Some Mobile Service Providers Might Lost Half Their Customers Over the Next Year

Some mobile operators risk losing as much as half of their customer base over the next 12 months, Ovum warns. That might even be a conservative estimate, when looking only at prepaid accounts that are the most-purchased services globally.

In practical terms, any single mobile service provider would have to have monthly churn about four percent for half the customer base to leave over a year.

Mobile service provider churn rates vary significantly, however. According to Strategy Analytics, mobile customers change providers every 27 months. Prepaid customers change providers about every 17 months (every 1.4 years).

Prepaid customers, on the other hand, churn about every 67 months (every 5.6 years), according to Strategy Analytics.

So gross churn, for a prepaid provider, might easily be half of the existing base over 12 months.

Since postpaid customer bases churn at much lower rates, the “typical” customer life cycle might be 1.4 years for a prepaid provider and 5.6 years for a postpaid provider. In some markets, postpaid customer lifecycle, especially for postpaid customers on shared or family plans, can be as long as eight years.  

So it is not unusual that about 25 percent of all mobile users globally say they will definitely change providers, while another 25 percent say they might do so, as Ovum reports. Most customers globally buy prepaid service.

If the Strategy Analytics figures are correct, more than half of prepaid customers might leave every year, with a monthly churn rate of perhaps six percent a month.

If respondents follow through with their expressed opinions, mobile service providers could risk losing as much as half of their existing customer base over the next 12 months, according to the Ovum global survey.

The Ovum forecast also might seem feasible only if gross churn, rather than net churn, is considered.

The Ovum survey finds that almost twice as many customers of Airtel India or LG U+ in Korea plan to churn more than the global average of 23 percent, Ovum says.

In contrast, customers of Vodafone Germany or NTT DoCoMo in Japan are less likely to desert their current service providers, with only about 10 percent indicating they plan to switch operators.

Dissatisfaction with mobile high speed access might be the driver, rather than experience attributes that relate to voice.

About 37 percent of respondents say they either have left or plan to move to another provider because of slow connection speeds.

The survey, which included over 15,000 consumers and 2,700 enterprises in 15 major global markets, also underlines the global importance of being online.

iPhone customers are much more likely to churn than users of competing handsets, mostly to find a provider with faster mobile speeds, the study also suggests.

Churn rates of about 25 percent over a year would not be unusual in the mobile business. But what really matters is “net churn,” the sum total of new customer acquisitions (including customers churning from other providers), less the number of current customers who leave.

By definition, churn describes the behavior of current mobile customers, who are quite unlikely to abandon use of mobile services altogether.

That said, there is a certain amount of uncontrollable churn, as when a customer dies, or moves from one country to another, or perhaps moves from an area where the current carrier provides good experience (signal strength, mobile Internet speed, dropped calls).

But nearly all customers who leave one carrier sign up with another. So net churn, even in markets with monthly prepaid churn rates between four percent and six percent monthly, might have net churn far lower than that, after accounting for new customers gotten from other providers in the market.

Youth is Not a Segment: It is the Whole Future Market

Changes in consumer demand, especially those that disrupt existing products and revenue streams, have been acute for the telecommunications business over the past couple of decades.

To note only a few of the key changes, people text instead of talk, use mobile instead of fixed telephones and use the Internet--both mobile, fixed and untethered. All of those changes, plus shifts in provider market shares, have created profound instability in what once was a very-stable industry.

“One of the most striking cultural and social changes in the U.S. in recent decades has been the revolution in the ways Americans communicate,” says Gallup.

Texting, using a mobile phone and email messages are the most frequently used forms of non-personal communication for adult Americans, according to a new Gallup poll of communications behavior.

Between 37 percent and 39 percent of all U.S. residents said they used each of these "a lot" on the day prior to being interviewed. Perhaps the most-significant finding, however, is that just nine percent of respondents use a home landline phone over the same time frame.

About 15 percent of respondents reported using a landline phone at work the prior day.

All of that leads some to speculate that within a few decades, nobody uses a landline phone anymore.

That might be too extreme a prediction. As service providers already have discovered, bundling voice as part of a triple-play offer props up buying of voice, increasingly the least-in-demand service within the fixed network bundle. But the long-term trend is clear enough, since mobile phones now are the preferred way most people use voice communications.

