LTE the Big Winner for Connected Car?

Not every machine-to-machine or "Internet of Things" requires lots of bandwidth, or continual connection. But the connected car market likely includes a wide enough range of app requirements that Long Term Evolution, the highest-capacity mobile network, will lead growth.

“LTE will be the fastest-growing cellular technology in cars, expanding 135 percent annually between 2014 and 2018,” says Godfrey Chua, directing analyst for M2M and The Internet of Things at Infonetics Research. “A major boon will come from AT&T’s agreement with GM to deploy LTE for the OnStar service.”

Some service providers are seeing as much as 90 percent of their machine-to-machine (M2M) revenue generated from the connected car segment, Chua notes, and much of that opportuntity is, at present, centered in the United States.

North America accounted for 37 percent of global connected car service revenue in 2013.

Infonetics also expects revenue derived by service providers for the connectivity and other basic value-added services they provide to the automotive, transport, and logistics segment to more than triple from 2013 to 2018, to $16.9 billion worldwide.

The connected car services market additionally is growing at a compound annual growth rate of 25 percent, nearly 21 times the growth rate expected for traditional mobile voice and data services between 2013 and 2018.

Whatever one believes about the size of the connected car market, and how big revenue opportunities might be for app providers, automakers and connectivity providers, it is clear that not every “Internet of Things” application and market segment has the same requirements for bandwidth.

Energy meters, for example, generally do not require persistent connections, and feature small uploads quite reasonably handled by 2G networks.

Video surveillance apps, on the other hand, generally require higher bandwidth.

Bandwidth required to support connected car apps will vary. Some diagnostic apps might well only require episodic, bursty, low-bandwidth connectivity. In-vehicle content apps, on the other hand, might well be required to support video, which means Long Term Evolution 4G is almost mandatory.

Real-time navigation apps might do fine with 3G access. Over time, of course, 2G networks will be phased out of service, so all apps ultimately will be available only on 3G or 4G networks.

For the moment, though, the differential app requirements mean “just about any communications service provider, whether they have 2G, 3G, 4G, LTE or a combination of technologies, can find a niche in the connected car space,” says Godfrey Chua,

Of course, since lower-bandwidth apps easily are handled by higher-bandwidth networks, LTE is likely to be a big winner.

Thailand 4G Auction Postponement Could Affect Mobile Market Share

Communications spectrum, politics, money, market share and firm fortunes almost always are intimately connected. In Thailand, for example, a delay in holding of fourth generation network spectrum auctions might help the smallest service provider, and harm the biggest provider.

Advanced Info Service, for example, is the biggest mobile company, in terms of subscribers, but has the least amount of spectrum. True, the smallest of the three national carriers, recently got an investment from China Mobile, and the spectrum auction delay could slow AIS growth.

Planned fourth generation mobile network spectrum auctions originally planned for August 2014 have been postponed.

The planned auctions for 25 MHz in the 1.8 GHz spectrum band was due to be held in August 2014, with another 17.5 MHz in the 900 MHz band also expected to be awarded sometime later in 2014.

Some have suggested the auction delay could help one contestant, True, and limit gains by AIS, an expected bidder. So China Mobile gain,s while Telenor might lose, given the potential impact on their Thailand partners.

AIS, the largest service provider in terms of subscribers, does not have any present rights to any 4G spectrum. So spectrum scarcity could slow growth, as AIS could find it does not have enough capacity to provide reasonable levels of service to its customers, a problem other mobile service providers have, from time to time, also encountered.

45% of Mobile Service Providers Offer At Least One Zero-Rated App

Some 45 percent of mobile service providers operators offer at least one zero-rated app, and 65 percent of those zero-rate Facebook, according to a study by Allot Communications.

Some will see the partnerships between mobile Internet service providers and application providers as the key element. Others might focus on the notion of “zero rating” use of a few applications viewed as having high end user value.

That, in turn, is important because it illustrates the downside of “treating all apps equally.” Sometimes, especially in developing nations, app discrimination--providing one app at no charge--provides clear value for people.

Application “non-discrimination” and “no blocking” tends to be the language used by network neutrality supporters. Most people likely have no issue whatsoever with the notion that lawful apps cannot be blocked, in the U.S. market.

As useful as “no blocking” is as a political slogan or principle, new legislation to prevent such blocking arguably is unnecessary, as the Federal Communications Commission already enforces such principles.

“Application non-discrimination” arguably is the heart of the matter, but possibly for new reasons.

The original concern was use of quality of service mechanisms, especially packet prioritization, as opposed to the present “best effort only” level of service available to U.S. consumer Internet access customers.

