Voice Down, Fixed Broadband and Cable TV Flat, Mobile Data Spending Up, Since 2010

U.S. consumer spending, since 2010, shows steadily-increasing spending on mobile data, slightly-growing spending on cable TV and fixed network broadband, and declines in spending on mobile voice and landline voice.

Mobile data alone now accounts for a third of total U.S. spending on communications services.

Not much surprise there.

source: Chetan Sharma

"All Consumer Trends Involve the Internet," Ericsson Says

“All consumer trends involve the internet,” argues Ericsson’s 10 Hot Consumer Trends. A corollary is that “prosumption,” where consumers participate in the production process now is routine and widespread. Online user reviews, opinion sharing, petitions and instant crowd activities are now becoming the norm more than an exception.

Ericsson also predictably argues that mobile broadband and Wi-Fi mean “we may not be physically more mobile, but our online activities are less restricted by our surroundings than ever before.”

Ericsson also notes that adoption cycles are faster, with a key implication: early adopters are less important, since mass market adoption happens faster than ever, and the period where adoption is driven by early adopters is shorter than ever.

Ericsson argues that artificial intelligence and virtual reality are perceived by consumers as realities as soon as five years hence.

Universal Log-In Might be a Feature, Not a Service

The value of many useful innovations is hard to measure. We aren’t really able to measure the value of improving computing power in consumer devices beyond its price per unit, or price per function.

We might note that a personal computer costs N units of currency now, and used to cost more than N three decades ago. But today’s appliance is vastly better, despite lower prices.

We have similar issues for many Internet apps and services. Many apps that are quite valuable are hard to quantify in terms of direct revenue, even when they indirectly create revenue opportunities.

For example, Juniper Research estimates that mobile operators will generate $700 million  annually by 2020 from new universal log-in and mobile identity services, up from $20 million in 2015.

Under other circumstances, that forecast would simply indicate a market way too small for mobile operators to bother with.

Among the likely business model issues is the fact that device and app suppliers are likely going to be competitors for biometric and other forms of security, and it is not so clear that their business models require the traditional subscription fee mobile operators and other service providers tend to lean on for the overwhelming bulk of their revenue.

Juniper Research also notes that, for such an approach to achieve widespread adoption, all mobile operators in a single market might have to collaborate.

Universal sign-in using a subscriber phone number, like all other universal sign-in methods that offer better security than passwords, is useful, no doubt. What is not clear is whether it is a revenue opportunity for mobile operators, or better approached as a “feature” with indirect revenue benefits (lower churn, higher distinctiveness and value).

Dish Network Mobile Spectrum Value Will Avoid "Zero," But How, When Still are Questions

Dish Network--somehow, some way, some day--will avoid a "zero" valuation of its spectrum assets. We just do not know what will occur, with whom, or when.

Back when regulatory and antitrust authorities blocked the merger of Sprint and T-Mobile US in 2014,  some of us speculated that, ironically, that deal could happen, albeit not until one or both carriers had become more damaged than they had been when the deal was proposed.

Developments since 2014, though, suggest other alternatives would be received more favorably, such as a change of ownership that has Sprint assets going to another entity (Comcast, Charter Communications, Suddenlink or a name-brand app or device supplier), not T-Mobile US.

Policymakers and antitrust authorities would not be able to easily justify any combination of T-Mobile US and Sprint assets, when other financially-viable bidders have both the strategic need for such assets, the ability to finance a deal and the willingness to consider such a move.

Some, such as analyst Mark Lowenstein, might suggest such a merger, with Dish Network assets thrown in, as well, is feasible.  

Some of us might suggest the market hasn’t yet worsened enough, for Sprint, to make regulators change their minds about reducing the number of leading U.S. mobile providers from four to three. Also, T-Mobile US arguably has gotten stronger since the Sprint merger bid was dropped.

Dish Network, and possibly LightSquared, also figure into the picture. Dish Network has licenses for 50 MHz of downlink and 20 MHz of uplink spectrum to support a mobile network.

Whether Dish would do better delaying any deals regarding its spectrum until after the 600-MHz spectrum auction is unclear, but some might argue its options would be better if a clear decision about deploying those assets is made before the auction process begins, since nobody bidding in the auction would be able to move until after the auction.

