Verizon FiOS: 46% of Customers Buy 50 Mbps; 55% of Q4 2013 Sales Were for 50 Mbps or Higher

Though some still argue that the United States is woefully behind in Internet access speeds, the more important part of the story is growth.

By the end of fourth-quarter 2013, 46 percent of Verizon Communications consumer FiOS Internet customers subscribed to FiOS Quantum, which provides speeds ranging from 50 Mbps to 500 Mbps, up from 41 percent at the end of third quarter 2013.

In the fourth quarter of 2013, 55 percent of consumer FiOS Internet sales were for speeds of at least 50 megabits per second.

The availability of 100 Mbps to 1 Gbps Internet access services grew the fastest, from 2010 to 2012, according to the  National Telecommunications and Information Administration (NTIA).

Though growing from a low base, availability of 1-Gbps services grew nearly 300 percent between 2010 and 2012.

Availability fo 100 Mbps services grew even more: 448 percent between 2010 and 2012. Availability of 50 Mbps services grew 160 percent between 2010 and 2012.

Services operating at 25 Mbps, arguably the speeds most consumers tend to buy, grew about 57 percent, in terms of availability.

Up to this point, cable operators have been the primary providers of high speed access services of at least 25 Mbps or greater but less than 1 Gbps. That should start to change as more telcos begin to upgrade to networks offering speeds up to 1 Gbps.

Still, at the moment, 82 percent of U.S. homes have access to speeds in excess of 100 megabits per second, while in Europe, only two percent of the population has access to these speeds, Comcast notes.

The availability of 100 Mbps to 1 Gbps Internet access services grew the fastest, from 2010 to 2012, according to a new study by the  National Telecommunications and Information Administration (NTIA). Though growing from a low base, availability of 1-Gbps services grew nearly 300 percent between 2010 and 2012.

Availability fo 100 Mbps services grew even more: 448 percent between 2010 and 2012. Availability of 50 Mbps services grew 160 percent between 2010 and 2012.

Services operating at 25 Mbps, arguably the speeds most consumers tend to buy, grew about 57 percent, in terms of availability.

Availability of lower-speed services has reached virtual ubiquity. Some 98 percent of U.S. residents can buy Internet access at speeds of 3 Mbps or greater and upload speeds of 768 kbps or greater.

About 91 percent of U.S. residents can buy access at 10 Mbps downstream. Some 78 percent can buy access services operating at 25 Mbps downstream.

Also, about 81 percent of U.S. residents can buy mobile broadband access at speeds of 6 Mbps or greater.

And nearly 26 percent of the population can buy fixed wireless service with download speeds at 6 Mbps.

Up to this point, cable operators have been the primary providers of high speed access services of at least 25 Mbps or greater but less than 1 Gbps. That should start to change as more telcos begin to upgrade to networks offering speeds up to 1 Gbps.

Still, at the moment, 82 percent of U.S. homes have access to speeds in excess of 100 megabits per second, while in Europe, only two percent of the population has access to these speeds, Comcast notes.

LTE Grows Usage, But Revenue Gains are Uneven

The good news about Long Term Evolution networks is the faster speed and lower latency end users experience. The sometimes good news is that some mobile operators can charge a premium for use of the LTE network.

The in some ways good news is that people consume more data on an LTE network.

SK Telecom, for example, has seen average monthly data consumption per user rise significantly since the launch of its 4G network in 2011, with average consumption doubling between the fourth quarter of  2011 and first quarter of  2013, rising from 1.1 GB to 2.1 GB.

By way of comparison,  data usage on the 3G network remained flat. Basically, total 3G and 4G network traffic almost doubled in the space of 15 months, on a two-percent  growth in total connections.

What that means is that 4G users typically consume twice as much data per month as other users, according to GSMA.

That can have a direct impact on revenue when mobile service providers are able to charge somewhat incrementally for the additional usage. In other cases, where operators cannot bill for the higher usage, LTE can represent a problem.

