Google Fiber Drops "Free" 5-Mbps Service in Kansas City

Whether you consider the original Google Fiber offer of “free 5 Mbps Internet access” an unsustainable gimmick, a marketing platform to grab attention or an offer that puts additional pressure on other Internet service providers, Google Fiber appears to have concluded that the offer no longer serves a purpose.

The lowest level of service now offered by Google Fiber in Kansas City, Mo. and Kansas City, Kan. is 100 Mbps, symmetrical, at a retail price of $50 a month. Current users of that product presumably are "grandfathered" and will continue to receive the original service.

That change undoubtedly signals a full-on focus on competing with telco and cable TV offers in that or lower ranges that consumers might still conclude offers sufficient value and lower price.

In other words, Google Fiber might have concluded, or might have planned all along, to more nearly match existing ISP offers from its main competitors, as well as offering a “best in class” symmetrical 1 Gbps service selling for $70 a month.

In fact, as a symmetrical service, the Google Fiber 100 Mbps offer remains “better than cable TV or telco” in the market, based solely on return bandwidth and complete absence of any usage caps.

Google Fiber first introduced the 100-Mbps tier in its new Atlanta market.

In Atlanta, Google Fiber dropped the  “free” 5 Mbps offer (after the customer paid a $300 connection fee) and replaced its new basic offer to a 100-Mbps symmetrical tier of service, sold for $50 a month.

The new $50 plan will likely be quite important, for several reasons. For starters, many users will understand that 100 Mbps suits all their requirements, even if a gigabit is deemed “better.” But “better” also costs more.

As other ISPs have found, consumers often do not buy the most-expensive tier of services, instead choosing other moderate-speed options that satisfy their requirements. That might be 20 Mbps for some, 40 Mbps for many, or 100 Mbps for lots of people.

Up to this point, Google Fiber has not been able to gauge the extent of demand for speeds far lower than a gigabit, but in triple digits. Atlanta will be its first chance to find out how important that tier is, in terms of customer demand.

Significantly, the $40 tier, offering 100 Mbps, is going to compare favorably, one might argue, with Comcast and AT&T offers in the Atlanta market.

Comcast sells service of 150 megabits for $130 a month and 250 megabits for $150 a month.

AT&T sells (on an initial promotional basis), U-verse 1 Gbps starting as low as $120 a month, or speeds at 100 Mbps as low as $90 a month, at least for the first year.

Since potential buyers typically will compare local offers, Google Fiber’s new $50 for 100 Mbps offer might appeal to many consumers who see Comcast and AT&T selling that level of service for triple digits.

Ruinous Competition, in Healthcare or Telecom, Can Destroy Industries

In the telecom, as in any other business, markets “seek” equilibrium, where a relatively stable balance of supply and demand exists. Policies that distort either supply or demand will upset equilibrium.

In Texas, for example, reimbursement rates for services such as Medicaid arguably are simply too low, causing health care workers to be paid less than they might, which in turn causes people to avoid working as health care workers.

As a result, some nurses and staff are quitting their jobs at Texas nursing homes for more money working at McDonald’s.

Texas has one of the lowest Medicaid reimbursement rates, which makes it difficult for nursing homes and service providers to offer competitive wages.

Similar distortions can, and arguably do occur, in the telecom business, where retail prices can be too low to sustain either long term robust investment or investments in human capital. That can happen in any market, be it India, the United States or Western Europe.

Arguably, some policies aimed at increasing competition might have perverse impact, such as removing most of the incentive to upgrade facilities.

You want competitive benefits, but not "ruinous" levels of competition, which eventually drives suppliers out of markets, and reduces competition.

You want competitive benefits, but not ruinous competition, which eventually drives suppliers out of markets, and reduces competition, creating sick industries and markets.

In the aftermath of the “Internet bubble,” that was evident in the global telecom business, which unwillingness to invest on a massive scale, as suppliers lost 65 percent of their value, or went completely bankrupt.  

The point is that efforts to spur competition arguably are good, but policies that promote ruinous competition are to be avoided. We always tend to overshoot the mark, both in terms of deregulating or over-regulating. Both can be destructive.

Some might argue that new regulations on the legacy special access market pose danger.

Cable TV companies--not just telcos--might be subject to special access wholesale rules, under new proposed Federal Communications Commission regulations that are “technology neutral.”

That phrase normally means all suppliers--not only “dominant” telco suppliers--might be covered by rules.

Ignore for the moment the wisdom of applying more regulation to declining services, or extending regulation to all providers instead of loosening regulation for all providers.

