Nonlinear Rates of Change Pose Greatest Risk to Service Provider Transformation Plans

Nonlinear change is likely among the greatest dangers any business or industry can face, and that is true for cable TV, satellite TV and telco service providers alike. The overall direction of changes in revenue sources, the rate of growth or decline are fairly well understood.

But what could upset plans to replace revenue sources is an unexpected and large shift in the rates of change, especially from legacy services. As typically is the case, revenue losses in the legacy business will tend to affect business models more than unexpected upside surprises for growth businesses.

With the caveat that revenue is not profit, U.S. cable TV operator revenue trends are clear enough: business services and high speed access are projected to drive revenue growth through 2020. LInear video and voice will fall, while advertising remains roughly stable.

But everything hinges on what happens with high speed access, video entertainment and business services. A predictable pace of decline for video, with predictable growth of high speed access and business services, will allow a smooth transition of revenue sources.

The danger: nonlinear changes to the downside in video or high speed access could imperil revenue stability. The is the same set of strategic dangers faced by telcos, as well.

Cable TV providers face two sets of issues: declining units sold and declining profit margin on those units, even if average revenue per unit can eke out gains. Declining ability to wring free cash flow out of video means it is necessary to maintain high growth rates in business services and high speed access, while maintaining profit margins.

The rate of change makes a huge difference, even if the direction of change is anticipated. Small single-digit increases in abandonment of video, or a few digits annual change in revenue growth rates for high speed access, would put severe pressure on the business model, some argue.

Between 2015 and 2020, the leading cable operators might see a decline of 33 percent in video revenues, with margins dipping to nine percent from 24 percent.

High speed access revenues are forecast to grow 52 percent. Commercial revenues are projected to grow from $6 billion to $13 billion, an increase of more than 100 percent.

An accelerated rate of decline for linear video would seem the biggest downside risk, but a slowing rate of revenue growth in high speed access is likely the second-largest potential risk, as telcos shift to higher-speed access services and third parties such as Google Fiber take more share.

source: Business Insider

source: Business Insider

Canada Gets a Potential "Four Leaders" Opportunity in Mobile

The most important numbers in most mobile service provider markets are “three” and “four.”

Three tends to be the number many believe provides both competition and sustainability, while four is the number policy advocates and government regulators prefer, primarily because four contestants are believed to provide more robust levels of competition.

The Shaw Communications acquisition of Wind Mobile Corp., despite Wind’s small market share (about three percent) means there will be four national wireless carriers, all backed by four big national telecom conglomerates, instead of just three.

Wind says it is  Canada's largest non-incumbent wireless services provider, serving approximately 940,000 subscribers across Ontario, British Columbia and Alberta with 50MHz of spectrum in each of these regions.

Wind has a bit over three percent market share in the Canadian mobile market.

Wind has yet to begin building a fourth generation Long Term Evolution (LTE) network, so that undoubtedly will be on the agenda, as Shaw prepares to step up competition with the leading mobile providers in Canada.

Though Canadian regulators recently had used a familiar tactic--creating spectrum reserves for new and upstart providers--some would argue that no meaningful change happened.

In March 2015, Wind Mobile Corp., Videotron Ltd. and Eastlink Wireless won significant blocks of AWS-3 (advanced wireless services) spectrum covering most of the country for a combined total of less than $100 million, while Telus Corp. and BCE together will spent about $2-billion for the licenses they won.

The new entrants paid an average of 11 cents per megahertz per person (MHz-Pop)

Telus paid $3.02 per MHz/Pop and BCE paid $2.96 per MHz/Pop.

What Will Mature Internet Access Lifecycle Look Like?

How soon will Internet access become a legacy product, past its peak of growth, in the U.S. and other markets where fixed networks have been a typical access platform? And, when that happens, what form will the decline take?

In other words, how soon will high speed access start looking like voice and linear video, products that have become saturated, to be followed by a decline? And, when that happens, what form will the decline take?

In the prior maturations, people simply stopped buying the product altogether. It is in many ways hard to envision that scenario for high speed access, if one assumes it is a foundation product for most other entertainment, communications and transaction services.

One possible outcome is that the market saturates, but does not actually result in abandonment. The market simply stops growing, but consumers keep buying. Decline then does not take the form of abandonment, but revenue decline.

The pattern there would be different than the cases of voice or linear video, where the actual number and percentage of people stopped buying. 

Instead, perhaps the matuation takes a different form. It is possible that revenue first flattens, and then declines, as people keep their connections, but pay less. 

In that sense, maturity would not necessarily involve abandonment, but only lower prices paid by consumers, and declining revenue for suppliers.

A traditional pattern based on substitution would have fixed access abandonment in in favor of Wi-Fi or mobile or some other new alternative, for example. That is hard to see, at the moment, but 5G could represent a breakthrough.