Significantly, South Korean users actually are using Wi-Fi less, and using the LTE network more, than they had been doing in the past. GSMA believes that is happening because LTE now offers faster uploads and downloads than Wi-Fi does.

South Korean operators are generating significantly increased revenue from their 4G customers, GSMA notes. At KRW46,000 ($43), SK Telecom’s 4G average revenue per user in the the third quarter of 2013 was 32 percent higher than its blended ARPU.

In part, that is because more than 70 percent of new and upgrading 4G customers are buying higher-priced service plans.

At Korea Telecom, 4G ARPU of KRW44,000 ($42) was more than 40 percent higher than blended ARPU.

Operators in the United States are seeing similar trends. In October 2013, Verizon Wireless reported that the 38 percent of its retail 4G customers generated 64 percent of total data traffic.

But traffic is not revenue. Verizon Wireless third quarter 2013 average revenue per account was up 7.1 percent year over year.

Also, ARPA has grown 21 percent since the launch of the 4G network in 2010.

Cricket Communications says “usage from a 4G customer is about twice that what it is for a 3G customer,” while ARPU was up 8.4 percent year over year in the third quarter of 2013.

The picture in Europe is a bit more mixed. To be sure, 4G users consume more data than 3G users.

In the first quarter of 2013, Vodafone reported that average monthly data usage for its 4G smartphone users in Europe was 640 MB, approximately twice that for a 3G smartphone (350 MB) and roughly the same as a tablet operating on 3G.

In Germany, O2 reported third quarter 2013 monthly average data consumption by 4G users was three times that of non-4G users.

The UK’s EE said second quarter 2013 revenue from 4G customers was higher by about 10 percent. In the third quarter of 2013, 4G customers provided ARPU gains in the high single digits, EE said.

This contributed to a slight annual rise in blended ARPU (+0.5%), to £19.00 ($29.45) in Q3 2013.

In France, there has been no ARPU growth from 4G, however, among the three largest mobile providers. In part, that is because the operators have had to cut prices to compete with Illiad’s Free Mobile offers.

The average ARPU in France was down 13.2 percent year over year in the third quarter of 2013 to €22.82 ($30.23). GSMA expects the downward trend to continue.

But France isn’t the only market where an operator has chosen to offer 4G services without charging a premium. For example, 3UK, which switched on 4G last month, is allowing customers to migrate without switching from their 3G contracts and will continue to offer unlimited data allowances. Telefonica Movistar also is offering 4G at the same price as 3G.

                                       SK Telecom Data Consumption

Source: SK Telecom

Qualcomm Invests $14 Million in Wi-Fi Sharing Company Fon

There are several interesting conclusions one might draw about a $14 million investment Qualcomm has made in Fon, the Spanish Wi-Fi sharing company.



At a practical level, the investment will allow Fon to create new Wi-Fi routers--based on Qualcomm chips--that automatically will recognize and authenticate Facebook friends.


When a Fonista's Facebook friend enters a local Fon Wi-Fi zone, the router automatically will authenticate in the background. If authenticated, those Facebook friends will get access to the Fonista's Wi-Fi network without needing to remember any new passwords. 





Since the investment embeds Qualcomm technology in Fon routers, Qualcomm's immediate interest is obvious. Fon gains an easier way to authenticate new users, increased engagement and stickiness of its service. 



There are other implications, however. What can one make of a product (mobile Internet access) that its seller (mobile service provider) prefers its own customers essentially not use too much?



For that is precisely what the massive "Wi-Fi offload" trend represents. By some conservative estimates, about 33 percent of mobile Internet traffic already is offloaded to Wi-Fi. By 2014, says Cisco, about 47 percent of total mobile Internet consumption will use Wi-Fi, not the mobile carrier network.  



Other estimates are even more suggestive, finding that as much as 68 percent of all Android device Internet access occurs using Wi-Fi, across North America, Asia and Africa.







The point: encouragement of Wi-Fi offload by mobile operators illustrates a huge potential business model problem for mobile ISPs. They sell a product using a retail model that is dangerous, if in fact customers actually use the product. 



