No Sustainable Advantage on Canada-U.S.-Mexico Calling

Sustainable advantage is quite difficult in any competitive market. So it is in the U.S. mobile market. Some might debate who moved first to lower tariffs across Canada, the United States  and Mexico.

A reasonable person might say it was AT&T, promising to make calling between the United States and Mexico as seamless as calling within the United States or Mexico, that prompted T-Mobile US to launch its own offer.

Within short order, Sprint and Verizon Wireless all responded with offers offers of their own.

Fairness or Optimized Performance? Choose One

In many ways, the difference between traffic management and network neutrality is rather subtle.

In fact, one objection some have had to mandating “best effort only” consumer Internet access is that although some applications do just fine, others might require network-specific performance assurance.

It does seem inevitable that tensions between “fairness,” the objective of most network neutrality rules, and “effectiveness,” the ability of a network to support specific applications, as they require, will be an on-going issue.

Suggestions that future fifth generation networks will support “network slicing” provide yet one example. If specific apps have different functional requirements, Ericsson’s vision for 5G includes the ability to tune the network to support those specific apps, giving each app what it requires, without the overhead of generic resources unrelated to app performance.

Each use case will require a different configuration of requirements and parameters in the network.

In other words, networks will be built in a flexible way so that speed, capacity and coverage can be allocated in logical slices to meet the specific demands of each use case.

But that is not “treating all bits equally.” That’s the enduring problem. “Fairness” conflicts with “optimizing performance.”

AT&T Expecs Higher Earnings, Cash Flow Next 3 Years

The addition of DirecTV, Iusacell and Nextel Mexico will be directly accretive to AT&T in terms of revenue and earnings, something that does not always happen with transactions so large ($48.5 billion for DirecTV) or small (Nextel Mexico represented a deal less than $2 billion in size).

AT&T said it will earn $2.62 to $2.68 a share in 2015, above the $2.60 analysts had anticipated. Revenue will grow in the double-digit range, the company said.

Moreover, AT&T expects earnings and cash flow to grow over the next three years as well.

Those results are driven by a revenue mix, products, geographies and customer bases that are significantly different.

AT&T expects that, by the end of 2015, its largest revenue streams will be, in descending order: mobility and business solutions (mobile and wireline); entertainment & Internet; consumer mobility; and international mobility and video.

In other words, services sold to business customers has become AT&T’s biggest single revenue stream. Video entertainment and Internet access is the second largest bucket of revenue, followed by consumer mobility.

Mobile services remain a key driver of revenue in all but one of the segments.

The company plans to begin providing detailed reporting on these segments beginning with the third quarter.

AT&T also is operationally a changed company. AT&T now is the largest linear TV provider in the United States and the world, serving more than 26 million subscribers in the United States and more than 19 million customers in Latin America.

AT&T has 132 million wireless subscribers in the United States and Mexico; offers 4G LTE mobile coverage to nearly 310 million people in the U.S. and expects LTE coverage to 350 million people in its North American service area by the end of the year; covers 57 million U.S. customer locations with high-speed Internet; and has nearly 16 million broadband subscribers, the company said.

The three-year view of certain financial metrics now features 2015 double-digit consolidated revenue growth due to the DirecTV acquisition.

From 2016 through 2018, the company expects in each of the next three years consolidated revenue growth in line with GDP growth or better and adjusted earnings per share growth in the mid-single digit range.

The broader trend across the tier-one service provider landscape might soon begin to reflect the importance of business customers, compared to consumer customers.

In the U.S. market, a similar trend has developed for three former rural telcos, each of whom now drives a clear majority of revenue from business customers, not consumers.

Of $4.4 billion in CenturyLink second quarter 2015 revenue, business revenues represented $2.7 billion while consumer revenues were about $1.5 billion. In other words, the business segment represented 61 percent of company revenue.

That is a huge transformation for a firm that once mostly got its revenue from subsidies and consumers.

Since about 2010, both Windstream and Frontier have earned most of their money in the business segment as well, despite the continuing preponderance of consumer accounts.

