U.S. Mobile Marketing Wars Will be Intense, Since 50% of Customers Will Not Churn

One reason why mobile marketing wars become so intense is that markets often are quite stable. In other words, in mature markets, customers simply do not change service providers all that often.

According to a recent study by Ofcom, the U.K. communications regulator, just eight percent of adults fixed network voice customers in the last 12 months. About nine percent of broadband access customers switched in the last year.

Just six percent of mobile customers switched providers in the last 12 months, while just five percent switched their subscription TV provider over the same time frame.

What that means, for any mobile service provider in a mature market is that only about one half of one percent of current customers will choose another provider in any given month. So all marketing efforts by any service provider, in any month, are aimed at inducing just one half of one percent of customers to switch.

That is by any accounting an expensive proposition.

Likewise, Parks Associates consumer data show that almost 50 percent of U.S. mobile phone service customers did not change providers over the last 10 years. In other words, fully half the customer base virtually never changes providers, meaning that all switching behavior is concentrated on just half the total subscriber base.

According to Parks Associates, about 25 percent of respondents changed service providers only once in 10 years.

Just 13 percent of respondents  switched providers three times or more (about once every three years or so).

Verizon Wireless and AT&T Mobility have the most stable customer bases. About 62 percent of Verizon and 56 percent of AT&T customers have been with their present carrier for more than five years.

Parks Associates estimates that about 35 percent of AT&T customers are worth $5,000 (lifetime value of the account) or more, the highest among the four national carriers. T-Mobile US, by way of comparison, has about 21 percent in that category.

Of course, the lifetime value of an account varies wildly. If half of all accounts churn almost never over a decade, and if those accounts are multi-user accounts, lifetime value could easily reach $48,000 over a 10-year period ($400 a month, for 10 years).

That is why churn management (for the incumbent), or churn encouragement (for the attacker), matters so much. Some acquired accounts could be lucrative far beyond the $1,000 to $3,600 “lifetime” value of a single-user account.

Far more lucrative are shared accounts (“family or framily”), which represent multiple users, devices and lines, and therefore higher account value. Dislodging a single such account, under some circumstances, could literally be a $48,000 win, over 10 years.

And it is even possible that churn rates could decline, longer term, in Europe and the United States, though a reasonable observer would expect a temporary increase in churn rates as marketing wars heat up.

The percentage of mobile subscribers who are planning to switch service providers decreased from 14 percent annually in 2009 to nine percent annually in 2010, for example, Analysys Mason analysts say.

                                Subscriber Churn Intentions

Source: Analysys Mason, 2011 (2009 data not available for Spain and the USA)

The mobile churn rate in some developed markets stood at about 30 percent as recently as 2009, Analysys Mason says.

And though one might not want to make too much of it, a study sponsored by Ofcom, the U.K. communications regulator and conducted by Ipsos Media CT suggests females are less likely to churn, and males more likely to churn.

The U.S. mobile services marketing war will be intense, in part because it is so difficult to dislodge even a single customer, and will be particularly important for multi-user accounts that historically have been resistant to churn.

Majority of Mobile Data Will be on Wi-Fi by 2018

By 2018, more mobile handset data will be delivered by Wi-Fi than the mobile network, Cisco predicts. Globally, 45 percent of total mobile data traffic was offloaded onto the fixed network using Wi-Fi or a femtocell in 2013.

Without offload mechanisms, mobile data traffic would have grown 98 percent rather than 81 percent in 2013, according to Cisco.

And as is the case at present, 3G still will be the leading mobile broadband network in 2018.

Video will be a factor, as mobile video traffic was 53 percent of total data consumption by the end of 2013. By 2018, mobile video will represent 69 percent of global mobile traffic.

Most users will find they cannot watch much video on their mobile devices, using their mobile data plans, before exceeding usage limits. So there will be a clear incentive to shift video consumption to Wi-Fi networks.

Another important indicator of change is the amount of predicted machine-to-machine traffic.

