TV White Spaces Business Model an Issue for CIO Group

For nearly all speakers at the Dynamic Spectrum Alliance Global Summit in Bangkok--but not all--there was not any doubt that TV white spaces and other new spectrum sources “should” be released for commercial use to support rural broadband access, ISP backhaul, machine to machine services, mobile operator or fixed operator small cell services, campus networks or additional local Wi-Fi distribution.

George Kintanar, chairman of the Philippines-based Chief Information Officers Forum, a group representing government technology chiefs, was a notable agnostic (naysayer, doubter or skeptic are too strong to describe his position).

It isn’t that Kintanar is opposed to release of more spectrum, especially TV white spaces, for commercial deployment. In fact, the CIO Forum is looking at the issue now.

And, as you might guess, he has the perspective of an end user when evaluating TV white spaces technology.

As an “enterprise user,” he wants a sustainable technology that will attract new service providers who will be around for the long term.

In other words, the last thing he wants to back is a technology that fails to become sustainable, since non-sustainable communications solutions, by definition, are too risky for enterprise buyers.

So the issue for potential enterprise and government buyers is whether enabling use of TV white spaces spectrum will be good for buyers of communication services, over time, or is exposed to the risk of failure. WiMAX might provide one example.

The risk could take any number of forms, including the danger that investors will not see a path to investment returns, meaning networks taking advantage of TV white spaces will not be built, or if built, will not remain in operation.

A related problem are sustainable business models offering the prospect of permanence, stability and further development over time.

The fact that some brand TV white spaces as “super Wi-Fi” suggests the concern. To the extent that TV white spaces winds up as a sort of “commons” approach to spectrum use, as Wi-Fi represents, Kintanar likely voices the concerns of many enterprise and governmental users of communication services.

If access to the spectrum is “without cost,” what is the incentive for new suppliers to create access services (new ways for enterprise and government buyers to source connections to the Internet and communication services, as opposed to “mere” local distribution within a building from an existing network access service?

In other words, Kintanar wants to see evidence of sustainable value for both buyers and providers, as that is the only way TV white spaces will thrive, long term.

But Kintanar’s concerns are so pronounced for one specific reason. “We want new entrants,” Kintanar says.

In part, that means new providers, presumably ISPs of some sort, will have to create value and satisfactory revenue models, while competing with the incumbent ISPs.

At least some other attendees thought that would be a key long term challenge. “The rule of three” suggests, in the end, only a few providers will be able to survive, or represent 80 percent or more of the revenue generated by providing those new services, one attendee suggested.

That seems to lie at the heart of Kintanar’s concern, as well. “Is there a business model?” he asked. For some, it is self evident a business model will be found. Kintanar, at least for the moment, wants more proof.

Apple Average Selling Price More than Double the Average of Android Prices

Apple always has occupied the "premium device, premium price" segment of most markets it has tackled. 

The smart phone market is not different, as the latest IDC data shows Apple smart phones selling for average prices more than double that of Android. 

Smartphone average selling prices declined 12.5 percent in the third quarter of 2013, accounting for an average price of $317, largely driven by demand for lower-cost smart phones globally.

At the same time, the market has seen a large influx of large-screen smartphones sporting five-inch to seven-inch screens, which tends to boost average selling prices. 

Phablet ASPs in the third quarter of 2013 were notably higher than the market average of smart phones at $443. 

Still, phablet average selling prices declined 22.8 percent in the third quarter of 2013, comparted to the $573 phablet seen in the third quarter of 2012.

FCC and CTIA Largely In Agreement About Device Unlocking

Among the first actions new Federal Communications Commission Chairman Tom Wheeter is taking is to reemphasize the Commission’s desire for clear service provider policies and practices related to device unlocking, at least once a subscriber has ended a service agrreement.

Wheeler, in a letter to the CTIA, reiterated the Commission’s position on how device unlocking should work.

Policies should be clear, concise, and readily accessible to consumers, Wheeler said. Devices should be  unlocked when a service contract or installment plan has reached its end.

Service providers also must notify customers when their devicesare eligible for unlocking, or automatically unlock devices when eligible, without an additional fee.

Service providers also should  process unlocking requests or provide an explanation of denial within two business days.

Service providers also must unlock devices for military personnel upon deployment.

CTIA and the FCC seem to be in agreement on all but the item regarding consumer notification.

Wheeler notified the CTIA of his view that without the consumer being notified about unlocking eligibility, “any voluntary program would be a hollow shell.”