Telecom executives are relatively unperturbed about dwindling voice revenues in large part because other replacement revenues already have been identified, while the next generation of new services and apps already are within sight. It will be hard work. But the roadmap is in place.

As you would guess, communications behavior varies with age, with the widest divergences in behavior occurring between the youngest and oldest age cohorts.

Sending and receiving text messages is the most prevalent form of communication for 68 percent of surveyed U.S. residents 18 to 29.

About eight percent of U.S. residents 65 or older did so.

That same pattern holds for use of landline phones. About seven percent of respondents 18 to 29 reported using a home landline phone the past day, compared to 17 percent of those 65 or older.

More than 66 percent of those 18 to 29 say they sent and received text messages "a lot" the previous day, as did nearly half of Americans between 30 and 49.

Younger Americans are also well above average in their use of cellphones, email and social media on a daily basis. All that matters for one important reason.

The “youth market” is in some sense not a “segment” of the telecommunications market. At some point, younger consumers become the whole market. In the earlier days of the U.S. cable TV business, the same age-dependent adoption pattern could be seen.

At some point, the older consumers naturally left the market, and the younger age cohorts became today’s middle-aged and “65 or older” populations. In 2014, U.S. linear video subscriptions are purchased by more than 88 percent of U.S. households 68 or older.

Among households headed by consumers 18 to 35, linear video subscriptions are bought by about 62 percent of households.

But product demand changes over time. Though it remains unclear how purchasing behavior might change as the youngest cohort ages, buys homes and has children, many note that, at present, use of streaming services such as Netflix, though used by virtually all age groups, is highest amongst the households headed by the youngest consumers.

That might be the precursor to a demand shift changing prospects for linear video, just as changes in communications behavior by younger consumers portend a shift in demand for telecom services.

500 Million New India Internet Users by 2017?

Google India has launched the Indian Language Internet Alliance, an initiative to promote local language content, increasing the relevance of the Internet in India for up to 500 million new Indian users by 2017.

Google also announced its Hindi Voice Search and a new website hindiWeb.com, which shall offer curated content in Hindi.

Localization of content is one obstacle to be overcome to connect up to four billion people who do not presently use the Internet. About 56 percent of web content is in English despite the fact that less than five percent of the world’s population speak it as a first language, with only 21 percent estimated to have some level of understanding. Hindi accounts for 0.1 percent of web content.

Localized content will increase the value of using the web, stimulating demand.

Device cost also is an issue Google is working on, with Android generally and Android One, specifically. Android One enables production and use of  devices with standardized hardware, stock Android experience and timely updates, priced at or below Rs 5000 (US$81). Lower device costs will create a wide basis of Internet capable devices.

Also, Internet service providers have to get the cost of going online within easy reach. That generally is viewed as a recurring price for access that represents no more than two percent to three percent of income.

Of the world’s seven billion people, 2.7 billion have access to the Internet, while 4.3 billion do not.

Most of them live in developing countries.

Though it still is possible to argue about whether the high adoption of Internet access and higher degree of economic development are causal or correlated, even those who might tend to think high Internet access and higher economic development are correlated, not causal, might support fastest possible adoption of Internet access everywhere, for the same reasons it was deemed important to provide voice communications to everyone.

If developing countries were to catch up with levels of internet access in developed economies today, they would reach a penetration level of around 75 percent, more than tripling the number of present “global south” Internet users from 800 million to three billion.

Of the new global south Internet users, some 700 million would be in Africa, 200 million in Latin America and 1.3 billion in Asia.

AT&T to Buy Mexican Mobile Operator Iusacell

AT&T is buying Iusacell the Mexican mobile service provider for US$2.5 billion, inclusive of Iusacell debt.

AT&T will acquire all of Iusacell’s mobile  properties, including licenses, network assets, retail stores and approximately 8.6 million subscribers.

The acquisition will occur after Grupo Salinas, the current owner of 50 percent of Iusacell, closes its announced purchase of the other 50 percent of Iusacell that Grupo Salinas does not already own.

“Iusacell gives us a unique opportunity to create the first-ever North American Mobile Service area covering over 400 million consumers and businesses in Mexico and the United States, said  Randall Stephenson, AT&T chairman and CEO. “ It won’t matter which country you’re in or which country you’re calling – it will all be one network, one customer experience.”