By 2015, M2M traffic will surpass feature phone traffic, according to the Cisco’s Visual Networking Index (VNI) Global Mobile Forecast, 2013-2018.

To be sure, the bulk of those devices will be personal mobile devices, not telemetry devices such as utility meter sensors. By 2018, of the more than 10 billion mobile-ready devices, about eight billion will be personal mobile devices. Some two billion M2M connections also will be in use.

By 2018, M2M devices will represent the third-biggest category of devices in use, after smart phones and feature phones. By way of comparison, M2M devices are predicted to represent nearly 20 percent of total connected mobile devices, where tablets will represent five percent of total devices in use, and PCs 2.6 percent of connections.

Does LTE Decrease Use of Wi-Fi Offload?

Recent surveys have reached different conclusions about how Wi-Fi offload affects, and is affected by, Long Term Evolution mobile access.

A Devicescape analysis suggests that Wi-Fi Wi-Fi usage doubles for consumers on 4G networks at a similar rate to how their mobile data usage increases. In other words, consumers increase mobile and offload consumption in proportion to their current behaviors.

In contrast,  a recent survey by EE of its UK subscribers that found a significant proportion of its LTE customers are using fewer or no public Wi-Fi hotspots, defaulting instead to the LTE connection most of the time.

The EE survey found 43 percent of LTE network customers were using fewer or no public Wi-Fi hotspots since moving to 4G. In addition, almost 50 percent indicated their mobile browsing time had increased since getting the faster connection.

The Devicescape survey found that average monthly Wi-Fi usage among LTE users increased from 1GB to 2GB. Data usage on the cellular network grew from 0.7GB to 1.5GB when users upgraded from 3G to 4G, it said.

But previous Mobidia research has shown that smartphone users rely on Wi-Fi for their

primary data connection, with Wi-Fi data consumption two to 10 times that of cellular data

consumption.

Mobidia’s data on global Wi-Fi usage in January 2013 found that smartphone users continue to rely on Wi-Fi as their primary connection.

With very few exceptions, such as Japan, users in most developed countries consume well over 80 percent, and often over 90 percent, of their total mobile data on Wi-Fi networks, especially home connections.

Managed public hotspots also consistently accounted for very little traffic across all countries analyzed. For example, traffic on these hotspots was just three percent and two percent of all Wi-Fi traffic in the leading Wi-Fi markets - the U.S. and the U.K., respectively, Mobidia found.

But behavior might be different on LTE networks. Mobidia also found, early in 2013. In virtually all markets studied, Wi-Fi usage decreased when users switched to 4G LTE networks.

That suggests behavior could change, as more users are served by LTE networks.

source: Mobidia

AT&T Ends Early Termination Fee Subsidy Program

AT&T has ended a promotion to pay T-Mobile customers up to $450 to switch services, stopping the program after less than a month, though launching a new lower-price family plan.  In addition to the price cuts on family plans,  AT&T continues to offer to give customers a $100 bill credit for every new line they add to their accounts.

The quick changes resemble the similarly-rapid changes Sprint made prior to unveiling its “Framily” group plan. Sprint had launched a more flexible device upgrade program, some would say in response to similar T-Mobile US programs.

One might argue that Sprint quickly determined frequent device upgrades were less potentially valuable as an acquisition or retention program than creating more-flexible group plans.

Similarly, one might argue AT&T grabbed headlines and attention with its program to pay user early termination fees if they switched to AT&T, but like Sprint concluded it would fare better by changing the value-price relationship for its group plans.

T-Mobile US continues to offer payment of early termination fees of up to $650 when customers switch accounts to T-Mobile US.

The pace of offers suggests we might be early in the marketing battles now erupting in the wake of a furious effort by T-Mobile US to attack and rearrange market shares in the U.S. mobile business.

Investors might rightfully worry that the process is a bit open-ended at this point, creating greater instability in the market and threatening to make industry revenue and earnings forecasts far less reliable. Share prices for U.S. mobile service providers have taken a hit recently, largely, it might be argued, over concern about what marketing campaigns might do to revenue and earnings.