The concern was that Internet service providers would create new tiers of service that offered better end user experience at times of network congestion, but that such services would lead to additional costs for application providers who wanted such access, as they now pay firms such as Akamai for content delivery services that provide similar benefits over the network backbones.

Recently, the rubric of network neutrality has been extended into other areas--including network interconnection--that similarly have “cost of doing business” implications for app providers.

Of course, extending an analogy too far can backfire. The concept of  “treating all apps equally” is attractive, and sounds eminently fair.

But mobile service providers in many developing markets find that treating apps quite unequally provides value for end users and creates demand for mobile Internet access.

In fact, about 85 percent of mobile service providers promote certain over the top apps--and not all apps--according to Allot Communications.

Quite often, mobile service providers also zero-rate Facebook, Twitter or WhatsApp, as a way of illustrating the value of mobile Internet access.

Social apps, in other words, have proven to be attractive “gateway” apps for consumers. Actual policies differ. Some service providers offer free Facebook access only for newsfeed text and

text postings.

Others offer free Facebook messenger use, while others zero rate all Facebook traffic, with no need for a mobile data plan.  

In 2012, 27 percent of operators sampled offered application-centric plans to their customers.

In 2014 these partnerships are up to 55 globally, according to Allot. And some 40 percent of application-centric charging plans focus on zero rating. The rest are premium services that do carry a retail price tag.

Application-centric plans often provide TV streaming, on-demand video streaming, music streaming and music storage. But GPS location services, parental control and tracking features often are offered for an additional fee.

"Customer Surly" and "Customer Friendly" Service: 2 Anecdotes

It's only one anecdote, but one does wonder whether incentives for "saving" an account could have something to do with what many could say is an overly-aggressive effort by one Comcast CSR to save an account, when the customer wanted to halt service. 

Few might consider the call a pleasant experience. 

I had the diametrical opposite experience recently when changing service levels for my mom's Verizon FioS video account. I needed to downgrade one premium video service and also end purchase of a backup and security service for the Internet access account.

The former downgrade was because she doesn't watch so much TV, and certainly was not watching the premium service. The latter downgrade was because, after moving mom to a Chromebook, the online backup and security package simply was unnecessary. 

I got everything done, right away, on the Verizon website, with no need to make a call, talk to a customer service representative and endure the "save the revenue" script I suspect I'd otherwise have encountered. 

To be sure, Verizon's customer-friendly approach to online downgrades meant Verizon did not have one more shot at avoiding the two downgrades. 

On the other hand, I appreciated the chance to quickly and easily accomplish a service level change without grief. 

Perhaps one should not conclude too much from just a couple of customer interactions with a major service provider. 

But it also is hard not to wonder whether a different approach is at work in these two instances. 

I probably am not the only potential customer, or existing customer, who has encountered what appears to be a deliberate effort by a service provider to make dropping or downgrading more difficult. 

Can 5G Erase Difference Between Mobile and Fixed?

Though it is early to specify what characteristics future fifth generation (5G) mobile networks will feature, at least some think 5G will be the first next-generation mobile network with a specific applications focus and the first mobile platform that erases performance differences with the fixed networks.

Those are among some of the conclusions one might draw from the 5G “Public Private Partnership,” a new European 5G initiative.

Ironically, given the amount of present argument advanced about the need for maintaining “best effort only” access (no packet prioritization), the 5G PPP document also notes the “future challenge will be to guarantee and continuously improve customer experience offered by cloud-based services.”

“Such experience relies on the end-to-end QoS, and more generally on respective SLAs in place for a given service,” the document notes.

So there, once again, you have the inherent tension between “best effort only” access and “quality of service,” which in the 5G PPP document explicitly indicates that QoS mechanisms are necessary to ensure good end user experience.

There are, to be sure, many ways to enhance experience at the end user level. But “admission control” always has been a feature of public networks that must share key resources, and can become congested at peak hours of use.

Among other key 5G objectives is a mobile network with three orders of magnitude more capacity than was typical in 2010.

Another angle is that the 5G PPP envisions devices connecting with multiple networks over time, and possibly more than one network at any moment, meaning there will be more orchestration of access.

Whether that enhances, degrades or is neutral with respect to the “value” of networks, and how such orchestration affects the “commodity access” or “dumb pipe” position of access networks also is unclear.

Though 5G would not be the first next-generation mobile network to enable new apps, 5G arguably will be the first such network built with a specific category of applications in mind.

In some ways more dramatic, at least some observers predict 5G also will erase the distinction between “fixed” and “mobile” networks, with “capabilities and performances of mobile networks becoming similar to those of fixed networks in terms of capacity and services diversity,” argues the 5G “Public Private Partnership”  a new European 5G initiative.

