In U.S. Market, Use of OTT Video Streaming is Nearly Ubiquitous

In 2015,  181 million people in the United States will watch video using an app or website that provides streaming content over the Internet and bypasses traditional distribution, according to eMarketer.

That means 90 percent of digital video viewers are watching OTT streaming video. Virtually of those viewers watch YouTube.

The YouTube audience will reach 170.7 million monthly video viewers n 2015, eMarketer estimates, or 94.3 percent of all OTT video service users.

As you would guess, there is not much room for YouTube to grow its user base.

That is not the case for other streaming providers. Netflix, for example, will grow its U.S. audience by more than 20 percent in 2015 to 114.3 million, or 63 percent of OTT viewers.

Netflix will be viewed by nearly 72 percent of all OTT viewers by about 2019.

Hulu will reach 82.2 million people by 2019, eMarketer estimates.

Amazon’s video streaming service will reach 88.6 million OTT video viewers by 2020.

No Mobile Roaming Charges in EU by 2017, With Some Exceptions

The European Union is moving towards an end to mobile data roaming charges by 2017. Or maybe not. A new document suggests some fair use rules will be permissible.

Such policies, originally developed for “unlimited” Internet access plans, impose additional charges or limit access in some ways once a threshold of unusually-high usage is reached.

So even if most users will not ever encounter the fair use rules, it is not going to be literally correct that “no roaming charges” ever can be levied within the EU.

“Retail roaming surcharges in the European Union will be abolished as of 15 June 2017,” the document states. “However, the compromise defines two situations when the application of surcharges is still authorised, subject to specific criteria.”

“Roaming providers will be able to apply a 'fair use policy' to prevent abusive or anomalous usage of regulated retail roaming services,” the document says. “Once the fair use policy has been exceeded, a surcharge may be applied.”

Also, “where roaming providers will not be able to recover overall costs of providing regulated roaming services from overall revenues of providing such services, they, subject to the authorisation by the national regulatory authority, may apply a surcharge, but only to the extent necessary to recover those costs,” the new rules will stipulate.

So, generally speaking, roaming charges within the EU will end. But unusually-heavy usage might still trigger roaming costs. And in some instances, carriers will be able to apply surcharges to cover actual roaming costs.

Facebook Teams with Eutelsat for Internet Access to Sub-Saharan Africa

Even if Facebook recently seemed to deemphasize satellite Internet in favor of unmanned aerial vehicles, it now has inked a deal with Eutelsat to directly provide Internet access to parts of sub-Saharan Africa.

Eutelsat said it had signed a "multi-year" pact with Facebook to provide Internet access using “the entire broadband payload on the future AMOS-6 satellite," with the service expected to go live in the second half of next year.

It isn’t immediately clear what the business model will be, or what roles Facebook might play. But it seems likely Facebook will primarily act as a backhaul supplier, working with local partners for access.

Business Model Still is a Problem for Hotspot 2.0 (Passport)

Hotspot 2.0 deployment remains slow, according to researchers at ABI Research. Lack of a clear and compelling business model likely is the problem.

“Operators, however, still lack the tools to generate revenue streams from this technology,” said Ahmed Ali, ABI Research analyst.

The other issue is that it remains unclear which access suppliers will gain most. In addition to Hotspot 2.0, also called Passpoint, mobile carriers and their suppliers are working on several other ways of bonding mobile spectrum to Wi-Fi, potentially making use of Passpoint less compelling or useful.

Passpoint still would be useful for providers of public hotspot service such as Boingo, or cable TV operators operating large public hotspot networks.

Still, an eventual move into mobility services by some large cable TV operators would raise the issue of relative importance.  Passpoint still makes sense for providing seamless

access to hotspot services.

But interworking with mobility services could well represent a parallel and equally-important capability.

Some mobile operators that have deployed the technology in countries such as the United States, the United Kingdom, Australia, South Africa and Hong Kong, have launched the service with VoLTE side by side, aiming for a complete seamless voice experience.

Finding a business model is not new for Wi-Fi: that problem has been present since the inception. Up to this point, some Internet service providers who have deployed large networks of Wi-Fi hotspots have used an indirect business model.

Access to the Wi-Fi networks essentially is an amenity that adds value to the fixed or mobile access service the ISP sells. A few companies have created “for-fee” hotspot services sold mostly to business users.

Passpoint or other methods of bonding mobile and Wi-Fi services will face similar issues. The capability is likely to be monetized indirectly, as a feature that adds value to an access service.

Globally, there will be nearly 341 million public Wi-Fi hotspots by 2018, up from 48 million hotspots in 2014, a sevenfold increase, according to a study conducted by iPass Inc. and Maravedis and Rethink.

Perhaps six million of those 341 million public hotspot locations will support Hotspot 2.0 features by about 2020, according to ABI Research.