On the other hand, Dish Network management obviously believes the 600-MHz auction would only boost the valuation of its spectrum, as arguably was the case for the 700-MHz auctions.

Even though nearly 100 percent of Dish Network revenue comes from its linear video business, the Dish spectrum holdings are valued at $35 billion to 50 billion, representing some 80 percent of the company’s current valuation.

Of course, failure to deploy that spectrum on a timely basis reduces its value to zero. Something will happen, but what, and when, remain unclear.

European Mobile Data Consumption to Climb to 6 GB by 2019, at 45% CAGR

The average monthly data usage for Western Europe is set to grow from less than 1 GB per month in 2014 to nearly 6 GB in 2019, a compound annual growth rate of 45 percent, according to GSMA Intelligence.  

Faster networks are correlated with higher data consumption. Telefónica, for example, says that its 4G customers’ usage is 60 percent higher than 3G.

Vodafone says its 4G customers across four European markets use twice as much data as its 3G customers (50 percent more in Germany to 1.3 times as much in the United Kingdom and three times as much in Spain).

Telefónica as well has said it is “actively bundling content to drive data usage up”. Overall, data consumption by video is expected to rise to almost 75 percent of total usage in 2019 in Western Europe, up from 56 percent in 2014.

source: GSMA Intelligence

source: GSMA Intelligence

Mobile Ad Blocking is a Growing Problem Because Users Want to Save Money on Data Costs

Mobile ad blocking is a business model problem, one might argue, not so much because ads are so intrusive, but because ads represent so much bandwidth overhead, especially in markets where mobile plans can cost as much as 4.4 percent of per-person gross national income, and data charges are extra.

Fixed network Internet access can cost as much as 21 percent to 29 percent of per-person GNI in developing nations, and as much as 98 percent of GNI per capita in the least developed nations.

By 2014, mobile service cost an average to 5.6 percent of GNI per capita  in developing countries. In the less developed countries, mobile costs 14 percent of GNI, per capita.

In the developed countries, mobile service costs about  1.4 percent of GNI per person.

Under those sorts of conditions, users have ample incentive to block ads that represent significant costs.

source: ITU

source: ITU

When Will ISPs Reach Same Conclusions PC Suppliers Did?

Computer suppliers long ago learned that marketing focused on “speeds and feeds” was not especially helpful. Internet service providers eventually will likely come to the same conclusion, though perhaps not soon.

The reason is simply a mismatch between a typical user’s ability to perceive or use most higher-speed connections, with one clear exception.

ISPs believe they gain marketing traction when able to advertise higher speeds than other providers. Whether the higher speeds make a difference, in terms of individual user experience is the issue.

Beyond a fairly low level, higher speed does not improve any single user’s experience.

In general, 10 Mbps appears to be the tipping point beyond which most consumers rate their broadband experience as “good,” Ofcom says. That threshold also tends to be the ceiling for experience. Beyond 10 Mbps, app experience does not improve.

There is one exception to that rule. Multi-user households, especially those using lots of higher-definition video, do benefit to the extent that aggregate bandwidth better ensures a minimum of 10 Mbps for every user, at peak usage periods.

“A minimum of 10 Mbps is required by the typical household,” according to Ofcom, the U.K. communications regulator.

The “average” fixed network download speed is 28 Mbps, according to Ofcom, and 83 percent of U.K. households can buy service between 30 Mbps and 300 Mbps.

The other issue is that, for a growing range of apps--especially cloud-based apps--latency matters as much as speed.

It is a truism that availability and uptake are correlated. That is to say, higher speeds, and higher uptake of higher speeds, are correlated. Likewise, higher speeds are correlated with higher data consumption.

Households with connections above 40 Mbps are consuming significantly more data, Ofcom notes.

Previously, data use was relatively flat above 10 Mbps. “This change indicates that consumers who particularly value and use their superfast broadband services are now opting for higher-speed packages,” says Ofcom.

That correlation is nuanced. As Ofcom notes, people who consume more video are going to buy higher-speed packages that also come with higher usage allotments.

The proportion of video traffic delivered over fixed broadband networks in 2015 has risen to about 65 percent, up from 48 percent of total traffic in 2014.

