Is U.S. Mobile Market About to be Rearranged?

With shocking suddenness, U.S. service providers are preparing a key test of regulator willingness to rearrange U.S. service provider market share. The latest potential move has Sprint considering a possible bid to buy rival T-Mobile US, a merger that will test regulator and antitrust authority thinking about sustainable market structure in the mobile business.

Separately, cable companies are circling Time Warner Cable, the second-biggest U.S. cable operator. And while an initial bid by Charter Communications likely would not raise undue regulatory issues, a bid by Comcast, the biggest U.S. cable company, clearly would do so.

Though earlier Federal Communications rules specifically prohibited any single U.S. cable company from serving more than 30 percent of U.S. cable TV customers, that rule was invalidated by U.S. courts.

But antitrust authorities are sure to consider a merger of the number one and number two cable companies--Comcast and Time Warner Cable--too big to ignore.

The potential Sprint merger with T-Mobile US also would face high hurdles. Antitrust requlators already had argued, when AT&T tried to buy T-Mobile USA, that the U.S. mobile market already was too concentrated.

Though a Sprint-T-Mobile US tie up would not have the market impact of the proposed AT&T merger with T-Mobile USA, the merger review still would occur under circumstances where the U.S. Justice Department already has deemed the market excessively concentrated.

The rival argument is that only if Sprint and T-Mobile US are combined would they be able to compete on a relatively even basis with the larger Verizon Wireless and AT&T Mobility.

Also an issue is the general regulator thinking that a minimum of four providers is required to sustain innovation and competition in a mobile market. That has been an issue for European regulators in 2013, for example.

Sprint, according to a  Wall Street Journal report, is studying regulatory concerns and could launch a bid in the first half of 2014.

A deal could be worth more than $20 billion, depending on the size of any stake in T-Mobile that Sprint tries to buy.

Whether such an acquisition always has been an explicit part of SoftBank’s thinking about strategy for the U.S. market is unclear.

But observers have been noting for some years that the market share gap between Verizon Wireless and AT&T Mobility, on one hand, and Sprint and T-Mobile US on the other hand, could not be closed easily any other way than by a merger of the two smaller companies.

If such a deal were to pass regulatory muster, it also would have implications for other would-be providers of Long Term Evolution Services in the U.S. market, as the gap between any new provider and the top three carriers would be formidable.

Dish Network is among the potential contenders who then would have a tough decision to make. But there also is the matter of Globalstar and LightSquared, for example.

Study Suggests Amazon Kindle Strategy Works

Amazon and Apple are mirror images in terms of how the roles content, transactions and devices play in their respective revenue models. Apple mostly cares about content because it helps Apple sell more devices.

Amazon mostly cares about devices because devices help Amazon sell more content and products.

A study by Consumer Intelligence Research Partners suggests Amazon’s sale of devices a bit above cost actually works.

CIRP conducted a survey of 300 Amazon.com customers over the three months leading up to Nov. 15, 2013,  and foundthat people who own Kindles spend more on Amazon than those who don’t own Kindles.

The size of the revenue difference is key. CIRP estimates that Kindle owners spend $1,233 per year on Amazon compared to $790 per year for Amazon shoppers who don’t own an Amazon e-reader or tablet.

Apparently, the pattern is that Kindle owners place many more small orders. If you assume that is because they are buying content, that makes sense.

It appears Jeff Bezos, Amazon CEO, was right. Kindles are sales platforms, and seeding the market by selling at only a bit above cost does stimulate sales at levels that justify the practice.

What Drives "UnCarrier" Success?

Is T-Mobile US success boosting its subscriber numbers between the second quarter of 2013 and the end of the third quarter of 2013 evidence of success with its "Uncarrier" marketing, bring your own device policies and "no contract" plans, or the right to sell the Apple iPhone? 

Some might argue it was the the Apple iPhone, which T-Mobile US began selling in 2013, which accounts for the subscriber gains. 

Not the sharp uptick between the end of the first quarter of 2013 and the end of the second quarter of 2013. 

Some likewise would say it was the exclusive right SoftBank had for a time to sell the Apple iPhone, starting in 2010,  that likewise fueled SoftBank's rapid gain in market share .

More recently, NTT Docomo blamed a quarterly subscriber loss on limited inventory of Apple iPhones.

The answer might matter. 

