IP Communications "Crossing the Chasm?"

IP communications finally has “crossed the chasm” from early adopters to majority markets, argues John Macario, Edgewater Networks marketing VP.

If that is true, the “hockey stick” part of the sales growth curve is about to happen.

And though “economics” (cost-benefit) always is important, SMB decision makers increasingly indicate that “who they buy from” also is a key issue.

In part, that is because SMBs tend to prefer the “one stop shop, rather than best in breed” approaches to buying technology.

So success might be greatest for suppliers who “get the offer right” and become viewed as “one stop shops.”

The study suggests cable TV operators and telcos are “neck and neck” in sales to firms with 20 or fewer employees.

At larger SMB locations, channel partners represent 43 percent of sales.

That, one might argue, is a classic difference between early adopter and early mainstream buyers. Early adopters care lots more about raw features and capabilities, are are willing to tolerate some less than fully polished offers.

Mainstream buyers want fully-integrated, easy to use solutions. They also arguably care more about support from their suppliers. That might be the significance of growing buyer interest in support from their suppliers.

In about 30 percent of cases, small enterprises (20 or fewer employees) don’t actually “manage” their communication systems. “They just hope it works,” said Macario.

In other words, that portion of the market sees the buying of communications capabilities as a business decision, not a technology decision. “Easy to use,” “affordable” and “does what I want” therefore are important attributes.

In other words, the value, compared to price, while still important, is trailed only by the importance of trusted suppliers.

All prior predictions of when the IP communications business might cross the chasm have proven to be false.

Although IP adoption rates have increased over the last decade, the new survey sponsored by Edgewater Networks and Metaswitch Networks clearly shows that a large percentage of the small and medium business (SMB) market in the United States, “perhaps more than expected,” still uses TDM systems and services.

While adoption rates are higher in larger organizations, as high as 36 percent for organizations with 500 or more employees, adoption for smaller SMBs (less than 100 employees) is less than 25 percent.

So what is different now?

The majority of SMBs today are using aging TDM phone systems with an average age of about six years.

Traditional rules of thumb suggest a replacement is coming. Large private branch exchange (enterprise phone systems) systems could be used for perhaps a decade.

Still, typical system “end of life” has ranged between seven and 10 years.

But in today’s IP market, obsolescence comes faster, as soon as every four years, some argue. Consider the mobile phone analogy: nobody would think a three-year-old mobile device has up-to-date features and capabilities.

“More than 50 percent of phone systems are more than six years old,” Macario noted. That suggests the timing is right for major replacement activity.

So the gap between legacy voice systems and modern IP business communications therefore is widening faster.

Of course, there are other changes. Until recently, the IP communications distribution system has been highly fragmented. But there are signs of a major change, namely the entry of cable TV operators as serious players in the SMB hosted IP communications business.

As has been the case in voice, high speed access and now business communications, entry by cable TV operators has reshaped markets. And there now are signs that market push by cable operators is having an impact.

That has been the case, you might recall, in SMB high speed access markets, where ever-more-significant cable TV sales efforts have taken share from all other competitors, including other competitive local exchange carriers, resellers, integrators and distributors.

Ubiquitous use of mobile devices and reliance on messaging arguably also has helped to change the buying context. The old issue was “voice.” The new issue is messaging.

The other possible change is simply “time.” It often is the case that even important technologies take a decade or more to reach ubiquity.

And that might doubly be the case for technologies that simultaneously restructure existing older businesses and create new markets.

So IP communications “crossing the chasm,” if true, means rapid change. Not only adoption rates and revenue, but sales strategies and channels will change.

Also, the value of incrementally-valuable new services (storage, security, backup for example) should grow as mainstream adopters look for easy to use, comprehensive support for a variety of business problems.

And the survey suggests storage and backup is the next place to add features.

T-Mobile US Porting Ratios Show it is Taking Share from all the Other Three Top Carriers

If T-Mobile US porting ratios with other leading U.S. mobile service providers were as high as 3:1 in 2014, it appears that competition has toughened since then.

In the second quarter of 2015, it appears T-Mobile US postpaid account porting ratios with AT&T were more like 1.9 to one. And the porting ratio with Sprint might have been as high as 4:1.

T-Mobile US did better against Sprint, obtaining a porting radio of about 2.5:1. T-Mobile US porting rations with Verizon Wireless were about 1.5 in the second quarter.