That might sound fanciful, were it not the case that small cells, carrier and other Wi-Fi resources, ideally, will allow devices to interwork seamlessly, erasing, from a user standpoint, the difference between “using a fixed network and using a mobile network.”

Essentially, all those techniques shift bandwidth demand from “mobile” to “fixed” access.

The other change is the deliberate architecting of network standards to support both machine-to-machine apps (Internet of Things) and person-to-person communications.

5G will be about the Internet of Things, argues Neelie Kroes, European Commission VP. If that prediction turns out to be correct, 5G will be the first next-generation mobile network defined by applications, not just air interfaces and bandwidth.

“It will also offer totally new possibilities to connect people, and also things, being cars,

houses, energy infrastructures,” Kroes argues. “All of them at once, wherever you and they are."

One might argue those sorts of comments also are part of a political agenda. Perhaps oddly, the mobile infrastructure business now is lead by European and Chinese firms. So initiatives related to 5G arguably are part of an effort to keep Europe at the forefront of mobile infrastructure businesses in the future.

On the other hand, initiatives such as the 5G “Public Private Partnership”  also speaks to a fear that Europe fell behind in 4G device and application innovation and leadership.

And, as always, the positive impact on economic growth and jobs are part of the rationale for pushing ahead in 5G.

The document also notes why mobile data is at the heart of the proposed 5G architecture.

Within Europe, “revenue from mobile data services compensates for the declines in total spending for both the fixed and mobile voice services markets,” the group says.

T-Mobile US Wants Lower Mobile Data Roaming Costs

In Europe, mobile wholesale voice and data roaming rates have been lowered by action of the European Commission. In the United States, at least according to T-Mobile US, mobile data roaming rates likewise are dropping.

And T-Mobile US wants the Federal Communications Commission to take action to drop mobile data roaming rates T-Mobile US pays to AT&T or other service providers able to support GSM roaming.

To be sure, data roaming represents only about 0.16 percent of T-Mobile US customer data usage.

But smaller service providers typically argue they pay roaming rates that are too high, in large part because smaller networks nearly always pay more in roaming fees than larger networks pay to smaller networks.

Scale is the reason: most calls or instances of roaming will occur when smaller network customers roam onto larger networks, simply because the larger networks represent most of the customers who communicate.

Larger numbers of customers also mean lower likelihood a big network’s customers will need to access a roaming network, simply because there is a greater likelihood a called or connected party is “on network.”

AT&T has a bigger deployed network than T-Mobile US. So AT&T customers arguably will need to roam less frequently off the core AT&T network when traveling.

With a smaller network, T-Mobile US customers are more likely to need to roam onto AT&T’s networks when traveling.

Devices a Smartphone Replaces

This is an illustration of all the other devices a smartphone now replaces. source: TG Daily

For Every Public Purpose, There is a Corresponding Private Interest

Who pays for Internet access? Consumers and businesses. 

But advertisers or sponsors might pay on behalf of users of their services. Internet service providers might sponsor use of some applications. 

In some cases, application providers pay, on behalf of their customers. 

But mostly, it is end users who pay all the costs.

And though it is true that there are genuine policy issues surrounding a seemingly-endless list of "network neutrality" instances, there also are important commercial interests.

For access providers, the issue is whether apps that impose disproportionate network costs should help defray the direct costs they impose. 

For application providers, the issue is avoiding such costs, as they would directly affect app provider business models. 

And as the Internet has fragmented, there now are different kinds of Internet domains. The sort people generally are familiar with are Internet service providers who provide mobile or fixed network access. Those "eyeball" networks aggregate end users. 

Content domains are different, especially domains that supply video entertainment or video content. Such domains represent the majority of all demand on access networks. 

To the extent that ISP eyeball networks have to supply additional capacity to support such apps, the costs now are borne exclusively by end users, in the form of higher access fees. 

The issue is whether dual revenue streams will develop that resemble the way much print, TV and audio content is subsidized by advertisers. 

That notion is contentious as a matter of public policy. But the differences also reflect very real business models, and revenue and cost winners and losers in the internet ecosystem. 

As always is the case, for every public purpose there is a corresponding private interest. Proponents never directly say so. But it always is there. 

Which Analogy for ISP Interconnection: Retransmission or Carrier Interconnection?

Netflix and major U.S. ISPs use different metaphors to describe the process of interconnecting Internet domains.



Verizon, AT&T and Comcast, for example, use the analogy of carrier interconnection, where the amount of traffic exchanged determines whether any particular bilateral interconnection is settlement free (roughly equal amounts of traffic exchanged) or requires payment by the network delivering much more traffic than that network is accepting.