Perhaps the ability to sell the iPhone is what affected subscriber gains, not "no contract" plans or device installment plans. Perhaps it was the perception of "lower price" that mattered.

That's the problem when attributing gains to one policy, when several changed at once.

Is Utopia in Utah a Potential Investment Target for Google?

Is Google Fiber, now the owner of Provo, Utah’s municipal fiber access network, about to buy or invest in Utopia, the other municipal-owned fiber access network in Utah?

It appears that is at least possible, as officials  from the 11 municipal investors in Utopia recently have signed nondisclosure agreements with Utopia, in advance of revealing talks with a new investor said to be an “Internet giant.”

To be sure, talks might be possible with any number of “Internet giants,” Google Fiber likely is the logical potential entity interested in investing.

Utopia is a financially-challenged supplier of open access gigabit fiber to the home networks in Brigham City, Centerville, Layton, Lindon, Midvale, Murray, Orem, Payson, Tremonton

and West Valley City, Utah.

Utopia operates a wholesale network used by Beehive Broadband, Brigham-net, Dish Network, Fibernet, InfoWest, SumoFiber, Veracity Networks, Webwave and XMission.

How Important is Ownership of Mobile Access Assets?

Bharti Airtel, India's largest telecom company by market capitalization and revenues, has entered into an infrastructure sharing deal with the telecom arm of Reliance Industries.

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The deal will give Reliance Jio pan-India access to Bharti's nationwide tower and radio infrastructure while giving Bharti access to the optical fiber backhaul capacity created by Jio in the future.

In April of 2013, the two fierce competitors had signed an agreement under which Bharti provided capacity on its i2i submarine cable to Reliance Jio.

The companies said the deal preserves capital and avoids duplication of investment. Bharti will gain lease revenue while Reliance Jio gets to market faster.

Also, Reliance is building a fiber backhaul network at a time when Bharti has only about 10 percent of its tower locations connected by optical fiber.

It has been clear for some time that ownership of mobile cell sites is not necessarily “strategic” for a mobile service provider. Carriers often lease space on towers owned by third parties, sharing those sites with rivals.

In India and some markets in Africa, mobile service providers have agreed to share the cost of tower facilities. Some service providers outsource actual operations of their radio networks as well.

So it isn’t unusual anymore for a group of mobile operators to agree they will share tower site passive elements.

In another such example, mobile carriers Cellcom Israel Ltd., Pelephone Communications Ltd., and Golan Telecom Ltd. have agreed to build and operate a shared Long Term Evolution fourth generation radio network.

Cellcom and Pelephone also signed an agreement for the sharing of passive elements of cell sites for existing networks and an Indefeasible Right of Use (IRU) agreement with Golan Telecom for Cellcom's 2G and 3G networks.

The infrastructure sharing also might save Cellcom and Partner Communications as much as $57 million a year, according to an estimate of the brokerage unit of Ramat-Gan, Israel-based Excellence Nessuah Investment House.

What might be more unusual is cooperation in obtaining spectrum for the 4G network. Though the language is open to interpretation, and the sharing deals might require regulatory approval, it also appears the consortium will attempt to acquire common 4G spectrum as well.

That would be unprecedented, if it happens.

So the longer term issue is what else some mobile service providers might in the future decide is “strategic,” and must be owned, and what is increasingly tactical, and can be shared or outsourced.

Granted, spectrum is essential for a mobile operator. But it is not clear sole ownership of such spectrum is necessary. Under some conditions, mobile service providers might be better off reducing investment risk by jointly securing necessary spectrum.

That would a historically rather unprecedented development, but is possibly no different, in principle, from the practice of sharing backhaul, towers or radio infrastructure, or outsourcing the network operations and maintenance.

But such moves also would illustrate that the “unique core competence” for a mobile service provider might not necessarily lie in the actual full ownership of access assets, including spectrum.

The New Demand for Asymmetrical Networks

Oddly enough, though communication networks traditionally have been designed to support symmetrical bandwidth, and though fixed network access providers have tried to increase the return bandwidth performance of their networks, Sprint sees advantages in using an air interface (time division duplex) that can be configured asymmetrically.

Sprint CEO Dan Hesse noted that TDD allows a service provider to allocate maybe three or four times as much bandwidth to the downlink, compared to the uplink. As communication networks become dominated by entertainment content, that makes a big difference, as traffic flows start to look like functional content delivery networks (TV, radio, cable TV, satellite, web browsing).

