up on Oct. 25, 2013. To be sure, shared data plans, where the major variable cost is the size of the shared bucket of data usage, with flat fees for voice and texting and then a per-device charge, have become the most-popular AT&T retail plans. 

Verizon Wireless also requires new customers to buy a shared data plan, but unlike AT&T Wireless requires existing customers on legacy plans to adopt a shared data plan when upgrading a device. 

AT&T and Verizon Wireless believe the new plans provide more protection from customer churn, and also encourages users to add their tablet devices to existing service accounts, since the incremental cost per tablet is $10 a month.

By making data services the key variable component of end user cost, and typically the biggest driver of gross revenue, the shared data plans illustrate the shift of revenue sources in the U.S. mobile business to Internet access revenues.

In a very real sense, mobile service providers increasingly earn most of their gross revenue from operating as Internet service providers, since voice and text messaging services are bundled in with the data access bucket.

In other words, mobile voice and text messaging now are features of a mobile ISP plan.