That is why mobile service providers encourage users to shift to Wi-Fi whenever possible. 



One might argue the huge amount of Wi-Fi offload illustrates the key role fixed networks now play in mobile Internet access and show why mobile Internet access demand requires additional spectrum.



Most important of all, Wi-Fi offload shows a dangerous vulnerability. It is not so clear that the mobile ISP business model actually is terribly well suited to dramatically-higher demand. If customers really start consuming vastly more data, the networks will crash, end user experience will deteriorate and profit margins will evaporate. 

SK Telecom to Debut 225 Mbps LTE-Advanced

SK Telecom plans to upgrade the speed of its LTE-Advanced service currently capable of offering up to 225 Mbps by aggregating 20 MHz bandwidth in the 1.8 GHz band and 10 MHz of bandwidth in the 800 MHz band, to create a single bonded channel, boosting speed beyond the 150 Mbps limit of LTE in 20 MHz channels.

SK Telecom initially commercialized its LTE-Advanced service, using 10 MHz of bandwidth in 1.8 GHz band and 10 MHz bandwidth in the 800 MHz band in 2013.

In August of 2013, SK Telecom gained authorization to operate using 35 MHz of bandwidth in the  1.8 GHz band..

SK Telecom expects to launch the “20MHz+10MHz” LTE-Advanced service nationwide in the second half of 2014.

LTE can only offer up to 150 Mbps of speeds using a maximum of 20 MHz of continuous spectrum in one band, while LTE-Advanced can support speeds over 150 Mbps by combining different bands using carrier aggregation.

SK Telecom further plans to bond 10 MHz more bandwidth in an additional channel, enabling service at speeds up to 300 Mbps.

Once SK Telecom commercializes the upgraded LTE-Advanced service, customers will be able to download an 800MB movie in 28 seconds, compared to 43 seconds for the current LTE-Advanced version.

One might argue that mobile broadband is not a substitute for fixed broadband, with some justification. In most parts of the world, for most users, that will be a functionally truthful statement, though.

By 2019, perhaps eight billion mobile broadband accounts will be in service, compared to perhaps 500 million fixed network connections. In fact, there will likely be as many mobile router accounts in service (connections to tablets, mobile routers and PCs) as there are total fixed broadband connections.

So while some might reasonably argue LTE and mobile broadband are not functional substitutes for fixed broadband access, for most people mobile broadband will be "broadband."

Softbank in Direct Talks With Deutsche Telekom on T-Mobile US Acquisition

SoftBank reportedly is holding direct talks with Deutsche Telekom about acquiring T-Mobile US.

Some observers think a combination of SoftBank-owned Sprint and T-Mobile US, which would create a new mobile company just a little smaller than Verizon Wireless and AT&T, would improve the new company's ability to compete, and might "save" the U.S. mobile market from a ruinous competitive war.

A combined Sprint and T-Mobile US would have about 30 percent market share, compared to Verizon Wireless at 30 percent and AT&T Mobility at 33 percent.

But reduction of the number of providers from four to three is likely to be among the key concerns of antitrust regulators. 

Sprint might have to prove to regulators that a Sprint acquisition of T-Mobile US would not eliminate the disruptive offers T-Mobile US is making.

Merger approvals often therefore contain requirements that current prices be maintained or lowered for a period of time. But temporary assurances might not be enough, in this case.

SoftBank will argue that the combination will create operating efficiencies, improving market competition.

Antitrust authorities and regulators also will want some assurances that new providers will be able to enter the market and compete, Dish Network likely being a case in point.

The line of argument will be tricky. SoftBank has to convince regulators that both Sprint and T-Mobile will fail to keep up with AT&T and Verizon, if they remain separate.

On the other hand, SoftBank will have to convince antitrust authorities that the disruptive T-Mobile US stance will continue, even for the merged company.

Those are huge challenges, but SoftBank seems to have concluded the effort is worthwhile, and that it eventually can offer concessions to alleviate the inevitable concerns.