Cloud Computing Business Worth $188 Billion by 2022?

Amazon Web Services revenue could soar ten-fold between now and 2022 to more than $30 billion a year, according to projections by JPMorgan analyst Scott Devitt. 

The good news for other providers is that the whole market could be as large as $188 billion.

No Surprise: Owners of Internet-Connected TVs Like to Use Them

According to research from the Diffusion Group, more than half of consumers with a net-connected TV have increased their use of over-the-top broadband TV sources in the last year, with 24 percent reporting a sizeable increase.

That should not come as a surprise. People who buy connected TVs arguably are more interested in watching Internet-delivered television than consumers who do not buy Internet-capable TVs.

 

The only surprise might be that eight percent of surveyed owners of Internet-capable TVs said they watched less over the top content over the last 12 months, the study finds.

At the same time, like the air escaping from a tire with a slow leak, customers buying traditional video subscriptions continue to defect, albeit slowly. 

Nobody Makes Profits Selling Smart Phones, Save Apple and Samsung?

With the exception of Apple and Samsung, no mobile handset suppliers are making money, a study by Canaccord Genuity has found.

Apple and Samsung earned 109 percent of third quarter 2013 mobile phone profits, according to Canaccord Genuity analyst Mike Walkley.

Apple earned 56 percent of profits while Samsung earned 53 percent of profits (the figures include the impact of losses by other suppliers)

Other manufacturers such as BlackBerry, Nokia, LG, HTC and Motorola lost money, Walkley said.

The study, though, did not include data for Huawei, Lenovo, ZTE, and Coolpad, as data was not available for those firms.

B2B Brand Messaging Misfires With Buyers, McKinsey Finds

Business-to-business firms appear not only to be wasting time and money putting out messages about their brands, but also often emphasize what is not relevant to buyers, missing a chance to align brand messages with the values enterprise buyers of products actually care about, a study by McKinsey finds.

That there can be a disconnect between the messages suppliers put out and the importance of those messages on the part of business buyers might not strike you as unusual. What might be important is that the degree of mismatch is so wide, the study by McKinsey suggests.

Significantly, the study finds there is “a marked apparent divergence between the core messages companies communicate about their brands and the characteristics their customers value most.”

“Themes such as social responsibility, sustainability, and global reach” are common themes in much business-to-business messaging. Business buyers tune out those themes, and do not consider them highly relevant, the study suggests.

But two of the most important themes for customers, namely “effective supply chain management” and “specialist market knowledge” were among those least mentioned by B2B suppliers, McKinsey says.

In other words, what customers deem highly relevant in their evaluation of brands is not what suppliers are saying.

“Honest and open dialogue” is what customers considered most important, but was one of the three themes not emphasized at all by the 90 companies in the McKinsey study.

The study also showed “a surprising similarity among the brand themes that leading B2B companies emphasized.” In other words, instead of emphasizing distinctiveness, firms tended to say the same things as their major competitors.  

When every company says the same thing, it is hard to create distinctiveness and uniqueness.

The study was based on a review of publicly available documents of Fortune 500 and DAX 30 companies, as well as interviews with 700 enterprise buyers of products produced by those firms.

European Mobile Network Investment Has Fallen 67%

There's a reason European regulators are worried about next generation network investment. By some estimates, investment in mobile networks in Europe, since 2004, will have fallen 67 percent. 

The biggest challenge is lagging investment in Long Term Evolution, the next generation of mobile networks, according to the Boston Consulting Group.

Some will point out that the disparity is caused, in substantial part, by the experience European mobile service providers had when they invested heavily in 3G spectrum and networks, only to discover that the generated revenue did not match the investment costs. 

There is little doubt that European 4G investment lags levels seen in the United States and Japan. 

European LTE spending, on a per-subscriber basis, is half that of the United States and of Japan, BCG says. 

That accounts for LTE adoption that is less than one percent of mobile connections in Europe at year-end 2012, compared with 11 percent in the United States and 28 percent for South Korea. 

In fact, it would not be wrong to say most of the world's LTE subscribers are in just three countries: the United States, South Korea and Japan. 

The situation is not much better for fiber access, according to David Dean, Boston Consulting Group senior partner and Alan Marcus, BCG senior director.

Service providers say policies designed to promote competition, especially promoting robust wholesale access on incumbent networks for third party competitors, has succeeded. But the cost of that success is a vastly-reduced climate for new investment, so long as the robust wholesale requiresments are maintained. 