Some service providers in 2014 expected substantial growth of their deployments.

source: IHS Infonetics

Europe will have the greatest number of hotspots, with 115 million hotspots by 2018, with North America a close second, with 109 million hotspots, according to Cisco.

Globally, Wi-Fi connection speeds originated from dual-mode mobile devices will nearly double by 2019, according to Cisco.

The average Wi-Fi network connection speed (10.6 Mbps in 2014) will exceed 18.5 Mbps in 2019. North America will experience the highest Wi-Fi speeds, of 29 Mbps, by 2019

Hot Spot 2.0, also called Wi-Fi Certified Passpoint, is a standard for public Wi-Fi hotspots that enables seamless roaming among Wi-Fi networks and between Wi-Fi and mobile networks.

Developed by the Wi-Fi Alliance and the Wireless Broadband Association, the intent is to  to enable seamless hand-off of traffic  without requiring additional user sign-on and authentication.

Merger to Create Stronger Number-One Mobile Operator in Pakistan

Pakistani mobile operators Mobilink and Warid Telecom have reportedly agreed to merge their operations, creating a new firm with the largest customer market share in the Pakistan market.

Part of the thinking apparently is to bolster both 3G and 4G operations, as Warid is 4G-only while Mobilink is 3G-only, according to Telecomasia. That is important for a couple of erasons.

Smartphone usage in Pakistan--and therefore the need for bandwidth--is growing. At present, smartphone usage in Pakistan is above 31 percent, and growing steadily.

The deal also better positions the new entity against both of the rising carriers, Telenor and ZONG.

Telenor, which is gaining market share, along with ZONG, has the highest share of data accounts, but only operates a 3G network. Telenor has no 4G assets, yet. 

The merger also will allow Mobilink to compete head to head with ZONG in 4G. ZONG and Warid are the only providers operating 4G networks.

3G/4G Subscribers
Operator	Technology	2014-15	Jul-15	Aug-15
CMPak (ZONG)	3G	2,898,094	3,094,684	3,452,634
	4G	105,128	132,502	169,435
Mobilink	3G	3,656,345	3,956,653	4,031,096
Telenor	3G	4,162,616	4,695,904	5,091,114
Ufone	3G	2,570,283	2,613,066	2,881,504
Warid	LTE	106,211	121,602	139,897
Total		13,498,677	14,614,411	15,765,680

source: PTA

But there likely are additional reasons for the merger. Mobilink and Warid have lost market share to Telenor and ZONG since 2013.

ZONG is the fastest growing mobile operator in Pakistan and is strong in urban areas.

source: techjuice

source: techjuice

Smartphone usage in Pakistan has been climbing steadily since at least 2013 as well, making 3G and 4G assets more important.

source: phoneworld

OTT Voice, Messaging Actually Could Shrink Mobile Revenue 30% to 50% in India

Mobile service providers in the hyper-competitive Indian market, who earn nearly 80 percent of total revenue from voice, warn that they could lose perhaps 30 percent to 50 percent of current revenue from OTT voice and messaging competition.

You might argue that is simply a typical warning from incumbent service providers facing new competition, intended to buttress the argument for industry protection.

As valid as that observation might be, it also would be valid to note that voice revenue declines of at least that magnitude already have happened in many mature markets.

In the U.S. fixed network business, for example, revenue dropped 50 percent between 2002 and 2013.

Other products also have seen that magnitude of decline. In 1997, half of total telecom provider revenue was earned from long distance services in the U.S. market.

By 2007, mobility services had replaced long distance, which dropped more than 50 percent from 1997 levels.

Between 2001 and 2011, looking at consumer spending on communications, mobility spending grew from 25 percent to 48 percent of total spending. Other components obviously decreased by precisely the percentage mobility spending grew.

The point is that, even if one believes such claims of financial damage are a normal part of industry jockeying for position, there is good historical reason to believe revenue declines of that magnitude are quite within the realm of possibility.

Will Cloud Computing Prices Keep Dropping to Zero, or Close to It?

Amazon Web Services has cut prices about 50 times. So will it keep doing so? Most would say “yes.” Will other suppliers such as Google and Microsoft follow suit? Most would also say “yes.”

In most industries, “ruinous” levels of competition often are said to represent a “race to zero” in terms of retail pricing, with negative implications for firm or industry sustainability.

But AWS has chosen such a strategy deliberately. AWS rationally has decided to keep cutting prices as the foundation of its business model.  

“How can that be?” is a reasonable question for any outside observer. How can a market leader in cloud computing literally price its core services at nearly zero, in either consumer (free computing, free storage, free apps)  or business markets (cloud computing, storage, apps or platform)?

After all, big data centers and the software, hardware, real estate and energy required to run them are substantial.