The other complication is that Deutsche Telekom wants to exit the U.S. market. Antitrust authorities therefore face the situation of a competitor that simply wants to leave the market. A sale to a company other than SoftBank might be much more palatable, but it is not clear any such buyer will emerge.

Concerns about the impact of any such merger on competition would seem well founded, in some ways, even if the argument about long-term viability of T-Mobile US and Sprint also is reasonable.

To be sure, reasonable observers might conclude that Verizon Wireless and AT&T Mobility have not shown too much willingness to disrupt the market. 

Looking only at retail pricing for mobile Internet access plans, one might note the similarity between Verizon and AT&T pricing, and the lower price plans, across the board, typical of Sprint and T-Mobile US plans, assuming the Sprint and T-Mobile US plans feature "unlimited usage."

Pessimism is Unwarranted: Gigabit Networks are Coming

Blair Levin, currently a fellow at the Aspen Institute, is a thoughtful analyst, and wrote the 2010 National Broadband Plan, which was preceded by a thorough and thoughtful analysis of the actual cost to upgrade U.S. access networks for higher speeds.

Also Executive Director of Gig.U, Levin tries to practice what he preaches.

So I was struck by the irony of two adjacent statements in a recent Levin article, the first that the authors of the U.S. broadband plan concluded that "current market forces were unlikely to produce gigabit networks within any reasonable future."

At that time I agreed with the assessment. But Levin says in the very next sentence that "that analysis, and our subsequent discussions with various parties, helped pave the way for the Google Fiber project, which itself has spawned other gigabit projects."

In other words, paradoxically, gigabit networks both were unlikely to develop, and then did develop. Levin believes the plan, and other evangelism, has made a difference. Some of us would agree.

But that perhaps is where practitioners and analysts alike have been too pessimistic, when history might have suggested optimism was warranted.

To be sure, human beings and organizations must act. Human agency is vital. But history itself, in face of what might have appeared to be stubborn agency resistance, would have suggested that, in the face of all obstacles, huge progress would be made.

For all of the apparently sluggish movement towards higher speeds, even in the U.S. market, where complaints abound, the history of speed increases shows a minimum doubling about every five years, and an order of magnitude increase in speeds (up to two orders or magnitude) about every decade.

That suggests gigabit speeds by 2020 would simply  be in keeping with past speed increases. Sounds crazy. I wouldn't have believed it myself. But the data on the trend is there.

The math is clear enough: when you double the quantity of anything often enough, fantastically large numbers result very quickly.

Levin's sentiments are understandable enough. He knows the cost of networks and the practical chores associated with getting them funded and built. But even Levin acknowledges that what might have seemed impossible suddenly erupted.

I think that is the point. Somehow, against the odds, human agency keeps bumping us along an access speed adoption curve that seems "impossible."

Observers long have noted that Moore's Law does not apply to many physical processes and products. Paradoxically, even in the "you have to dig trenches and hang cable," physical world of construction, it seems Moore's Law is a fairly good predictor of access speed improvements.

It is unexpected. Logic suggest it should not happen. And yet, despite all logic, Moore's Law has been a rather good predictor of access speed improvements.

Even Relatively Balanced Net Neutrality Commentaries Miss the Point

It appears that much of the hysterical reaction to a U.S. Appeals Court ruling in Verizon v. FCC willfully or inadvertently confuses two very different principles: actual blocking of lawful content by an Internet access provider, and quality of service mechanisms. 

They aren't by any means exclusive, anti-consumer or damaging to application provider ability to innovate, though they create business advantages, as do content delivery networks.   

But you haven't heard anybody at all argue that CDNs should be outlawed because they lead to "blocking" of end user access to lawful applications. Content delivery networks improve end user quality of experience. 

And, yes, unless a content provider or application provider creates or pays for CDN services, that quality of packet delivery feature is not available. But it is a choice.

Some app providers use CDNs, but probably most do not. CDNs have not destroyed the openness of the Internet. CDNs are not "blocking."

Everybody agrees, from the Federal Communications Commission to the smallest U.S. ISP, that lawful applications cannot be blocked. The FCC has, as part of its Open Internet Principles, stated in plain language that lawful applications cannot be blocked, period.