Iusacell offers wireless service under both the Iusacell and Unefón brand names with a network that today covers about 70 percent of Mexico’s approximately 120 million people. AT&T plans to expand Iusacell’s network.

Iusacell operates a 3G wireless network using the GSM/UMTS air interface that AT&T uses in the United States.

Iusacell owns between 20 MHz and 25 MHz of 800 MHz spectrum, primarily in the southern half of the country, including Mexico City and Guadalajara, and an average of 39 MHz of personal communications service spectrum nationwide (similar to the 2=GHz spectrum used by T-Mobile US and Sprint.

The acquisition is not unusual. The former SBC grew to its present size primarily through acquisitions, and AT&T has almost run out of sizable acquisition targets in the U.S. market.

NextLight Municipal Gigabit Network Gets 8% Take Rates on Day One

Day one take rates for the Longmont Power and Communications NextLight gigabit Internet access network, being built in Longmont, Colo.,  seemed to be about eight percent on Nov. 3, 2014.

NextLight service will be available to residents at about $50 a month for one gigabit speeds if they sign up in the first three months the service is available to their home. Regular price for those that sign up after three months will be roughly $100 a month.

Comcast, which serves Longmont, sells 25 Mbps Internet access on a stand-alone basis at introductory prices of $40 a month. But that is a promotional price that rises after a year.

Comcast’s fastest current offer is 150 Mbps, sold for $90 a month for a year, rising after that introductory period.

So NextLight will be able to underprice Comcast, unless there is a price reaction from the cable company.

Those “charter members” will keep the introductory price as long as they keep their service and will take that rate to their new home, while also reserving that rate for the home they leave, according to a Times Call report.

Customers who miss the charter member window also can qualify for the same rate as a customer loyalty reward after one year, knocking the regular price down from $100 a month to $60 a month.

The city also sells a symmetrical 25 Mbps service for about $40 a month. So the big question, longer term, is what percentage of customers opt for the 25 Mbps service rather than a gigabit service.

Longmont, it is safe to say, was able to undertake building and operating its own Internet access service because it also owns its own power company, Longmont Power & Communications.

The network will be built in phases, with completion slated for 20127.  The new community-owned broadband network will cost $20 million.

The business plan commissioned in 2013 predicted the network would pay for itself in about 10 years, assuming that 35 percent of Longmont residents became LPC telecom customers.

Longmont voters approved a $45.3 million bond issue in 2013 to build the network and get operations up and running.

NextLight expects to settle in at about 27 employees by 2017. Longmont has a population of about 90,000. So capital investment amounts to about $222 per home. It is not clear whether that figure includes installation of active drops, which might add about $300 in per-customer costs. At 33 percent adoption, the NextLight network costs $667 per customer.

And Longmont is not the only community looking at ways to do something similar. The Northwest Colorado Council of Governments, Boulder, Yuma, Wray, Colo., Cherry Hills Village, Red Cliff, San Miguel County and Rio Blanco County also are looking at municipal networks.

Though many obstacles remain, the notion that there is not enough competition in the high speed access business might not hold for much longer, in parts of Colorado, as Google Fiber has created a three-way supplier market across markets in the United States.

Sub-Saharan Africa Mobile Data Consumption to Grow 20X by 2019

The mobile internet penetration rate in Sub-Saharan Africa is expected to increase to 37 percent by 2020, with an additional 240 million people across the region becoming mobile internet users over the period.

At the end of 2013, there were almost 150 million individuals using mobile devices to access the internet across the region, over 60 percent of which were doing so via 2G devices.

This is equivalent to an overall mobile internet penetration rate of only 17 percent of the total population, compared to a global average of just over 30 percent.

Consumers using 3G connections accounted for 17 percent of total connections in June 2014, but is forecast to account for more than half of the total by 2020.

Long Term Evolution 4G adoption might account for four percent of total connections by 2020, according to GSMA Intelligence.

Sub-Saharan Africa is also expected to see the strongest growth of any global region in the number of smartphone connections over the next six years, reaching 525 million by 2020, GSMA says.