Recent actions by AT&T, T-Mobile US and Sprint suggest that, at the very least, service providers are prepared to launch new offers in rapid succession, and that revenue predictability is going to be exposed.

Apple Building its Own Content Delivery Network

Facts are stubborn things. And the simple fact is that content experiences often require network management or packet prioritization to provide the best experience under conditions of congestion. That is at the heart of the “network neutrality” debate, and one might note what Apple is doing as an example that optimizing packet delivery is a key concern for app providers.

Apple now is doing what Google, Netflix and others have done, namely create delivery infrastructure that optimizes delivery of content to end users. Those content delivery networks are not “best effort.” Instead, the app provider content delivery networks optimize packet flows to eliminate latency.

“An iPhone user who subscribes to Sprint Corp., for instance, might download a song more quickly if Sprint's network links directly to the Apple data center storing that song, rather than channeling the file through a series of middlemen,” a writer for the Wall Street Journal notes.

Apple reportedly is hiring experts with content delivery network experience, especially building in-house content delivery networks, as Netflix itself did.

In 2012, Netflix cut its costs by creating its own delivery network, called Open Connect, instead of buying CDN services from Akamai.

Note the irony: app providers who support network neutrality themselves already optimize their own content. In other words, app providers who already optimize and discriminate between packets want to deny the same capability to ISPs who deliver packets to actual consumer end users.

Service Providers Shift Emphasis to "Growth" Segments of Business, Satisfaction Follows

One would expect service providers to focus their sales and customer efforts in market segments where telecom industry revenue growth is highest, or where profit margins are highest, in both retail and wholesale portions of the business.

For example, U.S. local wholesale voice revenues will decline from $6.1 billion in 2013 to $5.4 billion in 2014, according to Atlantic-ACM, while U.S. long distance wholesale voice revenues will decline from $2 billion in 2013 to $1.6 billion in 2014.

In a market with total U.S. telecom revenue in the $400 billion range  (including video entertainment revenues), that level of wholesale voice revenue is almost nothing.

In the United Kingdom, there is some evidence that aggregate wholesale revenues began to decline, as a percentage of total service provider revenues, in 2011.

Total European wholesale revenue declined by 6.2 percent in 2012 to $45.1 billion, Ovum estimates, while service provider retail revenues fell by 10 percent in the same period. As you might guess, voice revenue declines were key drivers of the change.

In 2012 the European wholesale fixed voice sector accounted for less than a third of total wholesale revenues in the region, while revenues were 13 percent lower than in 2011, part of a downward trend in place for more than a decade.

Under those conditions, one would expect suppliers to focus on growth segments (new customers, apps or geographies) while deemphasizing declining and small segments.

Findings of a survey conducted by Atlantic-ACM of global wholesale buyers suggests that principle is at work in the wholesale telecom business , even if overall buyer satisfaction has remained stable since 2010.

Early in 2014, satisfaction among large customers virtually leaped five percent among large customers. On the other hand, satisfaction among smaller customers declined 0.5 percent early in 2014.

Customers in fixed network verticals reported satisfaction levels 1.1 percent lower, while satisfaction among customers with operations in mobile service grew 5.3 percent.

Customers in “emerging markets” (cable/content/ISP verticals, resellers/systems integrators and data center/hosting/cloud providers) reported satisfaction levels 2.1 percent higher.

But a reasonable argument also can be made that satisfaction will be higher in some geographies, since growth prospects are so much higher in a few regions, such as some newly-emerging parts of Asia.

Between 2012 and 2017, most of the incremental revenue will be generated in the emerging Asian countries. In Central and Eastern Europe, developed Asian markets and Western Europe, revenue actually will shrink.

According to Analysys Mason, the global market for telecom services generated retail revenue of US$1.54 trillion in 2012, of which around two thirds was from the developed markets of North America (NA), Western Europe (WE), Central and Eastern Europe (CEE) and Developed Asia–Pacific (DVAP).