The business advantages of huge scale are part of the answer. Firms such as Amazon and Google count on the fact that only a few providers, with enormous scale, can afford to compete in such a market.

So gaining scale, then lowering prices, feeds a virtuous cycle where additional customers, buying more services, allow the supplier to gain even more scale and drop prices even more, attracting yet more customers.

With sufficient scale, “scope” also becomes relevant: AWS and other leading cloud computing suppliers can sell additional services and features to the customers they already have aggregated.

So even if a “race to zero” has generally been considered dangerous and unsustainable in big existing markets, it is the foundation of strategy in many new digital--and some emerging physical markets--as well.

It is hard to compete with a competitor that gives away what you sell. That, in fact, is precisely the logic often driving business strategy in the Internet realm.

That strategy is at work with voice over IP, instant messaging, online streaming video and audio, Internet access, search and most “print” content. Many would agree, but note that these all are non-tangible, digital products. That notion is correct.

In most “physical product” areas, the Internet has lead to reduced prices, or less friction, but surely not to “near zero” levels.

That, of course, is not really the issue. The issue is a competitor’s ability to destroy enough gross revenue--and strategically, profit margin--as to break the market leader’s business model.

This is a rational strategy for some new contestants because they actually have other revenue models that are enhanced when an existing supporting market is “destroyed.”

In a real sense, Apple gains business advantage when content prices are very low. That helps it sell devices enabling content consumption. Facebook and Google gain when each additional Internet user is added, since they make money on advertising.

Prices for physical good distribution do not have to reach “near zero,” only “near zero profit,” for whole markets to be disrupted.

An attacker able to create a positive and sustainable business case in a market that is perhaps smaller (in terms of overall revenue) still wins is the attacker emerges as a market leader in the reshaped market.

One example: many observers would say that the chief revenue stream for Costco, the discount groceries retailer, is membership fees, not groceries. Likewise, the business model for most movie theaters is concessions, not admission tickets.

That is one sense of the term “zero billion dollar market.”

The strategy is inherent in business models used by many leading application, device or service providers.

The difference is that the trend is extending beyond businesses that are inherently “digital.” Some see shared vehicle businesses as disrupting the automobile market on a permanent basis. Shared accommodations businesses have potential to disrupt the commercial lodging business.

Without a doubt, we will see spreading efforts to replicate such sharing models in most parts of the economy where ownership is the dominant retail model.

Suppliers of cloud computing, especially infrastructure as a service (IAAS) but even the biggests segment--software as a service--also must directly confront pricing strategies that deliberately aim to reach near-zero levels.

There are several analogies you might might apply, to Moore’s Law, marginal cost pricing or experience curves, for example. Some might say that same logic is embedded in much of the economics of the Internet as well.

The notion is that, over time, performance vastly improves while retail price either remains the same or also shrinks, not just on a per-bit or per-instance basis, but absolutely, adjusted for inflation or not.

Suppliers of network bandwidth and computer chips long have had to create or recraft businesses built on such assumptions.

The obvious business implications are stark. Many firms, in a growing range of industries, face competitors who literally base their business models on marginal cost pricing, near zero pricing or actual “free” prices.

Those competitors can do so because widespread use of the “near zero” or “zero” price function allows them to make money indirectly. For Amazon, the other way is retailing all manner of products. For Google and Facebook the other way is advertising. For Apple the other way is device sales.

In all those cases, the direct revenue contribution for one input--while important--is less important than ubiquity or huge scale as it relates to the primary revenue model.

“Zero” levels of pricing are a fundamental reality in a growing range of industries. How successfully the legacy providers can adapt always is the issue. In many cases, the answer is “we won’t be able to do so.”

Some would say that is an example of creative destruction. But it is destruction, nevertheless.

India DoT Recommends Regulation of VoIP, OTT Messaging

Over-the-top (OTT) services such as WhatsApp, Skype and Viber need to be regulated in some way, according to the Telecom Regulatory Authority of India (TRAI). That might mean use of services such as WhatsApp, Viber or Skype are required to charge users retail prices much closer to, or equal to, those of mobile service providers.

The India Department of Telecommunications (DoT) has recommended domestic voice over internet protocol (VoIP) calls offered by WhatsApp, Skype and Viber be regulated in line with voice calls offered by telecom operators.

Voice calls offered by mobile operators are estimated to be 12.5 times more expensive (at retail) than those through OTT services. In the case of text messages, the difference is 16 times, a DoT report argues.

For a one-minute phone call, a customer is charged about 50 paise, while a one-minute call made through the Internet costs four paise, according to TRAI. The disparity in text messaging costs is even wider, where a single mobile network text message might cost 16 times what an OTT message costs the end user.

"Bring Your Own Access" as a Major Paradigm

It seems inevitable that greater reliance on a mix of spectrum, networks and licensing regimes will be a hallmark of all next-generation networks from this point forward. You might call this an example of "bring your own access" in the communications-related businesses.