8% IMS over NFV Installed Base

Service providers globally have at times struggled to make their next generation network visions a commercial reality. One might consider a new survey of global service providers conducted by IHS.

IHS looked at IP multimedia subsystem (IMS) core equipment already installed, or scheduled for installation by the end of 2017 and found about eight percent adoption of IMS IMS network elements running in a network functions virtualization (NFV) environment today.

About 80 percent of service provider respondents indicated that parts of their IMS infrastructure will be running in an NFV environment by 2017, which IHS believes is somewhat optimistic.

Today, 60 percent to 65 percent of respondents are running residential voice over broadband, SIP trunking or hosted business VoIP over IMS, growing to 88 percent by 2017.

Verizon-Owned AOL Considering Millennial Media Buy?

AOL, recently acquired by Verizon, is rumored to be acquiring mobile ad network Millennial Media. That might well be considered a digestible purchase, possibly representing a sale price around $300 million. That would not be a big deal for a firm the size of Verizon.

Millennial's share of the $19.15 billion mobile ad market reached 0.4 percent last year, according to eMarketer, down from 0.7 percent in 2013.

The upside would come from better positioning Verizon in the mobile advertising business.

Overall U.S. mobile ad spending grew to $19.1 billion in 2014, up from $10.6 billion in 2013, according to eMarketer.

In 2015, U.S. mobile advertising spending is expected to reach $28.7 billion, according to eMarketer.

It always is a fair observation that tier one telcos and service providers do not necessarily have core competence in many new lines of business outside the core access and transport business.

Nevertheless, smart moves into higher value adjacencies now have become essential, as core revenue sources dwindle and the value of the “access” function declines, relative to applications and services accessed by consumers over the networks.

In other words, telcos have no choice but to transform themselves, as hard as that might be.

Verizon does well to allow AOL management to grow the mobile ad part of Verizon’s business.

In the past, many telco efforts to diversify into computing services, for example, or information technology, have foundered because the new business units arguably were not allowed to run themselves as they thought best, and instead were forced into the morass of “telco” management.

To succeed, telcos will have to learn not to do that. It won’t be easy. But it increasingly is necessary.

Next Century Cities Initiative: One More Push Toward Marginal Cost Pricing

The Next Century Cities initiative was launched in October 2014 by 32 communities to speed up deployment of gigabit high speed Internet access. By July 2015, the member roster has grown to 151 members.

Though most of the group’s emphasis is on policy, the group does note the potential value of city involvement in directly building and operating middle mile networks.

Many states have regions where one or a small number of ISPs dominate the backhaul market. Building middle mile connections, most notably open access approaches that ensure multiple providers can use the infrastructure, will allow ISPs (particularly small private and community networks) to offer higher capacity connections at reasonable prices.

Replacing leased lines with state-owned fiber (the need for which will only increase) and adding extra capacity to lease to others may even be less expensive than continuing to lease lines from incumbent providers, Next Century Cities argues.

The point is that if a growing number of communities view Internet transport and access services as a form infrastructure like schools and roads, the way is opened for new forms of supply that necessarily affect access provider and app provider business prospects.

It is one more element of the marginal cost pricing dilemma that seems to pose a growing risk in the telecommunications business.

Simply put, if more and more providers price at marginal cost, not full cost, retail prices will tend to move, over time, towards zero.

T-Mobile US Adds 2.1 Million Net New Accounts in 2Q 2015

T-Mobile US continues to pile on net new customer additions, adding 2.1 million total net customer accounts--up 41 percent year-over-year--in the second quarter of 2015.

The only issue is whether that performance will be good enough to move T-Mobile US past Sprint as the third-largest U.S. mobile service provider, ranked by subscribers.

That is the ninth consecutive quarter when T-Mobile US has added more than one million net new accounts.

The important branded postpaid category grew 11 percent year-over-year, adding more than one million net accounts (phone, tablet and other devices).

T-Mobile US says that marks the fourth consecutive quarter when more than one million branded postpaid accounts were gained.

T-Mobile US sys it added 760,000 branded postpaid phone net additions, up 31 percent year-over-year.

The 178,000 branded prepaid net customer additions represented net gains up 75 percent year-over-year.

Postpaid phone churn was a record low 1.3 percent.