In its second quarter of 2015, Windstream had revenues of $1.4 billion. Consumer revenues  represented just $314 million--about 22 percent--of total revenues.

Frontier Communications total revenue of about $1.4 billion as well, with consumer revenue of about Total residential revenue was stable at $615 million for the second quarter of 2015, while total business revenue was $621 million. So a bit more than half of revenue was generated by business customers.

Over time, many former incumbent providers are likely to discover that they are best suited to serving customers in the business segment, while other providers take market share in the consumer segment.

15% Globally Own a Streaming Media Appliance or Device

Globally, about 15 percent of respondents to a survey report they own a streaming video device such as a Chromecast stick or a dedicated streaming media device such as a Roku that enables streamed content to be viewed directly on a TV.

About 25 percent of U.S. respondents reported owning such a device.

Those sorts of developments are important. For any new trend to develop, the underlying ecosystem (Internet access, content rights, access devices, affordable service plans, the right value proposition) must be in place. Internet-connected TVs, dedicated devices and sticks are part of the required infrastructure.

Google Creates New "Alphabet" Holding Company

As part of a major reorganization, Google will become part of Alphabet, a new entity a bit like a holding company that provides greater transparency for investors.

Alphabet will be a collection of companies, the largest of which is Google, and ABC.xyz will be parent's new web address.

The more speculative entities--moonshots--will be housed separately in Alphabet.

Life Sciences (that works on the glucose-sensing contact lens), and Calico (focused on longevity) are examples.

Android One Aims for $30 to $50 Smartphone Prices

Among other issues, smartphone costs are a barrier to widespread adoption of Internet access services in India and other South Asia and Southeast Asia countries. That is why Google is making Android One--its low cost Android operating system--a priority for India.

Phones made by manufacturers under the standard were priced at about $100 in 2014 and early 2015.

But the desired price targets are much lower. The “sweet spot” is a price between Rs2,000 and Rs3,000 ($31-$47).

Facebook and Twitter already count India as their second and third largest market by users respectively.

Lower Mobile Tariffs Across ASEAN Region by 2016?

Will mobile rates be harmonized across the ASEAN region. Quite likely. By early 2016, telecom regulators across the ASEAN region are expected to use a rate harmonization as a way of reducing mobile rates across the region.

Video Drip, Drip, Drip. For How Long?

With the exception of Internet access, it would be fair to say that the other legacy applications sold by cable TV and telcos, such as linear video subscriptions, are in a decelerating mode. In fact, voice, texting and video revenues are declining.

Including market share shifts, cable TV still sees growth in high speed access and business services, while mobile operators seen growth in subscriptions, lead by internet access revenues, and some fixed line telcos see revenue growth in business segments, even if revenue or subscription numbers from the consumer segment are waning.

Many observers in the linear TV business continue to say the transition to over the top video will be gradual, shifting only a portion of the audience from linear to OTT over five to 10 years.

That's possible. It also is possible that OTT hits an inflection point and just zooms. New technologiesl do that. 

Video Streaming Might Anchor 80% of Global Bandwidth Demand by 2019

Nothing shapes mobile, fixed or global undersea traffic like video. In fact, by about 2019, perhaps 80 percent of all traffic on global networks will be video, and as much as 85 percent of traffic on U.S. networks, for example.

In Latin America about 60 percent of all mobile traffic is driven by Facebook and Google. Overall, a majority of Facebook traffic is generated from mobile devices.

That is driving Facebook’s revenue growth (mobile advertising), and also illustrates why bandwidth demand in the mobile realm keeps growing so fast. Consumers simply are using more video.

According to Ooyala, 38 percent of online video plays in the fourth quarter of 2014 happened on a tablet or smartphone, double the activity of the same quarter of 2013.

source: Global Web Index

Two Polar Opposite Views of Incumbent Market Power

There arguably are two polar opposite views about large incumbent service providers of all types. One view is that they are unrepentant monopolists retaining their market power.

The other view: maturation or decline of every key revenue segment, plus growing competition and new digital product substitutes, are hollowing out many, if not most of the leading contenders.

The proper approach to policy obviously hinges on which general view one holds. Some argue the major telco business model, for example, is under high stress.