One large issue is whether removing profit from any service is likely to spur investment in such services. We probably all know the answer to that question.

What are the Major MVNO Opportunities?

Where are the most-significant mobile virtual network operator niches? The answer might hinge on what sort of market the MVNO operates in, as well as existing assets the MVNO can exploit.

There are six common market entry strategies, according to Peppers and Rogers Group.  

1. Low price: These companies offer frugal plans, often with only simple voice and SMS services, limited data, and inexpensive devices. MVNOs selecting this strategy target price-conscious customer segments with a limited marketing budget, utilizing traditional sales channels such as physical stores rather than alternative channels.
2. Content and applications: The focus here is on exclusive content offerings, such as music, videos, games, or certain sports content bundled with mobile plans or devices. They target customers who are active in digital channels and interested in specific content. The main differentiation point among these MVNOs is the ability to provide content and applications that are not available from other operators.
3. Convergent services: Some MVNOs offer all-in-one services encompassing service lines such as fixed Internet or pay TV, along with mobile service. They are also referred to as XVNOs, stressing the variety of their service lines. Customers receive one combined bill for all the different services provided by the XVNO, which has a positive effect on the customer satisfaction level.
4. Segment-focused: These MVNOs serve very specific segments, such as expats, youth, business customers, migrants, or others. The main differentiation point among segment-focused providers is their narrow focus on customers who may not be covered by other operators in the market.
5. Retail presence: These operators have retail background and rely on strong distribution channels offering cheaper plans and easy accessibility. They focus on customers who are already part of a retail network, so marketing efforts mainly consist of in-store activities.
6. Service differentiation: Looking beyond products, these MVNOs integrate telecom products and services with loyalty programs, financial services, or other services related to a company's or group's assets and resources. For example, a technology retailer integrating its customer loyalty program with a group's MVNO can allow customers to earn points as they talk on their mobile phones and use these points in the stores to upgrade their phones. MVNOs selecting this strategy tend to create a closed loop network with group-level synergies offering customers a unique proposition.

Some might say common niches include segmentation based on:

1. Ethnic group (often anchored by cheap long distance calling)
2. Lifestyle (most often, younger users)
3. Discount
4. Subsidized, ad supported or zero rating, at least in part

Note that three of the four major approaches involve price discounts in a direct way.

McKinsey has identified five key success factors for MVNOs. Companies that launch successful MVNOs often make use of existing marketing assets like media and telecoms brands, customer databases, and channel infrastructure.

They strive to create a unique brand positioning and value proposition in order to attract target clusters such as specific ethnic groups or demographic cohorts like millennials.

This typically means identifying emerging niche markets that lie beyond the reach of traditional marketing approaches or are too costly to serve or address using a conventional business model.

source: McKinsey

There are eight major opportunities exploited by MVNOs, according to GSMA Intelligence:

• Discount
• Telecom
• Media/entertainment
• Migrant
• Retail
• Business
• Roaming
• M2M

“Discount” and “telecom” approaches account for 47 percent of the global MVNO market, perhaps in large part because the MVNO approach so often is taken by a facilities-based telco to compete out of region.

Some 18 percent of MVNOs are operated by companies from adjacent industries (retailers, banks, TV or media organisations).

Some 35 percent of the MVNO market ois focused on segments such as business, migrant, M2M and roamers.

For example, in the media/entertainment sector, Virgin Mobile reported more than three million connections for its UK brand in the third quarter of 2014, while in retail, Italy’s PosteMobile had 3.2 million accounts.

source: GSMA Intelligence

GSMA Intelligence has also recorded 260 MNO sub-brands spread across 56 countries.

Sub-brands differ from MVNOs in that they are wholly-owned and operated by their facilities-based mobile operator  parent, despite being marketed independently of that MNO.

Some MVNO brands also operate as MNO sub-brands; those that have international presence include Virgin Mobile, which is a sub-brand in Australia, Canada, India and the US, and Red Bull Mobile, which can be found in Austria, Belgium, Hungary, Poland, South Africa and Switzerland.

Some 48 percent of sub-brands offer prepaid tariffs only, while the proportion that are contract-only stands at 21 percent.

Sub-brands tend to be focused on prepaid tariffs as, like MVNOs, they are used by operators to attract new customers in lower price segments without diluting their core brand proposition or exposing it to excessive price competition.