Total net customer additions were up 41 percent year-over-year and 14 percent sequentially.

The following table sets forth the number of net customer additions (losses):

NM - Not meaningful.

The following table sets forth the churn:

source: T-Mobile US

IP Transit Market Shrinking

More Internet domain peering deals means a smaller market for IP transit services.

According to TeleGeography’s IP Transit Forecast Service, global IP transit revenues will fall six percent annually between 2014 and 2021.

That will reduce the size of the market from $4.9 billion to $3.2 billion.

IP Transit Market Forecast

source: TeleGeography

As often is the case, trends vary by region, and the biggest shifts will occur in emerging nations and regions.

While revenues in more developed markets will remain relatively static over the next seven years, those in developing regions will fall significantly.

IP transit revenues in North America will increase one percent annually, while IP transit revenues in  Europe will fall by one percent per year.

In contrast, revenues in Africa will fall nine percent, while revenues in the Middle East will decline 11 percent a year.

Although overall Internet traffic is growing fastest in emerging markets, Internet service providers in these areas are migrating from purchasing transit to establishing mostly free peering arrangements more quickly than those in Europe and North America, where peering is already common, TeleGeography argues.

TeleGeography forecasts that the share of African Internet traffic exchanged using IP transit will fall from 84 percent in 2015 to 62 percent by 2021.

IP Transit Revenue Change by Region, 2014-2021

Source: TeleGeography

Infrastructure costs also play a role. IP transit is much cheaper in the more developed markets of North America and Europe, and it often makes economic sense for ISPs in these regions to pay for transit rather than incur the cost of building infrastructure required to peer.

The share of U.S. Internet traffic exchanged using IP transit is expected to fall only moderately over the longer term, from 44 percent in 2015 to 39 percent in 2021.

Price declines also play a role. Developing countries will see steeper price reductions than more mature markets.

The monthly price per megatbit per second  for a 10 gigabit per second Ethernet (10 GigE) port in Africa, Latin America, and the Middle East is projected to fall between 27 and 29 percent compounded annually through 2021, while declines in North America and Europe will be more modest, at 20 percent compounded annually.

Transit and Peering Growth

Speed Fetch Tries to Build a New Business Based on Content Downloading

Speed Fetch provides an example of a specialized approach to mobility apps and access. Operating in India with public access provided by Ozone, the Wi-Fi hotspot operator, Speed Fetch positions itself as a content service heavy on TV and games.

One might be tempted to say Speed Fetch is a sort of Netflix: its business is content delivery. Like Netflix, Speed Fetch, which advertises lightning-fast downloads, has had to create a distribution mechanism. That is where Ozone comes in, as its public Wi-Fi hotspots can support downloads as fast as 300 Mbps in principle, 60 Mbps sometimes, and actual speeds can vary between 15 and 30 Mbps.

Speed Fetch is available at Aurobindo Market in Hauz Khas, Apollo Hospital in Jasola, Ambience Mall, Food Court, Gurgaon, Mumbai Airport, PVR Cinema in Gurgaon, Tehkhand, Okhla, Barista, Gurgaon.

Speed Fetch also offers free content ranging from games, movies, Hollywood and Bollywood gossip, cookery shows and religious videos.

"Speed and free content set Speed Fetch apart," said founder Dipank Sharma. Speed Fetch uses content caching to speed delivery, as well.

Speed Fetch expects to generate revenue from video advertising, ad engines and advertising space on the Speed Fetch app.

Ozone's WiFi zones allow users to download the content provided by Speed Fetch for free for a day regardless of the usage.

However, consumers will have to pick up hourly, daily or weekly data usage packs after the first 20 minutes, in case they want to use the internet.

Speed Fetch wants to build out coveraget to 20,000 locations with access to 50 million consumers, eventually.

In the near term, it plans to expand operations to 5,000 locations across India by the year end and reach a customer base of two million.

Some might say the novelty here is the creation of a new niche or market segment within the access and content ecosystem, specifically “content downolading to support offline use.”

"Pay Only for What You Use" Aligns User, MVNO Interests

“Pay only for what you use” is the latest innovation in mobile data packaging, pioneered by Google Fi and now being adopted also by Republic Wireless.

Republic Wireless is shifting from “unlimited data” as a primary selling point to pay only for what you use as an alternate value proposition, as Google Fi has pioneered.