Netflix uses a different analogy, that of broadcast TV "retransmission fees," the fees paid by video subscription services to TV broadcasters for the rights to retransmit off-air signals as part of a video subscription.



Whatever one thinks of the reasonablenes of those analogies, there now is a huge traffic imbalance between "eyeball networks" that terminate Internet traffic for consumers, and "content networks" that deliver traffic to eyeball networks, but accept only modest traffic from the eyeball networks back to the content networks.



The reason is simple enough: content networks send video and other content to end users, but generally do not need to accept much upstream traffic from consumers, whose operations are generally confined to ordering a movie to watch or updating a play list. 

"Opportunity Cost" Might be the Biggest Downside to "Upgrading" Existing Product Lines

Marginal cost has proven to be a key concept for products sold in most mass markets, and telecommunications is not exempt from that trend.

Any number of retail prices and packages are set basically to reflect the marginal cost of adding the next incremental customer. In fact, over time, economists might argue, current retail costs for goods and services tend to move towards marginal cost.

The concept has lots of relevance in telecommunications, where large amounts of capital investment are “sunk,” and incremental usage actually imposes little additional operating cost.

The traditional way of illustrating the principle is to answer the question “how much does adding one more minute of use of the voice network cost?” In practice, the cost is almost solely limited to the cost of adding one more transaction on a billing system.

In the Internet era, we are accustomed to the notion that the next increment of usage of any consumer app actually costs the suppliers almost nothing.

In most cases, that next increment of usage costs the end user almost nothing, as well. You of course know the business problem thus created. When costs are nearly zero, retail price will tend to move towards zero as well.

As useful as that is for consumers, it is a huge problem for communications suppliers. Very low marginal cost explains why VoIP and messaging providers are able to offer their services literally for free, or nearly for free.

Low marginal cost is the foundation for the business model known as “freemium.”

Low marginal cost explains why suppliers of long distance calling, facing declining margins, try to compensate by encouraging additional usage volume.

And low marginal cost will be the reason why gigabit access services costing only $70 to $80 a month are possible, in large part.

Observers offer any number of suggestions to service providers about how to sustain their businesses under conditions where retail pricing for many products drops to marginal cost, and when marginal cost is quite low.

Many of those suggestions, though sound enough, have problems. Solutions that call for adding more value to existing products assume users will value the incremental new value enough to pay incrementally more revenue.

Strategies that call for creating new lines of business face execution risk (can telcos really do it?) as well as scale risk (will the new revenue streams be big enough to justify the effort?).

Assuming that creating new lines of business is both essential and realistic, the subsidiary issue then is how much to continue investing in legacy businesses that are declining in absolute value.

Two fundamental approaches can be taken: harvest or invest. The former essentially admits a business is mature, and will decline. The objective then is to preserve the magnitude of the revenue stream as long as possible, at the highest level possible.

The latter calls for spending more money to upgrade products, adding enough value that prices and usage can be sustained, or hopefully that usage and prices can even raised.

Low marginal cost might suggest harvesting is the more realistic strategy for most service providers. Adding more value might be capital and human capital intensive enough that the net result is a negative number.

Some of us would argue that if a given product line is powerfully affected by low marginal cost, the wiser choice is harvesting. The upside from big, or even significant investments, might not be large enough to justify the cost, time and human effort.

“Opportunity cost,” effort that might have gone elsewhere, also is a concern. No matter how large, organizations only have so much ability to invest in brand-new lines of business and revenue streams.

Must Telcos Cut Dividends and Structurally Separate Networks?

At least some small telcos that once paid rather sizable dividends have had to cut back or end such payments. 



Typically, when that happens, the company risks disruption of its owner base, as equity owners formerly buying a dividend payer are replaced by equity owners that seek growth. 



On the other hand, such moves free up capital to invest in the network. 



How well that strategy works long term remains to be seen. `But such decisions are anything but casual. 



Forrester Research analyst Dan Bieler argues that so important is the "connectivity services" function that  telcos should consider two courses of action they have traditionally opposed, namely separating network operations from retail operations, and paring back dividends.



Separating network operations from retail operations has been proposed before, and never to any widespread agreement on the part of telco executives. In part, that reflects a concern about commoditizing the access function.



Also, though, such structural separation also tends to come with greater pressure to sell transport and access services to third parties. 



Potential wholesale customers tend to argue that makes rivals "customers."  Facilities owners tend to argue structural separation eliminates a key perceived source of business advantage. 



Australia's National Broadband Network is among the more-prominent examples of the structural separation approach. Of course, that move was fought vigorously by Telstra, which arguably had the most to lose. 