About a third of revenue came from emerging markets, including “Emerging Asia–Pacific” (EMAP), Latin America (LATAM), Middle East and North Africa (MENA), and Sub-Saharan Africa (SSA).

The United States was the largest market (US$378 billion), followed by China (US$151 billion), Japan (US$133 billion), Brazil (US$61 billion) and Germany (US$53 billion).

Analysys Mason predicts that retail revenue worldwide will grow at a 1.7 percent compound annual growth rate between 2012 and 2017, with growth in mobile (3.2 percent) more than offsetting a decline in fixed (–0.6 percent).

                     Global Telecom Service Revenue Growth

source: Analysys Mason

LTE Roaming is at an Early Stage

Long Term Evolution roaming across nations and regions is not going to be easy for a couple of reasons. For starters, many service providers are only at the beginning of their LTE network builds. Rarely do mobile service providers get around to the nuances of international roaming until they have gotten the new networks built.  

Longer term, the issue is disparate frequencies. More than 40 different frequency bands are used by LTE providers globally. That means handsets need ability to use many different bands, a requirement that increases handset cost and carrier frequency planning.

But AT&T has become an early mover in LTE roaming, signing what many would say is the first-ever LTE roaming deal, with Rogers in Canada, in December 2013.

AT&T followed that agreement with a roaming deal with the U.K.’s EE, initially allowing AT&T LTE customers to roam on EE networks in the United Kingdom.

In February 2014, NTT Docomo and AT&T likewise signed a 4G roaming deal, allowing AT&T customers access to the NTT network when traveling in Japan.

Consider only the matter of differing frequencies used globally. In the United States, the 700 MHz, 850 MHz, 1.7 GHz 2.1 Ghz, 1.9 GHz and 2.5 GHz bands all are used for LTE service.

In Europe, the 800 MHz, 900 MHz, 1.8 GHz, 1.9 GHz, 2.1 GHz and 2.5 GHz bands are used.

In the Asia-Pacific region, LTE uses the 450 MHz, 700 MHz, 850 MHz, 900 MHz, 1.7 Ghz, 1.8 GHz, 1.9 GHz, 2.1 GHz, 2.3 GHz and 2.5 GHz bands.

AT&T Launches "Best Ever Pricing" on Family Plans

The latest quarterly reports issued by Verizon Communications and AT&T illustrate new strategic issues in the U.S. mobile business. Fundamentally, the issue is that the U.S. mobile market--in financial and subscriber terms--is bifurcating.

Verizon is pulling away from its other top three competitors--AT&T, Sprint and T-Mobile US--and especially putting distance between itself and AT&T, the other firm in a position to lead the market.

In part, that also explains the different strategic choices apparently being made by Verizon, which is focusing on the core U.S. market, and AT&T, which virtually has to look overseas for growth.

For the moment, the key market structure issue appears to be whether AT&T can reignite subscriber growth in the U.S. market.

Verizon Wireless added 1.7 million retail net connections in the fourth quarter, including 1.6 million retail postpaid net connections.

Some 87 percent of new accounts in the fourth quarter of 2013 were phones, the balance being tablet and personal hot spot devices, for example. Compare that to AT&T’s results.

In the fourth quarter of 2013, AT&T added 566,000 new postpaid wireless users, but 440,000 of them were only signing up tablets. In the previous quarter, the company actually lost phone subscribers. In part, that explains new pricing for AT&T Mobile Share plans.

So AT&T is exposed to danger from T-Mobile US and its attack on phone accounts.

In large part because of that threat, AT&T has introduced what it calls the “best-ever prices” for people on its Mobile Share plans, wanting a family-size bucket of data and unlimited talk and text.

Along with Sprint’s new “Framily” plans, which allow unrelated individuals to create shared plans, the latest AT&T move also illustrates the importance of group plans in the U.S. mobile market, where 68.5 percent of postpaid customers are on such family plans, according to an analysis by Cowen and Company.