The truth is probably someplace in between. The old model is slipping away. Large incumbents still have lots of market power, because they lead their markets. But challenges have emerged at every turn.

“The large incumbent telephone companies do not earn attractive returns in their wireline businesses,” said Craig Moffett Partner and Senior Analyst, MoffettNathanson. “For example, a decade after first undertaking their FiOS fiber-to-the-home buildout to eighteen million homes, Verizon has not yet come close to earning a return in excess of their cost of capital.”

In other words, Verizon FiOS has actually lost money.

AT&T also has earned poor returns on its fixed network.  AT&T return on invested capital has been declining for a decade and is, like Verizon’s, well below the cost of capital, Moffett said.

In 2014  aggregate fixed network telecommunications businesses earned a paltry 1.2 percent return, against a cost of capital of roughly five percent, Moffett argues.

“For the non-financial types in the room, that’s the equivalent of borrowing money at five-percent interest in order to earn interest of one percent,” said Moffett.

“That’s a good way to go bankrupt,” Moffett said.

Former Rural Telcos Now Drive Revenue from Business Customers

Of $4.4 billion in CenturyLink second quarter 2015 revenue, business revenues represented $2.7 billion while consumer revenues were about $1.5 billion. In other words, the business segment represents 61 percent of company revenue.

That is a huge transformation for a firm that once mostly got its revenue from subsidies and consumers.

What is interesting in that regard is the transformation of revenue sources at CenturyLink, Windstream and Frontier Communications, all legacy rural telecom service providers who have turned to business customer segments to drive growth.

Since about 2010, both Windstream and Frontier have earned most of their money in the business segment, despite the continuing preponderance of consumer accounts.

In its second quarter of 2015, Windstream had revenues of $1.4 billion. Consumer revenues  represented just $314 million--about 22 percent--of total revenues.

Frontier Communications total revenue of about $1.4 billion as well, with consumer revenue of about Total residential revenue was stable at $615 million for the second quarter of 2015, while total business revenue was $621 million. So a bit more than half of revenue was generated by business customers.

Fixed LInes Fall 15% in India

The number of fixed network phone connections in India fell more than 15 percent in the last 2.5 years, the Ministry of Communications and Information Technology reports, even as the total number of connections has grown.

As you might expect, mobile has been the growth driver.  In fact, the mobile segment represents 97 percent of total telephone subscriptions.

The Indian telecom services market is expected to grow at a CAGR of 10.3 percent compound annual growth rate from 2015-2020, mainly driven by mobile services.

source: livemint

The number of landline phone connections declined to 26.15 million at the end of June, 2015 from 30.79 million as on December 31, 2012, Minister of Communications and Information Technology Ravi Shankar Prasad said in a written reply to the Rajya Sabha.

The number of connections have declined steadily to 28.89 million (December, 2013), 27 million (December, 2014) to 26.15 million at the end of June, 2015, he added.

Bharti Airtel Extends 4G Network, Prices Same as 3G

Bharti Airtel, in extending coverage of its Long Term Evolution fourth generation (4G) network to about 296 additional towns,  has had to again directly confront the matter of pricing: should LTE, as a fastest network, be priced at a premium to existing 3G networks?

The decision, likely dictated by the coming market entry of Reliance Jio into the mobile and LTE businesses, is to offer 4G at the same prices as 3G.

“Airtel customers can enjoy 4G at 3G data prices with packs starting at Rs 25,” Bharti Airtel said. Airtel also is offering other adoption inducements, such as six months of unlimited music streaming and downloads on ‘Wynk Music’ and five free movies per month for six months on the Wynk Movies” service, the company said.

Initially, most had hoped it would be possible to do so. Today, most are finding that equivalent to slightly-higher prices is required.

In the past, the launch of a next generation network has allowed higher pricing, as was the case for 3G. In some cases, the premiums were substantial.

By 2013, 4G price premiums over 3G had begun to narrow, globally. When 4G was launched in the U.S. market, for example, there was generally no price premium for 4G, compared to 3G.

Some observers also noted that 4G pricing models also did not represent significant innovations in pricing strategies, either.

