$25 Smartphones Will Disrupt Forecasts of Smartphone Use in Asia

As typically is the case, the emergence of low-cost smartphones is going to disrupt all existing forecasts of smartphone adoption in Asia, as those forecasts rationally have been based on devices costing more than $200, not the projected $25 of the new Mozilla-using devices.

Low-cost smartphones are expected to have a huge role in extending mobile Internet access in Asian markets. Mozilla, for example, is introducing “ultra-low-cost” devices to India in the next few months, said to cost about $25, an order of magnitude less than existing high-end smartphones.

Mozilla has partnered with Intex and Spice, two of India’s leading mobile device brands, to bring the first Firefox OS devices to India in the next few months.

The same trend is expected to happen elsewhere in Asia. low-cost smartphones are a key strategy in the China mobile market as well.

In 2014, for example, low-cost phones will drive smartphone sales in both India and China, but sales have been robust in Southeast Asia as well, over the past several years.

Wi-Fi Offload Will Represent 52% of Mobile Internet Traffic in 2018

Percent of Total Mobile Data Traffic Will Be Offloaded by 2018

Mobile Internet access traffic offloaded from mobile networks to Wi-Fi represented 45 percent of total mobile Internet traffic in 2013, and will grow to 52 percent of total mobile Internet access traffic by 2018, according to Cisco’s Visual Networking Index.

Likewise, the amount of traffic offloaded from smartphones will be 51 percent by 2018, and the amount of traffic offloaded from tablets will be 69 percent by 2018.

That is a good indicator of how foundational and strategic unlicensed spectrum and fixed network Internet access has become for mobile service providers and their customers, even when the fixed network access is not owned by the mobile service provider.

That, in turn, illustrates a fundamental principle of modern computing and communications, namely that applications and access are fundamentally separated.

The implications for communications service providers are decidedly mixed, as a result. On one hand, the ability to offload traffic to third party networks creates new end user value for suppliers of fixed access.

Consumers understand how offloaded mobile Internet access saves them money on their mobile service and also improves experience, since fixed networks can run an order of magnitude faster than mobile connections, and typically between twice and five times faster than mobile connections.

Mobile service providers also are able to avoid making capital investments in their networks as often as would otherwise be the case.

42 Percent of Global Tablets Will Be Cellular Connected by 2018

The ability to offload mobile phone data demand to Wi-Fi networks reduces demand growth on mobile networks by about four percent a year, according to Cisco’s Visual Networking Index.

Global mobile data traffic would grow at a compound annual growth rate of 65 percent instead of 61 percent, were offload to Wi-Fi not possible.

At the same time, more consumers are choosing to connect their tablets using the mobile networks, a trend that fuels net subscriber growth for the leading four national mobile service providers in the United States.

Cisco estimates that by 2018, 42 percent of all tablets will have a mobile connection, up from 34 percent in 2013.

Cisco’s estimates of mobile data traffic offload includes traffic from both public hotspots as well as residential Wi-Fi networks.

Some suspect Wi-Fi offload will be less relevant once Long Term Evolution 4G networks are widely used. That argument assumes consumers default to Wi-Fi primarily for reasons of better user experience.

To the extent that consumers also default ot Wi-Fi to save money by limiting mobile data plan usage, that might not be the case.

In fact, 4G networks lead to much-higher data consumption, and that usage plans are volume sensitive, consumers will have high incentives to offload traffic to Wi-Fi, when possible.

In 2018, for example, Cisco estimates that 4G connections will be 15 percent of the global total. At the same time, in 2018, 4G networks also will represent 51 percent of total global mobile data traffic.

While 3G and 3.5G account for 60 percent of mobile data traffic today, a 4G connection generates nearly 15 times more traffic than a non-4G connection, according to Cisco.

In large part, that difference in consumption is driven by both higher usage and higher-bandwidth apps on 4G devices, especially video. Mobile video traffic exceeded 50 percent for the first time in 2012 and was 53 percent of traffic by the end of 2013.