Reducing dividend payments might not have direct competitive implications, but to the extent a stock price is a currency that can be used to acquire other firms, there is a negative strategic impact. 



Calls to slice dividends and separate network operations from the retail sales organization are not new. Neither are the business repercussions. 



Structural separation, and its related "mandatory wholesale" policies, arguably have proven to help competitors more than such policies help the owners of the facilities. 



The exceptions have been scenarios where the facilities owner traded vertical integration for regulator permission to enter new markets. SingTel did so. So did Rochester Telephone. 



But most telco executives continue to see more downside than upside, no matter how much advice they get to the contrary.

Could Google be Regulated Like a Common Carrier in Germany?

Google could be regulated as a common carrier or utility in Germany, if German regulators conclude Google has gained too much power and influence, a report by the German Federal Cartel Office suggests.



Such regulation could include price regulations governing prices for advertising, if regulators think Google's market position allows practices that violate antitrust rules. 

SoftBank, Deutsche Telekom Reach Fundamental Agreement on T-Mobile US Buy

With the caveat that antitrust review and clearance from the Federal Communications Commission is required, and by no means certain, SoftBank and Deutsche Telekom apparently have reached agreement on the broad outlines of a Softbank deal to buy the assets of T-Mobile US.



That would merge Sprint with T-Mobile US, the number three and number four national U.S. carriers.  



Under the plan, Softbank will buy more than 50 percent of T-Mobile US shares through Sprint, directly from Deutsche Telekom, which owns 67 percent of T-Mobile US. The deal is valued at about $16 billion.



The chances of regulatory approval are highly uncertain at the moment, though. Some might rate the odds of success as high as 70 percent. 



Others rate odds of success at about 55 percent. And some think the  odds of success are no better than 10 percent. 

A Second Wave of MVNO Growth Coming?

In January 2014, China issued 11 MVNO licences. In March 2014, Virgin Mobile acquired a MVNO licence from Saudi Arabian regulator. Those are potentially-important agreements because in many markets in the Global South, it has not been possible to lawfully operate as a mobile virtual network operator.

It is impossible to say how well such new MVNOs might fare. But past experience suggests that, in most markets, growth much beyond 12 percent customer share could be a challenge.

In 2009, for example, the market share held by MVNOs in Western Europe and North America was about nine percent, according to TeleGeography.

Globally, MVNO market share was about one percent. So MVNOs were a significant market presence only in two regions.

But logic would suggest that growth will occur in most markets globally where MVNOs either are not legal or commercially viable because carrier interest in supporting wholesale is low.

Asia is one of the regions where MVNO market share could be poised to grow from 50 percent to 100 percent annually, albeit from very-low installed customer bases.

The long-term issue is how much market share such new MVNOs might gain.

At least so far, it has proven difficult for MVNOs to break out from about 12 percent market share, perhaps because many MVNOs have focused on the “value” segment of the market, and “standard” offers from the facilities-based carriers have grown in that segment as well.

Whether that also will be the case in MVNO markets in the Global South is the issue. One might note that retail offers already are fairly aggressive in those markets. That suggests niche market strategies will be important, as the lure of “lower price” will be harder to create, than has been the case in Western Europe and North America.

By 2011, a separate analysis by Pyramid Research suggested MVNO adoption had reached about 12 percent, while in other regions MVNOs had less than three percent market share, most less than one percent market share.

That lead Analysys Mason to suggest that MVNO market share had essentially reached its limit, in Western Europe. To the extent that growth remained, it would come from wholesale-based offers adopted by device suppliers and service providers targeting market niches.

But in 2011, Scandinavian MVNOs faced falling market share. Denmark’s MVNO penetration fell to 4.2 percent from a peak of 10.9 percent.

In Finland, MVNO share fell to two percent from a peak of 11.7 percent. In Sweden, MVNO share dropped to 0.4 percent from a peak of three percent.

In 2010, there were abut 60 U.S. MVNOs in operation, according to the Federal Communications Commission. Most were quite small, but Tracfone had about five percent market share, earned by focusing on prepaid customers with low average revenue per user.

New "Information Markets" Raise Issues

Increasingly, information about products gets intertwined with the actual products, raising new legal and ethical issues. MonkeyParking, for example, is an app that allows people who are parked to alert out drivers that they are about to pull out of a spot, and allows those other drivers to bid on the right to take the vacated parking spot.



You can see the issue: such apps create new information markets whose value lies in the procurement of physical goods, such as parking spaces. 



At the heart of the dispute over these services is whether apps should be able to use a public asset to make a profit. The app developers of course argue it is information about parking, not parking, that is the foundation for the business.