To some extent there is mobile substitution, where people choose mobile access rather than fixed access. Whether 5G can accelerate that process is the issue.

That we are close to saturation is easy to see. In 2015, 85 percent of U.S residents say they use the Internet. And many of those non-users do not want to buy. Still, the point is that we are within 10 percentage points or so of virtually complete adoption.

Market share shifts are the other issue. One might argue that cable TV companies will continue to take share from telcos. One might argue that third parties will take share from telcos and cable TV.

But if the market is saturated, and if telcos continue to substitute fiber connections for copper, even market share shifts will be more difficult.

FCC Wants Information on Binge On, Comcast Stream TV and AT&T Sponsored Data Programs

As it said it would, the Federal Communications Commission is asking some leading U.S. Internet service providers for information about programs that provide access to apps without incurring usage charges on a data plan.

Letters asking ISPs to share information about their programs have been sent to AT&T, Comcast and T-Mobile.

"As you may be aware, concerns have been expressed about these programs, for example, some have argued that sponsored data unfairly advantages incumbent content providers," the letter to AT&T said. "We want to ensure that we have all the facts to understand how these services relate to the commission's goal of maintaining a free and open Internet while incentivizing innovation and investment from all sources."

The T-Mobile US "Binge On" policy that does not count some digital video services against data limits.

Comcast’s "Stream TV" does not count usage against data caps.

AT&T has a "sponsored data plan" programs that allow content providers to subsidize users' wireless data.

Some view any business practices that allow third parties to underwrite data consumption, or carrier programs to exempt video and audio traffic from data usage charges, as violations of network neutrality. Others disagree.

The T-Mobile US program is open to all music or video providers. So the issue is whether exempting a whole class of apps from data charges is a violation of network neutrality rules.

Others see sponsored data as a business practice no different than toll-free calling or ad-supported TV and radio.  

Comcast’s service appears to be a “managed service,” exempt from network neutrality rules, some would argue.

Project Loon Promised Help by Indian Telecom Minister

Though some government agencies have issues with Google’s Project Loon, Ravi Shankar Prasad, India’s minister for telecom and IT said that the government was in principle agreeable to pilots of Google's Project Loon.

Prasad also said he had also proposed a partnership with state run BSNL for Project Loon, which proposes a fleet of steerable balloons as a backhaul mechanism for mobile networks using the Long Term Evolution 4G protocol.

A few ministries--defense, home and civil aviation and the Department of Telecommunications have raised technical and security concerns over the project.

One of the primary concerns with the proposal is that the spectrum band required for the transmission a band between 700 to 900 MHz is occupied by telecom service providers and is currently unavailable. But security is another concern.

Prasad said the government would help Google in obtaining clearances from civil aviation and the defense ministries.

45% of Millennials Do Not Buy Linear TV

It is bad news when 45 percent of potential customers do not want to buy one of three core consumer communications or entertainment products, as the latest survey from Limelight Networks suggests. Though 55 percent of surveyed Millennials say they do buy linear video TV, that also means 45 percent do not buy.

That is an issue for all triple-play providers, but especially for cable TV and satellite TV firms, who have most of the market share.

Price is an issue for many Millennials, as it is for most other demographic groups. Or, perhaps it is fair to say, price is an issue because value is challenged. The single greatest reason for disconnecting was “higher prices,” as you would expect. About 35 percent of subscribers said higher prices would cause them to consider disconnecting.

Some 19 percent suggested the ability to watch the channels they want online would be the reason for cancelling service. About 11 percent seem to be waiting for sports and live events to be available online.

Almost five percent say they would quit buying linear service when they are able to get all the channels they want over the air, using a TV antenna. Since that is not going to happen, we can discount the responses, and assume the key issue for such respondents is “no incremental cost.”

They seem to prefer paying nothing extra to watch all the channels they prefer, but that is not going to happen.

One issue that cannot be assessed is how typical spending might change, over time, as over the top streaming services proliferate and much content is available from a few dominant distributors.

What is unlikely to happen is that one single provider has content rights to “everything” a consumer might wish to watch. That will mean it is uncertain how spending might change, as consumers will have to buy more than one subscription, in all likelihood, to get most of what they want to view.

Some mix of “skinny bundles,” plus use of over the top subscription services, is likely to be the intermediate pattern for many consumers. More than 40 percent of Millennials, and 34 percent of all other consumers, already buy an OTT streaming service.  

source: Limelight Networks

source: Limelight Networks

What a Small Looks Like, Commercially Deployed

A real-world Verizon Wireless small cell in San Francisco. Interesting since there is controversy in my own neighborhood about deployment of a new cell site, not sure whether it is a macrocell or a small cell. Doubt the fuss is about a small cell deployment.

source: RCR

Average Speed Globally is 5.1 Mbps; Does Not Matter So Much

“Averages” do not always mean too much where it comes to the Internet. Though the global average access speed is 5.1 Mbps, according to Akamai, speeds in India average 2.5 Mbps.