Sprint Needs Lower Frequeny Spectrum More than a Modest Amount of 1900 MHz Spectrum

Spectrum to support mobile services has generally become more valuable since the advent of the mobile Internet era. So it is somewhat surprising when any U.S. mobile service provider decides not to bid on spectrum that can be used for Long Term Evolution services.

But that is what Sprint has decided to do about 10 MHz of 1900 MHz “H Block” spectrum adjacent to existing Sprint holdings.

Sprint had widely been expected to be the sole serious bidder, but the move seems linked to broader interest in the upcoming 600 MHz auctions of reclaimed TV broadcast spectrum.

"Sprint is focused on gaining access to more low band spectrum to add to the company's spectrum portfolio, so we have opted not to participate in the upcoming H Block auction,” Sprint said.

Compared to AT&T and Verizon Wireless, Sprint owns relatively small allocations of lower-frequency spectrum. That matters for rural coverage, since lower frequency signals travel further than higher spectrum signals.

AT&T and Verizon own most of the 700 MHz and 850 MHz spectrum in the U.S. mobile market,  while the Sprint's and T-Mobile US networks primarily use the 1700 MHz, 1900 MHz, and 2100 MHz frequencies.

The basic implication is that AT&T and Verizon will tend to have better coverage, while Sprint and T-Mobile US will tend to have higher bandwidth, all other things being equal.

Amazon Web Services Bigger than All the Rest of Amazon?

Amazon Web Services Senior Vice President Andy Jassy said that CEO and Founder Jeff Bezos believes AWS could be the company’s largest business. That revenues from selling cloud computing infrastructure could be bigger than Amazon’s original e-commerce business is a startling notion.

If Amazon has total revenue in the $61 billion range, that gives you some idea of the potential revenue magnitude Amazon CEO Jeff Bezos believes is possible.

While a ringing endorsement of industry potential, that belief also indicates how tough it might be for other suppliers of cloud computing infrastructure to compete with Amazon.

According to the Yankee Group, cloud computing services might not be a $5 billion U.S. business, at the moment. assuming AWS mostly sells infrastructure as a service.

Forecasts by Forrester Research are comparable.

Separately, AWS also announced availability of Amazon WorkSpaces is a fully managed desktop computing service in the cloud, allowing customers to easily provision cloud-based desktops. That is significant because it moves Amazon into the software as a service segment of the cloud computing business, clearly the biggest revenue contributor.

Amazon Web Services argues that it can supply virtual desktop services at lower costs than competing solutions or traditional desktops.

SoftBank, Bell Mobility Join Global M2M Association

Selling mobile services to operators of sensor networks, services and applications widely is seen as among the best prospects for the next wave of revenue growth in the mobile business.

That is one reason why some have argued that mobile penetration eventually will reach 400 percent: “subscriptions” will be purchased for people to use, as well as by enterprises supplying services and apps that use mobile networks for communications.

Often seen as underpinning the “Internet of Things,” machine-to-machine services are viewed as an opportunity that will support users in multiple verticals and industries, ranging from health care, transportation and utilities to connected cars.

One sign of interest is that SoftBank Mobile and Bell Mobility have joined the Global M2M Association (GMA), which counts Deutsche Telekom, Orange, Telecom Italia and TeliaSonera among its initial members.

The collaboration of six leading operators in Europe, Asia and North America within the framework of the GMA enables the seamless delivery of advanced M2M services, allowing customers to deploy and effectively manage M2M solutions and innovations across the globe, the Global M2M Association says.

Established in February 2011, the Global M2M Association is based on a service cooperation agreement between Deutsche Telekom, Orange, Telecom Italia and TeliaSonera, “to deliver best-in-class, enhanced and seamless M2M services globally and to maximize the business benefits of customers,” the association says.

The participating parties expect the participating carriers will be able to offer customers enhanced quality of service, M2M roaming services and interoperability across a global footprint.  

"No Killer App" is a Key Service Provider Challenge for the Next Decade

The notion that "there is no killer app" has become a commonplace observation in much of the Internet access business, though some might argue that streamed video entertainment, in driving the bulk of data consumption, arguably has become the driver of access service revenue. 

But that lack of a killer app, in terms of revenue generation, is a problem for access providers facing the likelihood that the next wave of revenue will move way past voice, messaging and simple Internet access, to applications and value added services of various types.

Some would say that prospects are brightest in the mobile realm, in part because application use is migrating to mobile or at least untethered modes.

To put matters in the simplest terms, assume the global industry has to replace about half its current legacy revenue in a decade. That implies something on the order of $500 billion worth of new revenues must be created. 