The other issues are that, at higher access speeds, more data is consumed in any given unit of time.

Also, a more-pleasant experience will create an incentive for users to spend more time engaging with Internet apps and services.

Ofcom also notes that in-home networks now are a significant experience issue. In fact, the quality of home-network connections plays some role in over 75 percent of households with poorly performing broadband connections.

The quality of home-network connections is responsible for more than 25 percent of the connection problems in 20 percent of households with a poorly performing broadband connection, Ofcom notes.

But the “assembled” nature of ad-supported apps also plays a part in experience.

Many popular websites and services use advertising. In many cases, advertising represents as much as 99 percent of total consumed bandwidth, Ofcom says.

LIghtSquared Cleared to Emerge from Bankruptcy

LIghtSquared has received U.S. Federal Communications Commission approval to transfer spectrum licenses to a new entity, allowing the company to plan for emergence from Chapter 11 bankruptcy.

Under new leadership, including Ivan Seidenberg, the incoming company’s new chairman of the board, the new LightSquared will be able to resume its efforts to build a national Long Term Evolution (LTE ) fourth generation network using former satellite spectrum in the “L band.”

LightSquared ran into a regulatory buzz saw when GPS interests complained about interference with GPS devices in neighboring frequencies. LightSquared has a license in the 1525 MHz to 1559 MHz band, while GPS devices operate in the 1559 MHz to 1591 MHz region.

LightSquared will have up to 40 megahertz of spectrum to support its national network.

The company originally filed for bankruptcy protection in May 2012. GPS users complained that the network would interfere with equipment that requires precise location data.

Ironically, some might note that GPS interference with LightSquared was demonstrably greater than LightSquared interference in the GPS bands.

In principle, Lightsquared and GPS will now have to reach a deal that would satisfy both while leaving consumers much better off.

Title II Common Carrier Regulation is "Inept" Says Martin Geddes

The wrong analogies and metaphors, as consultant Martin Geddes points out, can be hazardous, even if the right metaphor can help clarify the logic of a position. Consider “paid prioritization,” one aspect of “network neutrality” that is controversial.

Geddes attended the District of Columbia court hearing on the Federal Communications Commission's "Open Internet" rules, commonly referred to as the imposition of Title II common carrier regulation.

Asks Geddes; “The existence of 'fast lanes' must mean everything else becomes a 'slow(er) lane'. Is this a good or bad thing?”

“We already have ubiquitous and uncontroversial paid peering,” Geddes notes. Apparently one justice also asked questions by way of analogy. “The railroads were at liberty to charge for refrigerated containers for goods that needed special handling, so it seems ‘utterly reasonable’ that ISP should be able to do the same,” Geddes reports.

Indeed, "users who create a cost should bear that cost,” a line of reasoning that also bears on the matter of metered usage, one might argue.

“All other transport businesses have tiered services that align price and cost to timeliness of delivery,” Geddes notes.  “The FCC is pushing a hypothetical ‘dread’ which has absolutely no factual substance behind it, and has lost tremendous credibility as a regulator as a result.”

“Banning a market for quality is an anti-innovation policy,” says Geddes. “It creates a distortion by preventing rational resource pricing through market mechanisms. A simple general rule on equal access to paid priority is plenty enough.”

“The Title II reclassification is an attempt to constrain ISP power, but is a politically, technically and economically inept one,” Geddes argues. His reflections on the D.C. court hearing are here.  

D.C. Circuit Court Hears Arguments on FCC "Internet Access is a Common Carrier Service" Ruling

The D.C. Circuit has held oral arguments about the legality of the Federal Communications Commission's  Open Internet Order.

As always, observers try to infer what justices are thinking by their line of questioning. And, predictably, both supporters and detractors heard questioning they believe supports their favored outcomes.

The justices “generally agreed that they are governed by the Supreme Court's holding in Brand X,” said Phoenix Center President Lawrence J. Spiwak, though granting that the FCC has wide latitude to interpret how Brand X should apply, Spiwak said.

That said, the court appeared skeptical of the FCC's reclassification of wireless broadband as a Title II common carrier service due to FCC's gerrymandering of the definition of the term "public switched telephone network," Spiwak said.