Mobile Data Traffic and Offload Traffic, 2018

Also, as smartphones become the devices of choice, consumption will grow. In 2013, on average, a smart device generated 29 times more traffic than a non-smart device, Cisco estimates.

In 2013, a 4G connection generated 14.5 times more traffic on average than a non‑4G connection. Although 4G connections represent only 2.9 percent of mobile connections today, they already account for 30 percent of mobile data traffic.

The point is that so long as mobile data plans are usage-based, there will continue to be high demand to offload traffic to Wi-Fi networks.

Wearables Will Drive Half of All App Interactions by 2017?

Gartner predicts that by 2017 wearable devices will drive 50 percent of total app interactions, part of a trend that also will have mobile-originated apps by 2015, most mobile apps will be syncing, collecting and analyzing data about users and their social graphs.

Should that trend emerge, it will be one more inication that the lines that separate “machine-to-machine” or “Internet of Things” applications and devices from “connected devices” such as tablets, watches, game players and TVs are blurring.

Machine to machine apps, typically involving the collection of sensor data, would in such cases also be instances of sensor apps. In a similar way, sensor data from smartphones likewise might be considered part of the Internet of Things trend, even if the device itself is a "traditional" appliance, not an industrial sensor.

That is one reason why forecasts of IoT revenues are so disparate at the moment. Aside from the difficulty of forecasting the emergence of what most expect will be a big industry, delineating revenues is a problem.

Is sensor data collected from a mobile app on a wearable device an instance of IoT or an instance of traditional Internet use?

International Data Corporation has predicted that IoT technology and services spending would generate global revenues of $4.8 trillion in 2012 and $8.9 trillion by 2020, growing at a compound annual rate (CAGR) of 7.9 percent.

By 2020, the installed base Internet of Things devices will be approximately 212 billion globally, including 30.1 billion installed "connected (autonomous) things" in 2020, arguably mostly

sensors.

Other forecasts are more conservative. Machina Research expects an installed base of about a billion devices by about 2022, with revenue of about a trillion dollars.

Google Buys Skybox Imaging: Maps Will Benefit, Maybe Internet Access Later?

source: Business Insider

Google is buying Skybox Imaging, a firm that supplies high-quality satellite imaging services, but also manufactures low-cost satellites. Skybox satellites are about the size of a phone book.

The immediate application likely will be to improve the granularity of Google Maps images. But some speculate the phone-book-sized satellites might eventually play some role in satellite-delivered Internet access as well.

The $500 million acquisition might also eventually help Google supply low-cost internet access in underserved regions

The expansion into satellites comes two months after Google bought drone maker Titan Aerospace, a move that might also ultimately have some application for Internet access, but immediately should help Google improve the images presented as part of Google Maps.

NFC Adoption Forecast Slow in North America, Western Europe, Next 2 Years

At least so far, near field communications (NFC) has not propelled the mobile payments business as fast as some had predicted. And Juniper Research has now scaled back its forecasts for NFC adoption in the North American and Western European markets, though not the South Korean and Japan forecasts.

To be sure, skepticism about NFC has been growing for years, despite some thinking that NFC and mobile payments would hit an inflection point in 2013. In fact, some might argue Juniper Research made the NFC transaction revenues reduction in 2013.

On the other hand, neither should near term sluggishness in adoption come as a surprise.

Even popular consumer innovations can take a decade or more to reach 10 percent adoption, when the underlying ecosystem is complex, and has to be built almost from scratch. Use of automated teller machine cards and debit cards provide an example.

As useful as those innovations are, it took a decade for each to reach 10 percent adoption by the public. NFC adoption arguably will be tougher as debit and ATM cards required consumers only to change behavior and use new plastic cards. NFC requires replacing merchant cash registers and requires users to buy NFC-capable smartphones.

Adoption of ATM and debit cards cost consumers virtually nothing, or very little, in terms of transaction costs.

Also, one might argue the value proposition for use of ATM cards and debit cards was easier to understand. Debit cards replaced checks and check charges. ATM cards allowed users to get cash, or make deposits, outside of normal banking hours.