Though communication networks still require symmetry of bandwidth, the huge proportion of bandwidth demand, not and in the future, will come from content delivery.

And though the outcome of 600 MHz auctions will not be known for some years, if Sprint only keeps pace with its major competitors (AT&T, Verizon, T-Mobile US), it will continue to own much more spectrum than any other mobile service provider.

Sprint says it will be able to support downstream speeds of perhaps 150 to 180 megabits per second at some point, by deploying its spectrum assets across three distinct bands, including spectrum reclaimed from the older 2G and 3G networks.

Sprint’s “Network Vision” project represents “a complete rip and replace of the entire network, all the 3G equipment coming out, every base station, all the backhaul, every switch, and in almost all cases the vendors changed as well,” according to Sprint CEO Dan Hesse, speaking at the UBS global media conference.

The scale of the network transformation project is something Hesse argues no other mobile carrier ever has attempted before, on this scale. But the upside for Sprint is clear enough.

One Way Google Fiber Has Changed Regulator Thinking

Google Fiber has, in one respect, changed the way service providers and regulators look at deployment of local access networks.

Traditionally, telecom and cable TV regulators have expected and demanded full coverage of all homes in a service territory.

What is different now is that regulators have embraced the notion that high-performance networks get deployed faster when they can be “spot deployed” in some neighborhoods first, with no regard for end user demand.

And Internet service providers increasingly are timing their new builds on a “fiberhood” basis, responding to demand from residents.

And some would say that is why AT&T thinks the economics of gigabit networks look better.

The business case, where demand for gigabit services can be proven, “is really strong,” according to AT&T, and not a case of “experimenting.”

In the past, such targeted deployment likely would have been viewed by regulators as “redlining.”

Instead, AT&T now believes it can deploy ubiquitous networks offering 45 Mbps, for example, and then spot build gigabit access on top of that, but only in neighborhoods where demand is high enough to warrant the extra investment.

Installment Plans are Similar to "Device Subsidies;" Service Provider Operating Income Impact is Quite Different

One might argue there is little difference between mobile device subsidies and offering consumer financing plans. That is likely more true from a consumer perspective than from a service provider perspective.  

Whether a consumer buys a device on an installment plan, or has the subsidy embedded in the recurring cost of service arguably is a matter of indifference, if the installment charge and the embedding of that cost is recovered over the term of a two-year contract.

But the difference could matter significantly for a service provider. Since few consumers willingly will pay outright for a $600 smartphone, it was necessary for service providers to lower the adoption barrier by bundling the device and the service.

"When you're growing the business initially, you have to do aggressive device subsidies to get people on the network," Randall Stephenson, AT&T CEO, has said. At 90 percent or higher adoption, the economics arguably change.

In the subsidized device model, the carrier actually buys the phone, not the end user, and then the service provider recovers the cost over the length of the contract. But that has a financial impact, hitting earnings.

In principle, if the customer buys the phone, but the carrier offers an installment plan, the device purchase no longer is carried on the mobile service provider’s books, but can be recorded as a device sale.

Reducing the earnings drag devices represent will become more pressing when data revenue growth tied to smartphone adoption reaches saturation.

It isn’t the first time mobile service providers have had to deal with saturation. Similar concerns about the next wave of revenue generation happened when feature phone penetration got to about the 70 percent or 80 percent range, and revenues from basic subscriptions and then text messaging began to slow.

Internet access revenues associated with smartphones supplied the revenue answer. But as that revenue source slows, in terms of growth, operating costs become more crucial. So changing device inventory costs becomes important.

If device costs can be contained, if average data consumption by each smartphone user continues to grow  year-over-year at a 50 pace, if most people using phones use smartphones and if mobile service providers can benefit from consumption-based usage plans, the revenue growth issue takes care of itself.

The other issue is that as 4G becomes the network for postpaid users, and as users migrate off 3G to 4G networks, the 3G network becomes the platform for prepaid and value users, in a way that preserves a product distinction between postpaid and prepaid products.

The Song that Eventually was Released by the Rolling Stones as "Street Fighting Man." Just for 3 Minutes Relaxation

For those of you who remember 1968 in London, Paris or Chicago, this is the song that eventually become the Rolling Stones hit "Street Fighting Man." 