AT&T says a family of four can now get unlimited talk and text, and 10GB of data for $160 a month. Though partly aimed at new potential customers, the deal also allows existing AT&T customers to save money as well.

Current AT&T customers with four smartphones could move to this new plan and save between $40 and $100 per month, depending on their current plan, AT&T says.

As you would expect, the plan also is designed to compare favorably with family plans offered by AT&T’s leading competitors.

Verizon charges $260 monthly for a plan costing $160 from AT&T. A family with four smartphones with unlimited talk and text, and a shared 10GB bucket of data, could switch to AT&T from Verizon and save $100 a month.

In addition to the savings on recurring costs, such an account would get a $400 bill credit for the four smartphone lines of service added, when switching from Verizon, as part of another marketing effort AT&T is making.

The plans take effect on Feb. 2, 2014 and are available to any AT&T customer, including small businesses with up to 10 lines, and customers of Verizon, Sprint, T-Mobile and other wireless carriers who switch to AT&T.

Such price reductions are going to be a key concern for equity analysts watching for signs of impact on U.S. mobile service provider average revenue per account and average revenue per user.

The general expectation is that ARPU is going to drop as carriers face potential threats to gross revenue. AT&T obviously calculates it will gain more than it loses, as some accounts will purchase larger data allowances than they had in the past, even if some accounts are able to pay less.

5 Noteworthy Changes in Smartphone Market Share Between 2012 and 2013

Global smartphone market share shows five big changes in supplier standing between 2012 and 2013, according to IDC data.

In 2013, HTC and BlackBerry became less significant, while Huawei, Lenovo and LG gained notable share. 

Changes in share are not unusual. But it might be quite noteworthy that the amount of share change among the largest five or six suppliers has changed so much in a year. 

Bandwidth Growth: Nearly What One Would Expect from Moore's Law

If you believe consumer demand for bandwidth is going to slow down, you might not worry so much about creating more Internet access supply.

But it would take a brave forecaster indeed to argue that bandwidth growth will not continue at substantial rates, for the foreseeable future.

If current trends continue, people will need, and use, connections of a gigabit per second by 2020.

That might seem wild. It is not, and simply reflects a continuation of existing trends.

This really should shock you: consumer Internet access bandwidth has grown about as fast as Moore’s Law would suggest, according to Jakob Nielsen, Professor Rod Tucker and Phil Edholm, former Nortel's CTO.

Consider a 2004 prediction (remember that in 2000 most U.S. Internet users were on dial-up connections). 

“Edholm's Law says that in about five years (that would have been 2009) 3G (third-generation) wireless will routinely deliver 1 Mbps, Wi-Fi will bring nomadic access to 10 Mbps, and office desktops will connect at a standard of 1 gigabit per second.”

History has shown that prediction to be about right for mobile, possibly too conservative for Wi-Fi, while too optimistic about desktop connections.

Consider improvements in backhaul network bandwidth since about 1950, and especially since the advent of optical fiber. Backhaul bandwidth grows at a 30 percent annual rate, compared to the 50 percent a year rate of Moore’s Law processes.

    Historic Growth of Internet Access Bandwidth, Microwave Journal

Between 1984 and 2013, fixed network speeds have grown nearly as fast as Moore’s Law would suggest, as crazy as that sounds, knowing the physical nature of access networks, which are construction projects, not software apps.

Still, the data is stubborn and clear: Internet access bandwidth has grown about 50 percent annually since 1984.

Nielsen's Law is similar to Moore's Law. You might predict that computing capabilities would increase faster than access bandwidth, simply because access networks are construction intensive. 

Moore's Law suggests that computers double in capabilities every 18 months, corresponding to about 60 percent annual growth. Nielsen’s Law predicts bandwidth will grow at about 50 percent a year.

It isn't clear how ISPs in rural and remote areas will keep up. It certainly will not be easy. Still, history suggests that speeds, affordability and coverage will continue to progress in tough-to-reach areas, even if not fully at the pace of the urban areas where supplying bandwidth is easiest.

source: IEEE