Paying by phone might not offer so much value over using a debit card.

While the Juniper Research report finds that by 2017 the proportion of NFC-enabled smartphones will be only marginally below previous estimates, global NFC retail transaction values are now expected to reach $110 billion in 2017, significantly below the $180 billion previously forecast.

Apple’s decision to omit an NFC chipset from the iPhone 5 has reduced retailer and brand confidence in the technology, leading to reduced POS (Point of Sale) rollouts and fewer NFC campaigns.

In turn, this will lead to lower NFC visibility and adoption in the near term, at least in the North American and Western European markets, creating a “two year lag” on previous forecasts.

“While many vendors have introduced NFC-enabled smartphones, Apple’s decision is a significant blow for the technology, particularly given its previous successes in educating the wider public about new mobile services” said Dr. Windsor Holden, Juniper Research analyst. “Without their support, it will be even more difficult to persuade consumers – and retailers – to embrace what amounts to a wholly new means of payment.”

Conversely, retail transactions in NFC’s heartland in Japan and Korea are likely to experience little or no impact from the decision, Juniper Research forecasts.

Google Wallet and ISIS likewise have struggled to gain traction in the U.S. market, and both rely substantially on NFC.

Is There a "Silver Bullet" for Reducing Fiber to Home Costs?

Many would like to discover some silver bullet capable of dramatically reducing the cost of fiber to the home networks.

And there have been improvements.

A municipal fiber to the home network in Loma Linda, Calif. has been able to reduce access costs from $50 a foot to $12-$18 per foot, a saving of between 64 percent to 76 percent in the most labor intensive and expensive part of the access network, according to m2fx.

Use of micro-trenching and use of m2fx cabling avoided traditional trenching for underground construction. Instead, micro trenching required only cutting a one-inch wide trench, installing micro duct and rapidly restoring roadways.

Once the micro duct is installed, m2fx Miniflex cable can simply be pushed or pulled to its

destination from the manhole, without the need for expensive blowing equipment

or specialized skills.

That is important, as it obviates the need for use of special installation crews. The majority of deployments are completed by municipal staff, with the City electrician deploying fiber to the premises, m2fx says.

Whether such techniques can scale in larger metro areas requiring retrofits and rebuilds is a question some might have. Loma Linda has only 1,600 houses to connect. And some might question the economics.

Since 2004, all new Loma Linda homes have been installed with structured wiring.

The structured wiring and fiber connection added $3,000 to the cost of a new home, according to Konrad Bolowich, Loma Linda’s IT director.

KB Homes built two essentially identical new developments, and pre-wired Loma Linda homes sold for $10,000 to $12,000 more than the unwired, but otherwise identical, models nearby.

By ordinance, new homes built in Loma Linda must have structured access cabling costing a developer about $3,500.  

Bolowich said in 2013 that the city is still trying to come up with a cost effective solution for hooking up pre–2004 homes.

A pilot project cost the city between $1,200 and $1,500 each for the 36 retrofitted homes connected, too much to provide a payback, even assuming about a 50-percent take rate.

The municipal-provided Internet access service costs $30 per month for 5 Mbps service, going up to $100 a month for 15 Mbps service.

The point is that Loma Linda, even using the new trenching method, might not have found a repeatable and sustainable payback model for most housing, which is not greenfield construction, in new developments.

Already, the city offloads the access cost for newbuilds to developers. But Loma Linda cannot do so for most houses.

So there appears to be no “silver bullet” solution for fiber to home construction costs, despite the improvements in trenching and cabling costs.

What are the Odds of Sprint Bid for T-Mobile US Being Approved?

Moffett Nathanson estimates there is only a 10 percent chance that the Justice Department and the Federal Communications Commission will approve any Sprint-T-Mobile merger.

Others disagree, arguing the odds could be as high as 50-50, in part because, as Sprint and
T-Mobile US believe, the other big deals will change the market.