Consider the connected car market, which might represent something like Eur5 billion in global access revenue in about five years. That's useful, but doesn't make much of a dent in a need of $500 billion. 

That implies access providers will have to either acquire a more significant role in the "services other than access" parts of the business, or will have to rely on many other sources to reach the grand total of $500 billion. 

Will Fourth Wave Telco Services Be Big Enough to Offset Legacy Revenue Decline?

Sometimes market share can change for "not so good" reasons, such as the collapse of a former robust revenue model. That is the case for the U.S, newspaper and magazine industry, which has seen its revenue collapse from perhaps $70 billion in 2004 to about $40 billion in 2013.

Google has grown, to be sure, but its market share has grown principally because the other suppliers have shrunk so much. 

U.S. fixed network telcos faced revenue problems at least that great over the same period. The difference was that new revenue sources  (mobile services, broadband access, video entertainment) were available. 

All of that points out the crucial need for telcos to find the next waves of revenue, beyond mobile subscriptions (developing markets) and mobile broadband, the current growth driver in developed markets. 

And those new markets and services will have to be very big, on the collective order of hundreds of billions of dollars, on a global business, to offset what some expect will be a decline of about 50 percent in legacy telecom revenue over a decade.


Already, for example, Orange revenue growth is lead by Internet and business customer sources.

The issue is the degree to which the next wave of services can compensate for the core revenue sources at present. The industry has done so before, particularly as mobile revenues more than compensated for the loss of long distance and then access line revenues. 

But that points to the magnitude of the challenge. Something as big as mobile telephony is needed. 

Orange 2011 Revenue Growth Contributors

U.S. Telcos Have Lost 62% of Voice Lines

From 2000 to year-end 2013, telcos will have lost nearly 62 percent of all traditional phone lines and 70 percent of traditional residential voice lines, USTelecom says.

For the twelve-month period from mid-2011 through mid-2012, residential and business consumers dropped 10.1 million ILEC switched voice lines, a twelve-month decline of 10.7 percent, according to Federal Communications Commission data..

From 2000 to mid-2012, the number of ILEC switched lines fell from 186 million to 84 million, or a decline of 55 percent. Straight-line trends suggest ILECs will have lost approximately 62 percent of these lines by the end of this year, according to the USTelecom.

Telco switched line losses have been greatest in the residential market, where the annual rate of decline from mid-2011 to mid-2012 was 13.6 percent, USTelecom says.

In 2000, some 120 million consumer voice lines were in service. As of mid-2012, there were approximately 45 million consumer telco lines being purchased, a decline of 63 percent.

And though it sometimes escapes attention, U.S. cable TV providers now have about 53 percent share of the video market.

Telcos will have lost around 70 percent of their former customers by the end of 2013, USTelecom notes, when about 25 percent of U.S. households will buy fixed network voice service from telcos.

Total Subscribers Reported (Millions)

Fixed Broadband	90.0
Wireline	38.4
Wireline NonFiber	32.1
Fiber to the Premises	6.3
Cable Modem	49.7
Satellite & Fixed Wireless	1.9
Mobile Broadband	153.4
Total Mobile + Fixed	243.4

Residential Subscribers Reported (Millions)

Fixed Broadband	82.2
Wireline	33.6
Wireline NonFiber	27.7
Fiber to the Premises	5.9
Cable Modem	47.0
Satellite & Fixed Wireless	1.6
Mobile Broadband	114.5
Total Mobile + Fixed	196.7

T-Mobile US to Sell $2 Billion in New Shares to Buy Spectrum

T-Mobile US hopes to sellas many as 72.8 million shares shares of common stock, expected to raise about $2 billion, which T Mobile US then wants to use to acquire additional spectrum.

Sprint has just over 200 MHz of spectrum across the United States. Verizon Wireless has about 128 MHz, AT&T has about 107 MHz and T-Mobile US has about 76 MHz, depending on how one counts.

Not the maximum amount of spectrum owned by each carrier actually is available in every market, for example. That means the actual amount of capacity in a major market can vary. 

Table 2: Population-Weighted Average Spectrum Holdings of National U.S. Mobile Operators, MHz
Licensee	Average Spectrum Holdings, MHz
Verizon Wireless	107.3
AT&T Mobility	128.3
Sprint Nextel	53
T-Mobile	57 (66.2)
Sprint/SoftBank with Clearwire	184.5
Sprint/Dish with Clearwire	224.5