It still rocks!

Is A La Carte TV a "Farce?"

Chase Carey, Twenty-first Century Fox chief operating officer says a la carte TV--the ability to buy any single programming network, a TV series or a single channel, is a “farce.” 

At a high level, Carey simply is arguing that the current practice of bundling channels together provides the greatest value for consumers.

Skeptics would say that is an executive defending a business model that supports supplier revenue models and profit margins. 

Others would say what also is at stake is a related practice, namely the programming contracts that require distributors to buy lesser-viewed channels in order to buy a "must have" channel. In other words, to gain the right to distribute ESPN, a service provider has to agree to carry a number of other lesser-viewed channels owned by Disney (ESPN owner) as well.

But even some who support the idea that consumers ought to be able to buy their content a la carte might agree that it is not clear every consumer would save money under such a regime. 

Generally speaking, consumers content to by only a few channels might save money. But most consumers would spend less money buying a bundle of channels. Heavy users would find a la carte an expensive proposition, and clearly would be better off with the bundled channel price.

Most long-time observers might agree that the total number of viable channels would shrink drastically in an a la carte retail environment, and programming executives say consumers would pay more, for a single channel, than at present.

Some studies suggest that is the case. Other studies suggest prices for most consumers might not change much. The point is that it is unclear whether most consumer would save money on video in a shift to a la carte packaging.

Programmers say prices per channel would grow substantially, but consumer think channels will not cost much. Consumers generally estimate per-channel prices in the $2 each range, while programmers tend to believe prices will be closer to 300 percent higher, for most channels, one might argue.

If a la carte access to TV channels is a "farce," it might therefore be most true in the sense that the notion most customers would save money is profoundly wrong. 

A la carte might not be a farce for buyers who really only want to watch a few channels. 

And a la carte is no "farce" in a business sense, for programmers. It might be an industry-changing event. 

U.K. Consumers Pay Less for Communications, Ofcom Says

According to a recent study by Okcom, the U.K. communications regulator, residents in the United Kingdom pay 2.3 percent of household income on communications services.

In France, the United States and Italy, consumers pay 2.5 percent.

In Spain, consumers spend 3.2 percent of household income (not individual or per capita income) on communications, while in Germany consumers spend 3.4 percent.

By that metric, consumers in the United Kingdom pay less than consumers in the other nations.

To create the index, Ofcom created five household profiles, ranging from a low use household with basic needs, through to an affluent household that uses lots of communications services.

Ofcom then identified the best deals available in each country that matched the needs of these households.

The United Kingdom was either the cheapest or second cheapest in four out of five of the profiles.

While U.K. prices were consistently cheaper, not all communications services were the most competitive relative to other countries.

Some caveats are in order. A different report notes that U.K. household spending on telecom grew 27 percent between 2002 and 2011, but on an inflation-adjusted basis fell two percent over  that period.

So it is not clear that real prices and current prices are completely aligned.

Nor do the indices incorporate changes in product definition or quality. In 2002, most people did not buy Internet access, and what most people did buy was dial-up or lower-speed broadband.

Speeds have tripled between 2009 and 2013, for example. So no matter what the absolute price, the product is qualitatively different.

The same sort of issue exists when comparing subscription TV packages, which vary, in terms of channels provided, from country to country.

Actual purchasing behavior also is important. Packages might be available, even widely available, but be purchased by relatively few consumers. Prepaid plans, though widely purchased in many markets, are relatively low-penetration products in the U.S. market, for example.

The point is that It’s always difficult to compare costs and income, revenue and spending across countries globally.

First Passive Infrastructure Sharing; Then Active Element Sharing, Now Shared 4G LTE Spectrum Sharing?

It has been clear for some time that ownership of mobile cell sites is not necessarily “strategic” for a mobile service provider. Carriers often lease space on towers owned by third parties, sharing those sites with rivals.

In India and some markets in Africa, mobile service providers agree to share the cost of tower facilities. Some service providers outsource actual operations of their radio networks as well.

So it isn’t unusual anymore for a group of mobile operators to agree they will share tower site passive elements.

In the latest such example, mobile carriers Cellcom Israel Ltd., Pelephone Communications Ltd., and Golan Telecom Ltd. have agreed to build and operate a shared Long Term Evolution fourth generation radio network.