In Singapore, the average speed is 137 Mbps.

In the Philippines, speeds average 2.8 Mbps; in Indonesia three Mbps; in Vietnam 3.4 Mbps.

All of that makes the concept of "average" a bit like having one foot in boiling water, one foot in nearly-freezing water. "On average" temperature means very little.

Keep in mind that the platform used also makes a difference, as access speeds usually are higher on fixed networks than on mobile networks, and most consumers in Asia who use the Internet do so on a mobile device. In addition, most mobile networks in much of Asia are of the 2G or 3G variety, not yet 4G.

Beyond such differences, speeds tend to be lower, or non-existent, in rural areas. Though the cost disparities are lesser, where it comes to mobile, compared to fixed networks, the gap remains.

In the United Kingdom, for example, the percentage of homes not able to buy a 10-Mbps service rises as density falls. In other words, more rural areas get lower speeds. The more rural, the lower the typical speed.

source: thinkbroadband

The reason is largely the cost of infrastructure, which is both more extensive, and yet also serving fewer customers per unit of investment. In other words, an ISP has to spend more, burt earns less.

In fact, in most very-rural areas, it might be impossible to earn an actual return. The difference in a business model can be transfer payments and universal service support.

In contrast, where density is very high, the business case is best, or close to best. “Average” is a squishy concept, where it comes to Internet access.

source: FCC

Like it or Not, Future of Competitive Business Services is Based on Facilities

It will not come as any surprise that competitive access services providers argue incumbent telcos still have market power. That is the argument that motivates the Federal Communications Commission to protect wholesale access for firms with little to no willingness or ability to build their own access facilities.

Since roughly 2002, though, the FCC has made clear its preference for facilities-based competition in the local loop, something cable TV companies, Google Fiber and now a growing number of independent Internet service providers are doing, especially in the arguably harder business case of consumer customers.

Some ISPs serving enterprise customers in urban cores use wireless access rather than digging trenches, so that provides yet another model for investment in access facilities.

Some have estimated that Google Fiber’s first gigabit access network in Kansas City (Missouri and Kansas) cost about $563 per location. With more experience, Google Fiber undoubtedly will drive those costs lower.  

Customer acquisition and customer premises add more costs, but you get the point: building gigabit Internet access plant using fiber to the location does not cost as much as it used to.

Not every service provider--in fact, very few, historically--wants to build such plant. There are many reasons, among them the danger of creating stranded assets if a customer disconnects. In cases where a customer account lifecycle is three years, that is a problem.

In other cases, capital cannot easily be raised to do so. And while enterprises often are very happy to buy gigabit IP connections, many smaller businesses still buy legacy T1 and DS3 connections.

In fact, cable TV operators are gearing up for a major assault on enterprise and mid-size business customers, proving that a facilities-based approach is possible. It just is not possible for every contender in a market.

Cable TV firms have been aggressively targeting the small and medium-sized business with growing success, and generating at least $10 billion in revenue annually and growing in excess of 20 percent annually.

Enterprise services are the next big evolution.

Not all business models, consumer or business-focused, work forever. The FCC wants facilities-based competition. Not every contestant will benefit. But a growing number of initiatives by facilities-based providers show what can be done.

Across Southeast Asia, Mobile Data is the Incremental Revenue Opportunity

source: Ericsson

Between 2015 and 2021, mobile subscriptions will grow at a compound annual growth rate (CAGR) of four percent, reaching around 1.3 billion subscriptions by the end of the period. 

The reason for the moderate rate of growth is that adoption across most of the region already is at 100 percent.

In practice, that tends to mean use by people ranges far upwards of 50 percent, as many customers use multiple accounts multiple subscriber identity modules.

That rather slow rate of growth attests to widespread mobile usage across the region.

Revenue growth, on the other hand, is going to come from incremental sales of mobile Internet subscriptions, even if room remains for adding new accounts.

Mature markets such as Australia and Singapore, where LTE is widely available, have a very high mobile broadband penetration, already exceeding 90 percent.

Developing market mobile Internet penetration is 25 percent. That, obviously, is where the revenue growth opportunity lies.

source: Wearesocial.net 

Trade Finance Using Social Media to Assess Creditworthiness

Connecting small business owners and entrepreneurs with trade finance is the mission Rwandan company Kountable accomplishes using mobile phones and a method of assessing creditworthiness using social networks. The whole point is fast and accurate due diligence on ability to repay a loan.

Launched in May 2015, deals ranging from as low as US$2500 and as high as $500,000 have been facilitated, says Chris Hale, Kountable CEO.

Kountable is not a loan originator, however. It provides assistance to lenders and borrowers. Basically, Kountable reduces risk when a supplier and financing entity agree to enable delivery of  goods to a merchant.