Under the plan, consumers get a refund for using less data than they paid for in the prior billing period.

The new plans represent an effort to create even more incentives for customers to rely on Wi-Fi access, rather than using a mobile network.

Presumably, users quickly will grasp that by relying more on Wi-Fi, their mobile data charges will be limited and they will pay less for mobile data, literally getting a refund.

So even if “pay only for what you use” is a usage-based charging system, the policy aligns end user and service provider interests. When more Wi-Fi is used, both consumers and the mobile operator save money.

The service providers offering the program are mobile virtual network operators.

MVNOs have to pay underlying carriers for wholesale services. So if MVNO customers use less mobile data, the service providers pay their suppliers less.

The trend is significant, with  some profound potential implications for retail Internet pricing. Up to this point, Internet service providers have tried to move away from “unlimited use” for a flat fee.

Instead, ISPs would prefer a consumption-based or “rated” system where customers pay based on how much they consume.

In other words, consumers who use more, pay more.

Oddly, consumer advocates generally have argued that unlimited usage for a flat fee is the fair approach, and have opposed rated usage.

Others argue that “paying for what you use” is the fairer approach, since heavy users pay for what they use, and are not subsidized by light users.

The new twist is the “refund” users get if they do not use all of their purchased data allotment. At the same time, such refund plans also are metered, rated or consumption-based plans.

In some ways, “pay only for what you use” mobile data plans are straightforward: giving users a refund when they do not use all of their data allotments is a marketing platform with clear advantages.

China to Order 30% Cut in Internet Access Prices

China’s Ministry of Industry and Information Technology (MIIT) Ministry of Industry and Information Technology (MIIT) has ordered the country’s biggest Internet service providers to  lower average prices of broadband and mobile Internet services by 30 percent by the end of 2015.

The move is aimed at providing a better environment for start-ups, according to MIIT spokesman Zhang Feng. "The Internet is becoming a basic supply for startups."

So lower Internet access service fees are required to boost the economy.

Republic Wireless Shifts to "Pay Only for What You Use"

Republic Wireless is shifting from “unlimited data” as a primary selling point to pay only for what you use as an alternate value proposition, as Google Fi has pioneered.

Under the plan, consumers get a refund for using less data than they paid for in the prior billing period.

The trend is significant, with  some profound potential implications for retail Internet pricing. Up to this point, Internet service providers have tried to move away from “unlimited use” for a flat fee.

Instead, ISPs would prefer a consumption-based or “rated” system where customers pay based on how much they consume.

In other words, consumers who use more, pay more.

Oddly, consumer advocates generally have argued that unlimited usage for a flat fee is the fair approach, and have opposed rated usage.

Others argue that “paying for what you use” is the fairer approach, since heavy users pay for what they use, and are not subsidized by light users.

The new twist is the “refund” users get if they do not use all of their purchased data allotment. At the same time, such refund plans also are metered, rated or consumption-based plans.

Of course, there are other important effects. Both Republic Wireless and Google Fi are banking on rational behavior by users who now have incentives to switch usage to Wi-Fi even more than they had been doing.

If they use less carrier capacity, they get a refund. That aligns incentives in a way that will encourage even higher use of Wi-Fi than already happens. And that helps mobile virtual network operators reduce their costs, since lower mobile network usage means lower payments to the underlying carriers.

U.S. Mobile Market Structure to Remain Largely Unchanged Through 2020

Neither T-Mobile US nor Sprint are going to catch Verizon Wireless and AT&T Mobility in subscriber market share between now and 2020, Strategy Analytics predicts..

The U.S. mobile market has entered into a new phase, evolving from voice to text to data and now to constant connectivity and what you do with it, according to the Strategy Analytics, with annual subscription growth in the four percent annual range.

While growth has slowed, nearly 100 million mobile connections (including consumer electronics connections but excluding M2M)  will be added through 2020, reaching a 128 percent penetration rate of the US population.

Mobile service revenue will grow 0.2 percent to reach US$197 billion in 2020, up slightly from $195 billion in 2015, spurred by a 5.7 percent growth in prepaid service revenue and 3.3 percent growth in data revenues.

Verizon Wireless and AT&T will maintain their market share lead over Sprint and T-Mobile US, however.

“No major shifts are anticipated in market share among the top four carriers,” Strategy Analytics predicts.

source: Strategy Analytics