As such, the use of sub-brands is a strategy that tends to be limited to mature, saturated markets in Europe, Northern America and Asia Pacific – the average penetration rate for countries that feature sub-brands stands at 127 percent.

In terms of categories, discount, media/entertainment and retail take the largest share of the sub-brand market with 38 percent, 23 percent and 16 percent respectively.

No "Telco QoE Trading Model" Can Emerge if Network Neutrality Stands

Consultant Martin Geddes has argued for some time that service provider platforms essentially could be likened to resource trading platforms, where, “rather than selling raw mechanisms, telcos can sell (proxies for) different levels of QoE outcomes and associated business risk.”

Network neutrality rules obviously are a challenge to such roles, as the ability to create different products hinges on the ability to clearly create performance distinction. Network neutrality rules bar the creation of such distinctiveness.

“This demand-centric service model allows for managed user QoE risk, with tiered QoE levels linked to ability to pay,” says Geddes. “The billing model evolves from pure quantity to variable “quantities of quality” with different resilience levels.”

In this model, what is traded are “quality of experience” products. And network neutrality rules make creation of such products unlawful.

Antitrust protection is a reasonable issue. But QoE is not such a problem, one might argue.

Is Value of Fixed Networks Higher in Western Europe than in United States?

As has been the case for decades, service provider strategies have been diverging since the end of monopoly regulation.

The longer-term strategy in Western Europe seems to be that leading operators will adopt a mobile-plus-fixed approach intended to support quadruple-play services.

Comcast in the U.S. market is likely to take the same approach. 

More questions surround ultimate strategies to be taken by mobile-only providers such as Sprint and T-Mobile US, or integrated carriers such as AT&T and Verizon.

European executives might argue that a "mobile-only" approach cannot succeed in their markets. Whether that will be the pattern in the U.S. or Canadian markets is not yet determined.

Market structures tend to be different in Europe and North America. In Europe, it is more common that a single network provides fixed services. That is not the case in North America, where two and sometimes three fixed networks compete.

The practical implication is that the "value" of a fixed network might be higher in Europe, compared to North America. Nor is it so clear that a mobile network cannot provide every essential quadruple play service (mobility, voice, high speed access, video entertainment).

In Europe, the quadruple-play strategy might be understood to mean that a “mobile-only” approach will not work as well as an integrated strategy. 

Others might argue the quadruple play actually can be provided by a “mobile-only” network, especially as 5G and later networks become the norm.

In that regard, one major difference in strategic options might be that, in Europe, cable TV is not a ubiquitous competitor to telco fixed networks.

That raises the value of the fixed network, compared to the United States where two and sometimes three ubiquitous fixed networks operate, plus two substantial satellite video networks representing significant competition for fixed network linear video market share.

Western European fixed and mobile service providers arguably have had the toughest revenue trends of operators in any region, owing to a multi-year negative revenue trend.

It appears as though the 2013 low point now has passed, with slight revenue growth for service providers reached in 2015.

Western Europe revenue trends turned positive in the second quarter of 2015, with annual revenue growth reaching 0.5 percent.

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What if Information Technology and Communications Do Not Boost Productivity?

Is it a myth that investing in more information technology boosts productivity? A corollary: has information technology boosted living standards? Not so much,  some say. Others would argue the gains are there; just hard to measure.

The absence of huge productivity gains has created what economists call the “productivity paradox.”

Basically, the paradox is that the official statistics have not borne out the productivity improvements expected from new technology.

In fact, some might argue that higher investment in information technology investments have provided value less than expected.  The implication is that such investments should be avoided or limited.

None of that is good news for suppliers of IT goods and services. Nor, arguably, is that terribly good news for supporters of high speed access as a driver of economic development.

To make the point, most of us assume such investments drive economic growth. We actually do not know that, as an economic certainty.

Equally likely: some value is obtained, but less than some other investments might provide. It is possible that allowing workers to sleep more or commute less would provide higher productivity benefits. It is possible that any number of other “how you treat people” programs would provide more productivity growth than investing in IT.

Of course, none of that is likely to matter. We will behave as though high speed access is a necessary good, without any actual understanding of cause and effect.

St. Louis Federal Reserve Board

Some economists, and many business executives, might agree that productivity growth driven by applied information technology does not seem to be in much evidence in the 2016 market, Uber notwithstanding.

Many studies attribute a mid-1990s U.S. productivity surge to the direct and indirect effects of information technology investments, according to John Fernald, an economist working for the Federal Reserve Bank of San Francisco.