“We help you purchase raw materials, stock or inventory and get paid by your end client so you don’t have to worry about funding these purchases as part of your transaction,” says Hale.

“We are focused on business finance needs that require short term support which does not exceed one year and though there are no limits on how much, we want to benefit as many businesses as possible so we want to keep the bulk given to each business within the range that we have handled in the past ($2500-500,000),” Hale says.

Kountable measures creditworthiness by evaluating an entrepreneur’s social capital—their network of contacts and relationships. In cases where an applicant does not actively use social networks, a score can be constructed from email data.

The scoring alogorithm, as with any other method, assumes that one’s past business relations, activities and behavior tend to predict future behavior.

Ideally, though, an applicant’s kScore is generated by measuring the activity and size of social networks (social networking sites) as well as phone and text messaging contacts and email profiles.

Based on an algorithm that looks at several dimensions of all that data, applicants are scored with a numerical value between 500 and 1000 that is a proxy for creditworthiness based on social capital.

The company says it can make a credit score in five to 10 working days.

Kountable works to raise funds in the United States for such entrepreneurs using the kScore, offering lower rates than otherwise would be available.

The Kountable business model is a two-percent-per-month financing fee on the value of loans made by third parties.

The significance is that, since about 1995, private activities have vastly surpassed the value of official development assistance as sources of capital inputs in developing countries. Kountable is part of that trend.

source: World Bank

U.S. Internet Access Costs 0.4% of Gross National Income Per Capita

International comparisons always are difficult. National domestic product or income, currency exchange rates, population size, country size, household size and size of rural population all make a difference.

In the developed world overall, Internet access costs about 1.7 percent of gross national income per capita, according tot he International Telecommunications Union.

On that score, U.S. Internet access costs 0.4 percent of GNI per capita, about third best in the world.

1. Macao China -- .2% of GNI per capita

2. Kuwait -- .4%

3. United States -- .4%

4. Switzerland -- .6%

5. Luxembourg -- .6%

6. Andorra -- .6%

7. United Kingdom -- .7%

8. Japan -- .7%

9. Norway -- .7%

10. Hong Kong -- .7%

As with all cross-country comparisons, one has to adjust for conditions on the ground.

SingTel and SoftBank Best Exemplify Hybrid Business Strategy

SingTel and SoftBank are perhaps the best examples of business strategies that blend traditional communications businesses with newer digital content and application revenues.

It is sometimes hard to understand the strategy, but even harder to execute. In some cases, telcos might hope to create captive services. That is the strategy for mobile entertainment services, for example, where a mobile service provider directly owns a streaming media service.

In addition to direct revenues, indirect monetization from advertising might be possible.

One other angle is to partner with young Internet companies that eventually can emerge as key drivers of direct and indirect revenue. In such cases, a mix of revenue models could emerge. In some cases, perhaps equity value is created. 

In other cases, it is conceivable that capacity and transport revenues are earned. In yet other cases the value is indirect.

Singtel's regional network of telecom alliances, covering a total of some 570 million subscribers, has already attracted taxi-hailing app GrabTaxi, which recently agreed to give users in Thailand, the Philippines and Indonesia the option of paying their fares using the Singtel mobile wallet service, for example.

source: EIN News

Does it Matter Which Ecosystem Participant Provides Zero-Rated Mobile Data Access?

Is zero rating of mobile data usage a violation of network netrality norms or only a marketing tactic? MIcrosoft India thinks it simply is a value of adding value for buyers of Lumina smartphones.

Microsoft India plans to sponsor 4G mobile data access for Bharti Airtel customers who buy Lumia 4G smartphones, though the deal is not finalized. As presently envisioned, buyers of Lumia devices will get use of twice as much data.

Airtel 4G customers purchasing the Lumia 950 or 950 XL will get free data bundled with the devices, as well as the  Lumia 550. 

Some would argue there is no difference between this proposed practice and the well-established practice whereby buyers of Kindle content can have that content delivered over some mobile networks without incurring any usage of a mobile data plan.

Nor, in principle, is this any different from promotions offered rather routinely by mobile service providers, where bonus data is provided for purchase of some plans, or for customers who switch from another provider.

In principle, does it matter whether it is an advertiser, a device supplier, an app provider or a mobile service provider that offers "no incremental charge" mobile data access?

Netflix Programming Exclusivity Works, Survey Finds

Access to original programming is a key method by which networks attempt to gain distinctiveness in a competitive market. And there is at least some evidence that the tactic works.

A survey conducted by RBC Capital Markets found that original content affected the buy decision for 49 percent of respondents.

More than 25 percent of respondents said that having access to original content convinced them a great deal, or a good amount, to subscribe to Netflix.

Original programming, as a strategy, really helps Netflix, as it does other networks.