Some might argue the future opportunities both Sprint and T-Mobile US each might have to survive in the U.S. market as independent companies will hinge on the regulatory response.

The argument in favor of a merger is that Sprint and T-Mobile US simply lack the scale and financial resources to catch AT&T Mobility and Verizon Wireless.

The argument against such a deal is that the U.S. mobile market already is too concentrated. But U.S. communications markets are changing, in ways that change market dynamics.

The instability is that Comcast is chasing a deal that would make it the supplier of 40 percent of U.S. fixed network high speed access connections. AT&T wants to vault from five percent share of the U.S. video entertainment market to about 27 percent.

At the same time, Dish Network will enter the market soon as a facilities-based mobile provider, while Comcast will do so as well, probably using a strategy similar to that used by Illiad’s Free Mobile, which rapidly gained significant market share in the French mobile market.

Much of the recent speculation has focused on the potential FCC decision, on the assumption that Sprint has to win over only a single commissioner to put together a three-vote win.

The Department of Justice might  be the tougher obstacle, as DoJ normally relies on a market concentration standard that already is above the permissible limit.

The Justice Department will generally investigate any merger of firms in a market where the Herfindahl-Hirschman Index (HHI), a test of market concentration, exceeds 1000 and will very likely challenge any merger if the HHI is greater than 1800.

The U.S. market has an HHI of about 2500. Some would argue that any deal in a market with an HHI over .230 will be heavily scrutinized and most likely rejected.

The issue, some would say, is that most mobile markets eventually consolidate to just three leading players over time, no matter what regulators prefer.

Looking at the biggest 36 mobile markets globally, analyst Chetan Sharma found that the average HHI score of a  typical market ranks 3440 on the scale.

Developed markets have an HHI of 3270. The U.S. market HHI is 2500, between “heavily concentrated” and “moderately concentrated” markets. The U.K. market is the notable exception.

Sharma found 30 of the 36 markets over that level.

Whether any of that will weigh on thinking at the Justice Department, or the FCC, is the issue.

Any Sprint deal to buy T-Mobile US will occur in the context of a rapidly-changing market, featuring both consolidation and the emergence of new competitors.

Whether either firm will survive long term, if a merger is rejected,  is the issue.

Some might also argue that one’s perception of the odds--at least at the FCC--likely hinges on how one views the politics of three bit mergers being proposed at the same time.

Sprint thinks its chances are better because two other big deals are proposed. Moffett Nathanson thinks odds, conversely, are worse.

"Approving all three would be untenable for the left,” Moffett Nathanson says. “Rejecting all three would be untenable for the right.”

“At least one of the three would have to be rejected,” Moffett Nathanson concludes. Sprint is the likely loser.  

Successful Sprint Acquisition of T-Mobile US is the Beginning, Not the End

If Sprint does make an acquisition offer for T-Mobile US, and if Sprint somehow manages to gain approval from the Department of Justice and Federal Communications Commission, and if its management is able to execute in the manner of T-Mobile US, rather than Sprint, the new company still will trail Verizon Wireless and AT&T Mobility, but close the gap significantly.

The combined company still will face issues, ranging from integrating the two firms operationally to somehow getting the historically sluggish Sprint operation to move as fast a T-Mobile US has proven recently.

Anyone familiar with Sprint will recognize the longer-term issue, namely a corporate culture that historically has been slow-moving and "traditional," compared to most other firms of its size in the industry. 

So even if air interfaces, network coverage, a rationalized retail sales network and other operational issues are resolved over a few years, and even if a more-agile leadership is put into place, some might wonder how fast the traditional Sprint culture can change. 

Softbank already seems to have encountered the problem, which might explain why Sprint has not attacked as aggressively as many believed would happen after the Softbank acquisition of Sprint, essentially losing the initiative to T-Mobile US. 

If an acquisition offer emerges, and if it is approved, the challenge of catching AT&T and Verizon still will remain. Doubtless, there will be continuing questions about whether Sprint actually can change enough to sustain a disruptive and successful challenge. 