That also will mean mobile data traffic grows 20 times between 2013 and 2019, about twice as fast as the global rate, GSMA Intelligence predicts.

Vodacom South Africa saw the average monthly data usage on smartphones increase by 81.7 precent to 253 MB per device, and by 25 percent to 743 MB on tablets, for the year ending March 2014.

Orange Senegal reported that first half 2014 that total mobile data traffic had increased by a factor of 2.5 times over the prior year.

To be sure, there are many demand hurdles in markets where daily income can be as low as $2.

So MTN South Africa in September 2014 announced the availability of new bite-sized internet bundles, designed to give consumers quick access to the internet for three months. Some app providers, including Facebook, are providing access to mobile apps with no need to buy a mobile Internet access plan.

Tanzania and Zambia are countries where Internet.org offers a no-incremental charge access to a bundle of Internet apps including Facebook.

To create even more demand In India, Internet.org is sponsoring a competition for new apps aimed at women, students, farmers and migrant workers (four awards total).

One prize in the amount of US$250,000 will be presented to the app, website or service in each category.

In addition, two apps, websites or services designed for each of the four specified population categories will receive a prize in the amount of $25,000 USD (eight awards total).

Low-cost smartphones are another way mobile service providers are trying to remove barriers to mobile Internet adoption, in Asia and Africa.

Tax burdens are another impediment GSMA notes can be a barrier to higher availability and purchasing of mobile Internet services.

A recent study by the GSMA found that across a sample of 19 countries, US$3 out of every US$10 of mobile revenues was transferred to the government in the form of taxes,

regulatory fees or other charges.

Availability of local content, rates of literacy and familiarity with the Internet are other issues, but will be surmounted, as was the earlier challenge of enabling voice communications for everyone.

Revenues grew at a compound annual growth rate of seven percent per year between 2008 and 2013.

Growth rates slow to about 5.6 percent annually to 2020.

The regional 2G subscriber base will continue to increase in absolute terms up to 2016 and will still account for nearly 70 percent of mobile data connections in 2016.

As is the case in many other markets, though, average revenue per account is dropping.

Average revenue per subscriber in Sub-Saharan Africa has been falling sharply over the last five years, declining at a CAGR of minus nine percent per year.

Increasing competition, efforts to improve affordability and the penetration of mobile services into lower income segments are the reasons.

Still, growth is the story, despite all the obstacles.

WhatsApp Remains Free in India

WhatsApp, the messaging service firm owned by Facebook, is not enforcing its $1 a year fee in India.

Normally, the service is free for a year and the US-based firm charges users a dollar a year after that. That is not to say the policy will be enforced indefinitely. "Monetization is on the cards,” said Neeraj Arora, WhatsApp VP. “It will happen over the next few years.”

In part, the issue is infrastructure. Low use of credit cards makes collection of the fee difficult.

Another likely driver is that defraying the fee increases app adoption.

WhatsApp already works with carriers to provide “no incremental cost” access to WhatsApp in India, and elsewhere.

The upside for mobile service providers is the boost in demand for mobile Internet access features and services.

Ironically, some might note, that policy--which has clear value for customers and for service providers and WhatsApp, long term--might be said to violate “network neutrality.”

And that is one problem with net neutrality: it prevents app provider and access providers from doing things that directly benefit people who need Internet access.

OTT and Mobile Allow Geography-Bound Firms to Mimic App Providers

The old adage about the value of a house--“location, location, location”--also applies to many telecom businesses and most Internet access providers. Increasingly, geography also applies to app providers, though not for technology reasons.

To be sure, location is far less an issue for most app providers, which Internet Protocol allows to operate over any Internet connection, so long as government entities will allow it. That is a big change, but is only one way the Internet has changed in ways that limit freedom.

Access providers often can operate only in specific geographies, based either on franchise or licensing requirements, spectrum licenses, or capital limitations.

There are direct business implications. Geographical restrictions create limitations on scale, and scale often is a necessary precondition for success.

By definition, a franchise-limited or license-limited business can spread fixed costs only over the potential number of customers it can serve in a specific geography.  An app provider can spread fixed costs over a functionally-infinite number of potential customers.

Consider linear video entertainment services, which are highly dependent on scale. For that reason, few if any small access service providers actually can hope to break even as providers of linear video entertainment.