Bharti Airtel seems to be only the most recent example of those trends. New 4G networks do generate more revenue for mobile service providers, but not because they feature higher prices per bit.

Instead, the benefits come because customers consume much more data than they did on 3G networks. In other words, 4G increases sales volume, rather than price per unit.

The other benefits for mobile operators likewise come in relatively indirect ways, such as reducing churn or spurring handset upgrades that allow new features to be supported.

But, as Bharti Airtel also has concluded, it often is not possible to price LTE 4G at a premium to 3G.

When Counting Anything, Methodology Matters

Methodology always matters, when conducting Internet speed tests or most any other phenomenon. So it is that Ookla apparently is taking some heat from small Internet service providers over a change of methodology by Ookla.

Specifically, Ookla now measures access speeds for the providers that serve most customers in any area. That is unfair, some small ISPs say, since, by definition, they do not serve many of the customers in any given city or state, and will not be included in speed indexes any longer.

The complaint is understandable. But Ookla’s methodology also makes sense. As somebody who routinely tracks the size and composition of markets, there are some realities. If you want to know what is happening in the U.S. mobile or fixed network market, you pretty much only need to know what is happening at the four biggest mobile providers, not “all” mobile providers, or only the few largest telco and cable TV companies.

The smaller providers do not have enough mass to affect the basic trends, one way or the other. It’s sort of the same reality as looking at “North American” trends in any area (Canada and the United States, for example).

Canada tends to represent about 10 percent of “U.S. plus Canada” activity in any area.

So to know the fundamental trend in “North America,” one basically must know what is happening in the U.S. market, as all of Canada only represents 10 percent.

A similar situation exists in other intra-U.S. markets, such as fixed network markets. In the past, all independent telcos collectively have represented up to 10 percent of total U.S. “telco” activity.

Today, with the emergence of cable TV providers as major providers, the rural and independent segment arguably represents an even smaller share of total local access activity.

To know a trend, one must know what is happening at the relatively small number of largest providers. The rest is nuance.

Verizon Wireless Radically Restructures Service Plans

Verizon Wireless is radically simplifying its consumer mobile service plans, creating just four service plans, of 1 Gbyte of data; 3 GB; 6 GB and 12 GB. All plans offer shared data, so the incremental decisions are simply to choose a device and the number of devices.

The 1 GB plan costs $30 a month; the 3 GB plan $45 a month; the 6 GB plan $60 a month and the 12 GB plan $80 a month.

Verizon also is further simplifying its “monthly line-access” charges (the price to use voice and messaging on a device).

On the new plan, every smartphone line is $20 per month, tablet and Jetpack lines are $10 per month, and connected device lines for devices like smart watches are $5 per month.

New Verizon customers who want to take advantage of the new plan may do so by buying a new smartphone using Verizon’s device payment option, formerly known as Verizon Edge, or by paying the retail price.  

Current customers can keep their existing plan or move to the new plan, with some restrictions.

Apparently larger data plans are available, but they do not seem to be emphasized or promoted, at the moment.

Aside from the impact Verizon Wireless hopes will occur, namely simplifying buying decisions, the shift to “installment or buy outright” policies for devices will allow consumers to easily identify the actual cost of their devices, as separate from the service.

That has advantages. Verizon Wireless can market “lower prices.” Device costs will be more transparent, and Verizon arguably will gain a measure of independence from device suppliers.

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5G, Wi-Fi sharing with LTE, LTE sharing with LTE, new Internet access platforms will be featured at the  Spectrum Futures conference, Sept. 10 and 11, 2015, in Singapore.

At the same time, the intimate relationship between applications (Internet of Things), core networks (SDN. NFV, cloud computing, fog computing) and all access networks will be examined.

In the coming next generation network, clearly separating spectrum and mobile networks from Wi-Fi and fixed network access, core networks and cloud infrastructure, will be nearly impossible.

Since I am the conference convener, I have a few no-charge passes to attend the event. Email me at garykim.denver@gmail.com if you want to attend. 

As a believer in the value of marginal cost pricing, a few passes will be made available at our marginal cost!