Culture, not just scale and financial assets, matter. 


source: Business Insider

Will Sprint Gamble on T-Mobile US? How Soon?

Speculation now is growing that Sprint and T-Mobile US will launch a risky merger effort in 2014, a move that has been debated and rumored about for a decade and a half.

It might be argued the bid is driven fundamentally by weakness, not strength, sometimes an unpromising portent of future success.

A bid would signal in part that favorable bidding rules in the upcoming 2015 auction of 600-MHz spectrum will not, in fact, help either company enough to survive over the long term.

Nor, Sprint seems to believe, can T-Mobile US sustain its blistering and so-far successful attack on industry packaging and pricing, with clear gains in subscribers, over the longer term. In fact, some already are predicting a slowdown in T-Mobile US subscriber gains.

Opponents of any such merger will undoubtedly point to the significant subscriber gains T-Mobile US has made since early 2013, a period where T-Mobile US reversed its customer losses and gained more than two million coveted postpaid customers in 2013.

But neither Sprint nor T-Mobile US executives seem presently to believe they can survive--and that is probably an accurate term--over the longer term unless they combine.

That is going to run head on into antitrust resistance, as Department of Justice officials already have signaled a preference for four leading mobile service providers. But that might ultimately be unsustainble, as French regulators now believe.

More importantly, there is some reason to believe a majority fof Federal Communications Commission commissioners might agree.

So Sprint and T-Mobile US think their gamble is worth an effort, now. The firms think the large mergers proposed by Comcast (to buy Time Warner Cable) and AT&T (to buy DirectTV) give a Sprint bid to buy T-Mobile US a bit of regulatory cover.

With other parts of the industry consolidating, Sprint will position its own deal as an effort to keep up. Without the merger of Sprint and T-Mobile US, the U.S. mobile market effectively will become a duopoly, advocates will argue.

But market structure issues are complicated. Dish Network still is planning its own entry into the market, as is Comcast, and both will do so using their own facilities and assets.

Even with any Sprint merger with T-Mobile US, there still could be four to five leading providers, eventually.

The bid is a clear gamble, as both antitrust authorities and members of the Federal Communications Commission have signaled discomfort with any such deal.

To be sure, large transformative acquisitions and mergers in the U.S. market always involve some elements of “gambling,” as antitrust authorities and the Federal Communications Commission, though generally supportive of past mergers in a prior couple of decades, have recently concluded that markets are about to become too concentrated, or already are too concentrated.

Despite an almost unbroken record of approval of transactions in the mobile, cable TV and telecom business for a couple of decades, just two major refusals can be noted: the rejection of AT&T’s effort to buy T-Mobile US in 2011, and the refusal to allow a merger between DirecTV and Dish Network in 2002.

Those two deals are notable because both would have reduced the number of suppliers in the mobile or satellite TV markets, as the Sprint deal would also accomplish.

And all three big deals--Comcast buying Time Warner Cable; AT&T buying DirecTV and Sprint buying T-Mobile US--would remove a supplier from the market.

To be sure, Comcast argues that there are no competitive complications, since Comcast does not presently compete with Time Warner Cable.

And there are strategic reasons why all the mergers might in some sense be viewed as defensive in nature. Virtually nobody disagrees with the premise that linear video subscription services, sooner or later, are going to be displaced by over the top alternatives.

Virtually nobody disagrees with the notion that voice and text messaging revenues are declining.

The number of fixed network voice lines purchased by customers will continue shrinking, while mobile operator text messaging and voice revenues likewise will be limited in the future.

Also, the number of potential leading providers in the mobile market is going to increase, no matter what happens with Sprint’s bid for T-Mobile US.

Dish Network is preparing to enter the U.S. mobile market, and Comcast is sure to follow.

Almost parenthetically, both Sprint and T-Mobile US seem to discount the strategic importance of bidding rules for the upcoming auction of 600-MHz spectrum that are designed to favor both Sprint and T-Mobile US.

Launching an acquisition in 2014 would effectively remove both Sprint and T-Mobile US from such favored bidding in the upcoming auction of 600-MHz spectrum.