Most--if not all--small telco video operations lose money, while mobile operations likewise face declining average revenue per user, the report said.  Average revenue per user was $35.51 a month, down from $37.12 in 2009 and $40.93 in 2008.

And those scale issues, dictated largely by geography, extend beyond video.

The latest study by the Telergee Alliance illustrates business model issues faced by U.S. rural and small telcos.

Profit margins are dropping, part of a three-year trend that saw an overall five percent drop over the last year, Telergee Alliance said. Profit margin on new or non-regulated services were up by about that amount, but margins on voice services dropped more than 15 percent.

The key point is that geography-bound firms can sell products and services only to potential customers within a specific geography. An app provider can sell out of region, to the extent allowed by national regulators, generally.

That, to a large extent, explains why AT&T wants to buy DirecTV. Doing so would allow it to create voice-video-data bundles that can be sold anywhere in the United States, instead of primarily where it owns fixed network assets.

That is part of the reason why Verizon Communications remains focused on prospects for over the top streaming services. Like AT&T, Verizon can only sell so many units of video within its fixed network footprint.

Over the top services could be sold nationwide, and bundled with its mobile Internet access and voice services.

In that sense, mobility and over the top video represent profound changes. In a sense, they allow AT&T and Verizon to escape the bounds of geography.

17.3 Mbps is "Average" Global High Speed Access Speed

One hears with some regularity that the “United States is behind” on some key measure of consumer high speed access performance. Some would note that it is not likely the United States ever will have the “fastest” high speed access, globally.

That prediction would be based on history, namely the U.S. ranking on tele-density. Back when voice was the only service telcos sold, anywhere, the United States never ranked at the top, globally, and typically ranked somewhere between 10th and 20th.

The reason is the continent-sized market and the lower population density. So some might argue it always will be possible to argue that the United States is behind in high speed access.  

Also, global indices are different when looking at fixed network access and mobile access.

The global average fixed download speed is 17.3 Mbps, and the global median fixed download speed is 11.1 Mbps, according to Cisco.

The global average fixed upload speed is 8.8 Mbps, and the global median upload speed is 3.8 Mbps.

In the mobile segment,  global average mobile download speed is 6.3 Mbps, and the global median mobile download speed is 4.8 Mbps.

The global average mobile upload speed is 2.6 Mbps, and the global median mobile upload speed is 1.3 Mbps.

Western Europe leads all regions with an average fixed download speed of 20 Mbps.

Asia Pacific follows with an average fixed download speed of 18.8 Mbps. Central and Eastern Europe and Asia Pacific lead all regions in average fixed upload speeds with nearly 12.2Mbps.

North America leads all regions with an average mobile download speed of 10.1 Mbps.

Western Europe follows with an average mobile download speed of 9.5 Mbps. Central and Eastern Europe and North America lead all regions in average mobile upload speeds with 4.9 Mbps and 4.3 Mbps respectively.

The point is that there typically are all sorts of ways to compare high speed access between countries. Such comparisons are difficult and nuanced, and change over time.  

Data Center Traffic Drives WAN Capacity, But Most Traffic is Inside the Building

Global Internet traffic volume forecasts historically have been tricky, and on occasion have been wildly too optimistic.

Forecasts also are complicated by the new reality that so much Internet traffic is exchanged inside data centers, and does not cross the wide area network. That has implications for any company investing in, operating or selling wide area network infrastructure and services.

A further complication is that “data center traffic” often includes both traffic that crosses wide area networks and traffic that is exchanged solely within a data center.

The fact of note is that traffic carried inside a data center exceeds global wide area network traffic volume. The implication is that forecasters will have to be careful when dealing with concepts such as “data center IP traffic.”

Some of that traffic will drive demand for local access, metro and long-haul capacity. Some will not.

The analogy is to today’s data networks, which include WAN and local access connections and revenue, as well as local area network data transfers (Wi-Fi, for example) that do not represent revenue for service providers.

And inside-the-data-center traffic is a huge deal.

By 2018, as much as 75 percent of all IP traffic will occur within data centers, and will not cross the WAN, about even with the 2013 estimate that 77 percent of total IP traffic actually remains within a data center, Cisco predicts.