That is a new approach, historically. Telcos, TV and radio broadcasters, cable TV companies and others have essentially supplied the access function as part of their core services.

Wi-Fi was the first major break in the pattern. In that case, the end user supplies his or her own access, in the sense of paying for the access connection and the local small cell transmitter function. 

For the first time, the app is fully separated from the access, in terms of who pays for the access connection and features.

That is important for suppliers as well as end users. Aside from the dramatic impact on capital and operating cost, the shift to "bring your own access" also changes traditional thinking on how the "access" is supplied, when it is the service provider who actually supplies the access.

We are moving from communications using “only my owned resources” to a heterogeneous world where the access function routinely uses a mix of resources (both “my assets” and “any other available assets.”

That has implications for bandwidth, capital cost, operating cost, network design and protocols as well as business models.

Consider the implications for business models. Up to this point, almost all big commercial wireless industries have been built on the use of licensed spectrum that also has been highly regulated in terms of what protocols can be used in each frequency band and often even what applications are lawful in such bands.

Wi-Fi has been the first shift away from that pattern. Having shown the role license-exempt spectrum can play in supporting many industries, including those using licensed spectrum, new work is being done to increase the amount of license-exempt spectrum available for communications uses.

There are business model implications. To the extent spectrum remains a relatively scarce commodity, licensing creates moats around some business models.

Freeing up more license-exempt spectrum creates new ways for businesses to be built on communications spectrum at vastly lower cost.

The best example so far has been Wi-Fi “anything” compared to use of the same apps on networks using licensed spectrum.

There are capital cost advantages as well, since the cost of deploying license-exempt apps and devices does not have to incorporate the cost of spectrum licenses. And such devices and apps can build upon the fixed network infrastructure already in place to support new untethered and mobile apps and services.

To note only the most obvious implications, greater availability of license-exempt spectrum will allow many more types of service and app providers to build businesses based on local, small cell transmitters than are affordable and based on incremental capital, self-installed and activated by end users as needed, with the actual transmission infrastructure supplied by the end user, not the service provider.

That is one concrete example of a “bring your own access” approach to building a business, a service or application.

If a service can be built on the assumption that the customers supply their own Internet access as well as the untethered transmitting network, and that such functions are largely supplied by the end users themselves, clear operating cost advantages also are possible.

The app or service provider does not have to build, operate and maintain the access network or the transmitting cell sites.

Think of the analogy of “over the top,” where an app can be used independently from the method of access.

That has business model implications for all sorts of firms and industries.

Former Incumbent Telcos Still the Highest-Cost Provider in Most Markets

“In order to be successful, we must change our cost structure so we can fuel our growth and operate more efficiently,” Sprint spokesman Dave Tovar said, about the most-recent announced cuts at Sprint, said to entail reductions of about $2.5 billion, or roughly seven percent of Sprint’s annual operating costs.

Some problems don't change: former incumbent telecom service providers likely still are the highest-cost providers in most communication markets. So long as competition remains robust, that is going to represent an on-going challenge.

Similar cost-cutting initiatives have occurred rather routinely in the telecommunications industry since deregulation and competition have ramped up, beginning in limited ways in the 1980s, and reaching full-blown proportions in the wake of the Telecommunications Act of 1996.

Perhaps an equally-important rationale is changing in the industry business model since the advent of the Internet, which has turned a growing number of paid-for services into free or very low cost features.

Those pressures are not going to abate. The cost structure of the telecommunications industry, was set during the monopoly era where everything was “cost plus.” In fact, the more money telcos invested in their networks, the more money they made.

The new competitive market, as everybody in the business knows, enjoys no such luxury.

As any executive in the cable TV business can attest, cable’s cost structure is lower than that of the telcos the cable industry generally competes against.

It is not yet clear whether Google Fiber has lower operating costs than a typical cable company, but it is possible. Without a doubt, every independent wireless Internet service provider, every gigabit fixed network provider, every satellite Internet access provider, every communications specialist or niche services provider and every Wi-Fi hotspot network provider likewise has lower costs.

In other words, the former incumbent telco normally is the high cost provider in any market in which it competes. That means the cuts and streamlining will continue.

That particularly is true given the slim profits firms now are wringing from their fixed network operations. For Verizon, the fixed network supplied about 33 percent of revenue, but 21 percent of earnings, in 2013.

Deducting capital investment in the fixed network, Verizon earned just 11 percent from its fixed network, before interest, taxes and amortization (assuming depreciation basically represents the bulk of additional capital investment).

AT&T generates about the same percentage of revenue from its fixed network, about 33 percent. AT&T’s fixed network represents about 21 percent of earnings, and about 11 percent of earnings if capital investment is subtracted.

source: Deloitte University Press