The court also seemed concerned over the lack of public notice of the legal theory the Commission used to reclassify mobile broadband. “As such, there is a better chance of the court overturning FCC on this issue,” said Spiwak. 

Others believe common carrier regulation will be upheld.  

Assuming the court upholds the FCC's decision to reclassify broadband as a Title II common carrier service, the court did not appear convinced that the FCC's application of Title II was entirely legitimate, Spiwak said.

The court seemed to have two significant concerns with the Commission's actions.

First, while the FCC stated that it was not classifying terminating access as a Title II service, the Commission nonetheless was regulating terminating access as a common carrier service. As such, this outcome runs directly contrary to the court's holding in Verizon.

Second, assuming terminating access is a Title II service, then the FCC's paid prioritization rule violates basic principles of ratemaking because it both requires a confiscatory price of "zero" under Section 201 (even though edge providers impose a cost on the network) and prevents "reasonable" discrimination as expressly permitted by Section 202."

Either way, one might argue, there is room for the Title II rules to be overturned.

U.S. Mobile Data Prices Have Room to Fall Much More, Sprint Exec Says

Lower prices are a persistent concern of executives in any part of the telecom business, as much as lower prices stimulate usage. The issue is how much lower retail prices can go, in any market segment, before sustainability becomes a key issue.

Sprint Corp. Chief Financial Officer Tarek Robbiati thinks U.S. mobile data prices  have room to fall further. Noting that U.S. average revenues per user are “very, very high,” Robbiti argued there is room for mobile data prices to fall further. “There is headroom," Robbiati said.

In a perhaps worrying statement, Robbiati noted that "in Hong Kong you can get very, very decent 4G data packages on 4G networks for less than $5, which is extraordinary.

"This is real priced-based competition, we haven't felt it here yet," he said.

U.K. Data Consumption Up 40% in One Year

Over the past year, the average amount of data consumption by U.K. fixed network Internet access consumers has increased to 82 GBytes a month, an average increase of over 40 percent over last-year levels, Ofcom reports.

Video entertainment represents about 65 percent of the usage, Ofcom estimates.

Customers with broadband connections faster than 40 Mbps are driving the increase in monthly data use, with an average increase of around 47 percent, Ofcom reports.

More than 66 percent of the adult population now has a smartphone, up by 27 percentage points since 2012. That, plus increased 3G and 4G network coverage has resulted in consumption of about  870 MB of data per month, an increase of 64 percent since 2014.

Still, fixed network data consumption is about two orders of magnitude higher than mobile usage. Video and web browsing account for more than 80 percent of overall data use on mobile networks.

When Will New Competitors Lead the Enterprise Services Market?

Verizon enterprise revenues, and to a lesser extent, AT&T enterprise segment earnings suggest how U.S. and other telecom markets have changed.

It might once have been illogical to believe that new providers--not the largest telcos--would eventually claim the majority of enterprise customer revenues.

Enterprise, after all, “always” had been a tier-one service provider area of strength, in terms of capabilities. But the Internet and competition have changed the landscape.

To the extent one can argue that tier-one telcos ever had been leading contenders in the broader information technology business, new providers such as Amazon Web Services, IBM, Microsoft, Google and others are challenging that notion.

On the transport side of the business, Level 3 Communications, Zayo  and many others are siphoning off long haul, high capacity business, while many major enterprises--especially those in the Internet app businesses, now operate their own data center and long haul networks.

Newer specialists long have been influential providers in the metro fiber network business, with competitive providers--lead now by cable TV companies--very important actors in the small and mid-size business customer segment.

That is not to say every tier-one service provider, across the globe, will have similar fortunes. Even in the U.S. market, AT&T seems to be doing better than Verizon in the enterprise customer segment.

AT&T “Business Solutions” revenues were up 1.2 percent year over year in the third quarter of 2015.

AT&T fixed network business data revenues also grew for the fourth consecutive quarter. Strategic business services revenues of $2.8 billion were up 12.6 percent and up 15.2 percent when adjusted for foreign exchange.

Verizon arguable did not fare as well, perhaps in part because 69 percent of Verizon revenue now is generated by mobility services. Consumer fixed network services now generate 12 percent of total revenue. So 81 percent of total revenues were earned from mobility and consumer services. Everything else amounted to 19 percent of total revenue.