Although the amount of global traffic crossing the Internet and IP WAN networks is projected to reach 1.6 ZB per year, by 2018, the amount of annual global data center traffic in 2013 is already estimated to be 3.1 ZB, and by 2018, will triple to reach 8.6 ZB per year, according to Cisco.

Traffic between data centers is growing faster than either traffic to end-users or traffic within the data center, though, and by 2018, traffic between data centers will account for almost nine percent of total data center traffic, up from nearly seven percent at the end of 2013.

The high growth of this segment is due to the increasing prevalence of content distribution networks, the proliferation of cloud services and the need to shuttle data between clouds, and the growing volume of data that needs to be replicated across data centers.

Over the next five years, the study projects data center traffic to nearly triple, with cloud representing 76 percent of total data center traffic.

In 2013, cloud accounted for 54 percent of total data center traffic. By 2018, cloud will account for 76 percent of total data center traffic.

(Data center traffic includes data center-to-user traffic along with data center-to-data center traffic and traffic that remains within data centers.)

The study predicts that global data center traffic will nearly triple from 2013 to 2018 with a combined annual growth rate of 23 percent.

A few clear observations can be made about what drives global Internet traffic. It has been clear for some time that content bits--especially entertainment video--is the primary driver of volume across global and access networks.

It has been clear for some time that consumer-facing Internet apps likewise drive traffic, not enterprise traffic.

Most Internet traffic has originated or terminated in a data center since 2008, according to Cisco.

Now there is one more assumption we can make: data center traffic will continue to dominate Internet traffic for the foreseeable future, and will be driven by cloud applications, services, and infrastructure.

By 2018 76 percent of data center traffic, will be cloud traffic, Cisco now says.

source: Cisco Global Cloud Index

What is Dish Nework's Biggest Revenue Opportunity in High Speed Access?

DirecTV and Dish Network have made different decisions about their video assets.

DirecTV decided the time to remain a stand alone provider of satellite TV was ending, and agreed to sell to AT&T.

Dish Network believes it can make a transition to triple play provider by getting into the mobile and perhaps fixed wireless businesses, with “a pretty clear path to actually grow the business.”

Those decisions reflect the fundamental strategic danger for the U.S. satellite TV business, namely the shift to triple play offers as the core retail product.

As telcos and cable TV companies after 1996 began transforming themselves from “single-purpose networks” to “multi-purpose networks” able to deliver any media type, and thereby drawing from multiple revenue sources, satellite networks have struggled to keep up.

To some extent, satellite providers have added separate “satellite broadband” fleets, but most observers would say that market remains a niche, and a precarious niche as fixed network speeds start to climb into the range between 100 Mbps and 1,000 Mbps retail offerings often priced no more than 15 Mbps satellite offers.

But most observers would say satellite networks will be quite challenged, going forward, as triple play platforms.

“I don't think anything's changed in terms of what we've been saying for the last three or four years, which is the pay TV business... is a mature business,” said Charlie Ergen, Dish Network CEO. “It continues to, in a way, surprise us that it has held up as well it has.”

Over the top video is one of the growth avenues, Dish Network believes.

“The second thing is broadband and general satellite broadband, first and foremost,” Ergen said. “We think that the fixed broadband business is, we're cautiously optimistic that that's a real business.”

Assuming satellite broadband remains a niche, primarily attractive to one to three percent of U.S. homes, the bigger opportunities would come in the mobile broadband and perhaps fixed wireless high speed access areas.

That is why there is logical and persistent thinking that Dish Network will make a bid to buy T-Mobile US, a way to buy assets Dish needs to put its mobile spectrum into play and get into the mobile broadband business.

How big an opportunity the fixed wireless business might be is not so clear. The issue is not whether that will work. ISPs all over the United States--and AT&T in the event its DirecTV acquisition is approved--do so routinely.

The issue is how big a business opportunity fixed wireless might be for Dish Network. One suspects that, as with satellite broadband, the revenue upside is more limited than the mobile opportunity.

If it acquires T-Mobile US, that network will scale more efficiently, have the largest potential customer opportunity, and offer the greatest degree of packaging synergy with the existing linear video business.

Owning a high speed access network also will mesh with the OTT video push, as well.