Cellcom and Pelephone also signed an agreement for the sharing of passive elements of cell sites for existing networks and an Indefeasible Right of Use (IRU) agreement with Golan Telecom for Cellcom's 2G and 3G networks.

The infrastructure sharing also might save Cellcom and Partner Communications as much as $57 million a year, according to an estimate of the brokerage unit of Ramat-Gan, Israel-based Excellence Nessuah Investment House.

What might be more unusual is cooperation in obtaining spectrum for the 4G network. Though the language is open to interpretation, and the sharing deals might require regulatory approval, it also appears the consortium will attempt to acquire common 4G spectrum as well.

That would be unprecedented, if it happens.

The 4G radio network will be built and operated by a separate, newly created entity that will be equally owned by Cellcom and Pelephone. It will be overseen by a steering committee comprising representatives of all three carriers that will make the strategic decisions regarding the 4G network by majority vote.

AT&T Essentially Will Pay its Austin Access Customers $30 a Month for the Right to Use Browsing History to Target Ads

AT&T probably is the first Internet service provider ever to agree to pay users for the value of their browsing behavior. AT&T might not be the first app provider to do so, as some might argue Google has had a limited program in place for about a year or so. 

But the big deal is that AT&T, in Austin, will give gigabit access users a choice: pay $99 a month for a gigabit access connection, with no tracking, or $70 a month, when users give AT&T the right to track browsing behavior in return for a $30 a month discount on access fees.

For policy advocates and others who think users actually own their data, and should be compensated when behavioral data is used to target advertising, that essentially is what AT&T will do in Austin, Texas.

AT&T in Austin, Texas is launching it “GigaPower” all-fiber Internet access network for prices starting at $70 a month, featuring speeds of 300 Mbps downstream initially, and a boost to 1 Gbps in 2014.

AT&T will offer two “U-verse with GigaPower” offers. The “Premier” version will cost $70 a month, while the “Standard” plan will cost $99 a month.

You might find it odd that the premier version costs less than the standard version.

The reason is the value to AT&T of collecting use browsing history. “U-verse with GigaPower Premier offer is available with your agreement to participate in AT&T Internet Preferences,” AT&T says.

Internet Preferences allows AT&T to use customer Web browsing information, such as the search terms people enter and the Web pages customer visit, to provide relevant offers and ads to customers based on that profil, e.

That will not be a popular practice in some quarters, but some have argued that users should be compensated when ISPs or other application providers “pay users for the value of their behavior.”

In essence, that is what AT&T is doing, compensating users at $30 a month for the right to use browsing behavior to tailor advertising and other marketing offers.

As now has become a standard industry practice, potential buyers can sign up at www.att.com/gigapower. AT&T then will build first in the areas with highest indicted demand.

“Expansion plans will, in part, be influenced by the number of Austinites voting for their neighborhood at www.att.com/gigapower,” AT&T says.

It might be overlooked, but AT&T is doing what some have advocated for some time, namely compensating users for the value of their behavior online, when used to target advertising.

That’s huge.

Sustainability a Key Issue for Public-Private Fiber Networks

Seattle’s effort to build a high-speed Internet access network serving 12 neighborhoods, in cooperation with Gigabit Squared, has been unable to raise financing for the venture, illustrating some of the tensions and issues related to such joint ventures.

Outgoing Seattle Mayor Mike McGinn says he’s worried about Gigabit Squared’s plans, as a result.

That might be an occupational hazard for ambitious new fiber network projects, as envisioned by Los Angeles, for example.

The Los Angeles City Council has been looking at ways to provide a metro Wi-Fi network providing free service to residents, using private investment sources.

That might require investment of $3 billion to $5 billion, and one might reasonably suggest that amount cannot be raised, given the prospects of competing with AT&T, Time Warner, Verizon, Cox, and Charter Communications, all of which offer triple play services in some parts of the city.

In addition to seeking to foster creation of a new facilities-based fiber to the home reaching every home and business in Los Angeles, the plan also envisions wholesale access requirements as well.

That would strike many observers as an unrealistic set of expectations.

The network would be required to offer free access at rates between 2 Mbps and 5 Mbps, but would be allowed to offer paid service at speeds up to a gigabit per second.

Sustainability is an issue for virtually all of the proposed joint venture networks between municipalities and private service providers.