That, in turn, is a signal, and not the only sign, that both firms think their future prospects--and even survival--hinge on gaining scale, soon, and not on additional low-frequency spectrum they might win in the 600-MHz auctions.

One might accurately characterize the motivations behind AT&T’s effort to buy T-Mobile USA, and Sprint’s effort to buy T-Mobile US, as fundamentally different.

AT&T, already a market leader, was making a bid to reinforce its leadership, at the same time closing off any effort by Sprint to gain scale by making its own bid for T-Mobile US.

Sprint and T-Mobile US are making a defensive move, hoping to gain enough scale to compete, and essentially acknowledging that neither firm, alone, is going to catch up to AT&T and Verizon, no matter how many brave words are uttered to that effect.

In fact, some believe the T-Mobile US assault, which has netted important subscriber gains, is unsustainable in the long run. Not only does T-Mobile US need to keep adding new customers at a very high rate, it eventually will have to turn from sacrificing profits, in order to gain customer share, to earning profits.

In other words, the problem with the “compete your way to growth” strategy--for either Sprint or T-Mobile US--is that it already might be doomed. Neither firm has the financial resources to sustain a long campaign to grab share by undermining the industry structure of prices and packaging.

Hence, the necessity of a gamble on a big merger. In fact, it is hard to say which firm loses more if an acquisition fails. Sprint probably would have to pay a breakup fee to T-Mobile US, so T-Mobile US gains, at the margin.

A vote at the FCC would be close. But Sprint and T-Mobile US both believe they have a shot at convincing a majority of commissioners to approve a deal, in part because as many as three of five commissioners might be receptive to the argument that robust competition is sustainable, long term, if there are three strong firms, nearly evenly matched, rather than two leaders and two smaller firms.

Also, the Comcast deal to buy Time Warner Cable and the AT&T bid for DirecTV might help Sprint make the case that on-going major market consolidation now forces Sprint and T-Mobile US to combine.

And even success is no panacea. Ask yourself: would you switch from AT&T or Verizon to Sprint, after a merger with T-Mobile US, if all offers from the combined company were about as they are now at T-Mobile US?

And do you think either AT&T or Verizon, or both, would not move to match those offers, to keep your account?

More significantly, would either AT&T or Verizon stand by while important postpaid multi-line accounts were taken?

​Comcast vs. Netflix: Net Neutrality or Just Intrerconnection?

Net neutrality and network interconnection, it is necessary to repeat, are different processes and issues, even if lots of people think they are the same. 



As Maggie Reardon at CNet rightly notes, "the dispute between Netflix and Comcast is not a Net neutrality issue because it does not have to do with how Comcast is treating Netflix's traffic once it's on the Comcast broadband network. Instead, it stems from a business dispute the two companies have over how Netflix is connecting to Comcast's network."

FCC issues 600-MHz Auction Rules, Which Suggest No Sprint Bid for T-Mobile Until Late 2015, At the Earliest

A useful rule of thumb for assessing the “neutrality” any proposed Federal Communications Commission regulation or policy is that if both larger service providers and small service providers are somewhat unhappy--but not super unhappy--about the guidelines, the FCC probably has managed to get the new policies just about right.

That might well be the case for FCC rules about upcoming 600 MHz spectrum auctions, which will get spectrum set-asides for smaller carriers (AT&T and Verizon opposed that measure; Sprint and T-Mobile US supported the measure), and also prevent “package bidding” favored by AT&T and Verizon, but were considered unfavorable for smaller providers.

Package bidding would have allowed "all-or-nothing" bids for groups of licenses.

By barring such bidding on blocks of licenses, the Commission hopes to encourage smaller carriers to bid on rural licenses with a higher chance of success.

But Sprint and T-Mobile US would find themselves unable to bid on the reserved spectrum if any merger bids between the two companies occur before the auction process.

Some think that means there will be no Sprint bid to acquire T-Mobile US until after the auctions are completed, sometime in 2015.