In the third quarter of 2015, Verizon “Global Enterprise” revenue was down 4.9 percent year over year, while “Global Wholesale” revenue was down 5.1 percent year over year.

In other words, though AT&T arguably still is growing its enterprise revenues, Verizon is slipping.

For a firm with operations in key Northeast U.S. markets including business-rich New York city and Boston, as well as Washington, D.C., that might come as a bit of a shock.

Over time, it might be easy enough to predict, Verizon is going to lose more share to its competition. That is one reason why many contestants no longer fear competing against the tier one former incumbents.

Google to Build Metro Fiber Network Serving Accra, Ghana

In November 2013, Google announced a metro fiber network serving Kampala, Uganda, designed to support third-party Internet service providers.

Project Link connects ISP partners providers to long-distance networks that in turn reach Internet access points.

Now Google says it will build a similar network in Ghana, serving Accra. “While undersea cables reach the coasts, the challenge remains to bring abundant bandwidth closer to Internet users in Ghana’s largest cities,” Google says.

Across Accra, Tema, and Kumasi, Project Link will build more than 1,200 kilometers of optical fiber cables to connect local ISPs and mobile service provider access or trunking networks to the metro optical network.

“Since we launched Project Link in Kampala, we’ve built over 700 kilometers of fiber across the city,” said Estelle Akofio-Sowah, Google Ghana Country Manager. “Now, we are working with a dozen local ISPs and MNOs, such as Vodafone Uganda and One Solutions, to improve the quality of Internet access in Uganda’s capital.”

Moving "Up the Stack" and "Across the Value Chain" to Reduce Risk, Raise Margins

“Telecom” value chains are hard to envision these days as the market itself changes, and content and applications assume greater roles.

Historically, when the whole value chain was organized around voice services, matters were simpler, with infrastructure providers on one end and then service providers or consumers on the other.

These days, it is not so easy to illustrate the expanded value chain, since, with the advent of Internet apps and content, the value chain contains many more participants.

Add coming Internet of Things value chains and we might not be able to visualize the whole value chain with any degree of granularity.

But we can all agree that some portions of the value chain have higher profit margins than others. That is perhaps most obvious in the Internet application and content value chains, but likely also makes sense in the traditional communications value chains as well.

Many would likely agree that in the coming mobile content business, profit margins will be relatively high on the content owner part of the value chain (“content is king”). There will be more disagreement about profit margin at the mobile operator portion of the value chain, though some would argue “distribution” is among the more-profitable parts of the value chain (“distribution is king”).

Some also would argue that profit margins are lower, and risk is higher, in many intermediate parts of the value chain. And it is getting harder to distinguish between roles within the value chain, and the actual positions of actors in the value chain.

Netflix provides a good example of the former issue, Comcast a good example of the latter.

Is Netflix a content developer, content management provider, rights owner or distributor. “Yes,” is the answer, as Netflix increasingly participates in all of those roles, even if its direct revenue comes mostly from “distribution.”

Comcast is even more evenly-balanced in terms of roles, generating huge amounts of direct revenue in distribution (cable TV), aggregation (NBC networks) and content rights (Universal Studios).

Such divergences between risk and profit margin might become more important drivers of actor behavior in the future, as rational managers and firms will try to reduce risk and increase profit margin. In many cases, those objectives can best be met only by creating new roles that come with higher value and therefore profit margins.

Those of you familiar with the mobile virtual network operator and competitive local exchange carrier businesses know the dilemma. As capital intensive and expensive as owned access networks are, it is no simple matter to use wholesale access as the platform for a business model.

Simply put, any business model reliant on wholesale access is going to be margin challenged from the outset. The economics of wholesale transport often are a different matter, as anyone immersed in the undersea or long haul transport business will attest.

On the other hand, many business models overcome such obstacles by combining operations in multiple roles, some with high margins, some with lower margins. Some roles might arguably come with less risk, while other roles carry more inherent risk.

But it might nearly always make sense to consider how operating in multiple roles can reduce risk and raise margins. That is why one always hears so much talk of “moving up the stack.” Quite frequently, such moves also require moving “across the value chain.”

source: Consultant Value Added

source

source: MVNO Africa