In the one or two instances where actual blocking ever has occurred, the Commission worked quickly to intervene. So the FCC already has shown its lawful authority to prevent content or application blocking. 

"Blocking" is not the issue. Quality of service is the issue, as CDNs are about quality of service as well. 

Many of us would argue that application and content providers have the right of freedom of speech. They should not be interfered with simply because a government or private entity is irritated by what they say or the lawful services they provide.

That remains true whether or not any application owner chooses to use a CDN or not. No freedom is lost, either way, whether you believe the "right to freedom" protects the speaker, or the audience.

The "best effort" Internet exists side by side with the existence of quality of service mechanisms that ensure packet delivery in an expedited way. Today. Now. 

So long as the best effort Internet continues to exist, and all ISPs support that principle because the FCC says they must, freedom is maintained. 

But it is untruthful--simply untruthful--to argue that the best effort and expedited packet delivery access do not already coexist, today,  with no apparent ill effects.

Will Video Break Mobile ISP Economics and Business Model?

It is easy enough to explain why video entertainment consumption poses a huge--some would say nearly fatal--challenge to mobile operators: there if a fundamental mismatch between revenue and bandwidth required to deliver narrowband services (voice, messaging) and that required to support full-motion video.

Simply,  revenue per bit for messaging and voice can be as much as two or more orders of magnitude higher than for full-motion video or Internet apps.

The revenue per bit problem is easy to describe. Assume a fixed network ISP sells a triple-play package for a $130 a month retail price, where each component--voice, Internet access and entertainment video--is priced equally (an implied price of $43 for each component).

How much bandwidth is required to earn those $43 revenue components? Almost too little to measure in the case of voice; gigabytes for Internet content consumption and possibly scores of gigabytes for video.

By some estimates, where voice might earn 35 cents per megabyte, revenue per Internet app might generate a few cents per megabyte. At one level, a network engineer might argue that such fine distinctions do not matter. The network has to be sized to handle the expected load.

McKinsey analysts have argued in the past that a 3G network costs about one U.S. cent per megabyte. The problem, in many developing markets, is that revenue could drop to as little as 0.2 cents to 0.4 cents per megabyte, for any mobile Internet usage.

That implies a strategic need to reduce mobile Internet costs to as little as 0.1 cent per megabyte, or an order of magnitude. Tellabs similarly has warned about revenues per bit dipping below cost per megabyte, leading to an "end of profit" for the mobile business.

Of course, all of that analysis occurred under conditions where it was web browsing that largely represented Internet bandwidth demand. Streaming video is another order of magnitude or two orders of magnitude sort of problem, though, in part because it is so hugely bandwidth intensive and because it will represent as much as 70 percent of all Internet bandwidth consumption, in a few short years.

Consider the wide variance in revenue per bit represented by a few different potential mobile Internet use cases.

One use case is a $20 a month smartphone data plan and 2GB of usage, representing retail revenue of $10 per gigabyte.

A Netflix subscription generates no direct revenue but could represent network consumption of between a few gigabytes and  30GB of traffic, if usage approaches fixed network levels. Revenue arguably is zero dollars per gigabyte.

A work environment might represent $100 a month revenue and consumption of between 10 GB and 50GB. So revenue might range between $2 to $10 per gigabyte.

And that’s the problem with video: much of it does not actually represent revenue for the ISP. But even if it does, what is the revenue and cost per gigabyte? Even if one assume use of one hour of standard definition video, and that product is owned by the ISP, revenue might be $1 to $2 per gigabyte.

Some would argue the cost per gigabyte for a mobile ISP is higher than that. And it is almost nonsensical to think that a standard linear video service, representing perhaps $40 to $80 a month of revenue, will fare well if viewing habits in the mobile realm are what they are in the fixed network realm, where it might not be uncommon to have a single device receiving content for four to six hours a day, representing consumption of perhaps 4 GB to 6 GB per device.

And that assumes only one user, or one stream, is in use. In a multi-user household, demand could be two to three times that amount. In that case, hundreds of gigabytes would be the account load for a single month.

That will destroy revenue per bit metrics, unless you believe consumers really will pay $200 to $400 a month--or more--in mobile Internet access charges, to say nothing of the actual retail price of the content service.

Marketers might argue that revenue per account is what matters, for a multi-product business. That is true, up to a point. An ISP might fare okay if providing a mix of products with disparate revenue per bit values.

The revenue earned from text messaging is almost arbitrarily high, as SMS is a byproduct of using the signaling network. Voice revenue might be moderately high, if users can be coaxed or compelled into paying for access to the feature, rather than for usage.

Ericsson hs calculated the cost per bit for a mobile network at about one Euro per gigabyte. So total revenue per bit has to exceed that cost.

Heavy video consumption--especially of third party content-- is likely to exceed cost per bit under almost any scenario.

Deutsche Telekom Puts T-Mobile US Asset Where a Sale Would be More Advantageous

Deutsche Telekom has transferred its 67 percent stake in T-Mobile US into a different holding company offering tax advantages in the event of a sale of T-Mobile US. That doesn't mean any sale is imminent, but does suggest it is viewed as a reasonable development by Deutsche Telekom.

Soon, the attention will shift to which buyer emerges, and then whether U.S. regulators will allow the transaction to proceed. Deutsche Telekom has been there before, as the proposed AT&T acquisition was abandoned because of regulatory and antitrust opposition. 

It won't be especially easier this time around, either. 

To "Move the Needle" on Market Share, Mobile Carriers Must Win"Family" Plan Accounts

Over the past decade or so, a big change in retail mobile service plans has happened. In the business as a whole 68.5 percent of postpaid customers are on family plans. Just 26 percent of plans are “individual” plans.

About five percent of the market consists of business-paid accounts.

Verizon has 72 percent of its customers on family plans and seven percent on corporate plans.

Altogether, at least 73 percent of U.S. mobile consumers are on a group plan of some sort.

There are all sorts of practical implications. For starters, any disruptive attack on market share almost has to affect the family plans, since they represent about 69 percent of the customer base.

The other practical matter is that one would get a wrong result when comparing “individual plans” across countries, especially where most of the buyers are prepaid, not postpaid, and where most sales are of “individual” plans, not “family” plans.

Are U.S. Mobile Carriers Customer Bases Differentiated?

It is a commonplace observation that the largest four U.S. mobile service providers are differentiated on the dimensions of churn and average revenue per account. Basically, Verizon Wireless and AT&T Mobility customers churn at half the rate of Sprint and T-Mobile US customers. 

But there might also be a significant differentiation based on why customers choose their service providers. 

When Cowen and Company analysts asked customers why they chose their service provider, AT&T and Verizon chosen for "network coverage and quality," 

Sprint was chosen for "unlimited data plan and better price," while T-Mobile US likewise was chosen for "better price and unlimited data plan.

The distinctions are clear: customers who value coverage and quality tend to buy AT&T and Verizon. Customers who value unlimited data and price chose Sprint and T-Mobile US.

So the question, assuming you believe a big marketing war will escalate, is how big each of those customer segments are. For that might limit the gains either Sprint or T-Mobile US can gain and hold, over the long term. 

It will be easier for AT&T and Verizon to match price offers than for T-Mobile US and Sprint to dramatically expand their footprints. 

But all that assumes no major change in market structure. With the possibility that something happens with T-Mobile US (merger with another provider), and if Dish Network does enter the market, along with activation of assets from one or two of the mobile satellite firms that want to repurpose their mobile satellite spectrum, tomorrow's market could look different. 

But that will occur within a context where it appears customers fall into two broad camps: buyers who value coverage and quality, even at higher price; and customers who value unlimited usage and want lower price. 

Coverage might not matter for the latter, while lower price, while helpful, still is not why the former customers make their fundamental choices. 

How much the contestants can structure their operations to attract the "other" type of customer will become a bigger issue.