But such gains do not last forever. To be specific, by the mid-2000s, the low-hanging fruit of IT had been plucked, he argues, which accounts for a productivity slowdown in the broader U.S. economy.

Industry data support the IT story for the mid-2000s TFP (total factor productivity) slowdown, he argues.

That raises a question: if productivity gains driven by prior waves of technology now yield mostly incremental and modest gains, then the value of additional IT investments might be questioned.

A related question: what new wave of technology, applied to business processes, could reignite a wave of economic growth?

Historians of technology argue that a broad wave of technological breakthroughs led to a surge in productivity growth after World War I that finally played out around the 1970s. Among those drivers were electricity, the internal combustion engine, chemistry, entertainment, information, and communication.

Some would point to one-time gains from infrastructure programs such as the construction of the Interstate Highway System. An important corollary: any second wave of investment in similar infrastructure would have “one time” effects that would not be long-lasting.

IT-producing industries saw productivity explode in the 1995-2000 period. But after 2000, productivity returned close to its pre-1995 pace.

IT-intensive industries saw only a modest pickup in the late 1990s but a marked burst in 2000-2004. After 2004, TFP growth receded close to its pre-1995 pace, says Fernald.

“IT led firms to innovate in how they manage sales, inventories, and supply chains; the Internet is an extreme example, in that it made possible completely new ways of doing business,” according to Fernald.

For a wide swath of the economy, improved ability to manage information and communications has led to changes in how firms do business.

The gains from the IT revolution came after a period of subdued productivity growth. A working paper in 2014 by John Fernald (Federal Reserve Bank of San Francisco) asserts that productivity growth was “exceptional” due to the tech-boom and was restored, prior to the Great Recession, to “normal” levels of 1973-95.

The relative underperformance of information technology investments recently is a problem. It suggests we will have to wait for the next wave of advancements to boost productivity. 

And some might suggest the value of IT investments has to be weighed against investments in other parts of any business that could have equal or higher returns. 

AWS Will Generate $10 Billion in 2016 Revenue, Amazon Says

Amazon Web Services will reach $10 billion in annual sales in 2016, according to a Securities and Exchange Commission filing by Amazon, reaching that level even faster than Amazon did.

Amazon CEO Jeff Bezos says in the same filing that the company has achieved those successes  because Amazon has an organizational culture “that cares deeply about and acts with conviction on a small number of principles” of “customer obsession rather than competitor obsession, eagerness to invent and pioneer, willingness to fail, the patience to think long-term.”

“One area where I think we are especially distinctive is failure,” Bezos said. “I believe we are the best place in the world to fail (we have plenty of practice!), and failure and invention are inseparable twins.”

“To invent you have to experiment, and if you know in advance that it’s going to work, it’s not an experiment,” said Bezos.

source: Synergy Research

“Most large organizations embrace the idea of invention, but are not willing to suffer the string of failed experiments necessary to get there,” Bezos said.

That is not such a “dumb” behavior, even Bezos admits. “Outsized returns often come from betting against conventional wisdom, and conventional wisdom is usually right,” Bezos said.

In other words, conventional wisdom is right, perhaps 90 percent of the time.

“Given a ten percent chance of a 100 times payoff, you should take that bet every time,” said Bezos. “But you’re still going to be wrong nine times out of ten.”

Not many firms can withstand that level of “failure.”


source: IDC

No Surprise: Survey Finds Consumers Love Zero Rated App Usage

A new CTIA-commissioned Harris Poll survey found that Americans would overwhelmingly welcome new free data options that allow consumers to access more content and services without counting against their data plan.

That should come as absolutely no surprise. What consumer would turn down a chance to use desired apps, and learn about new apps, at no incremental cost?

In fact, opponents of zero rating are virtually required to argue that “despite clear consumer and end user value,” zero rating should be banned. Why? Because it is deemed potentially harmful to some suppliers.

Almost nobody ever tries to argue the policy is harmful to users, consumers as a whole and customers.

The survey found that Millennial respondents:

• 94 percent were extremely/somewhat likely to try a new online service if it is a part of a free data offering
• 98 percent were extremely/somewhat likely to stay with their current provider if it offered free data
• 94 percent were extremely/somewhat likely to use more data if it some didn’t count against their monthly data usage
• 77 percent were extremely/somewhat likely to sign-up with a new wireless provider offering free data

Zero rating was attractive to all respondent adults as well:

• 84 percent were extremely/somewhat likely to try a new online service if it is a part of a free data offering
• 93 percent were extremely/somewhat likely to stay with their current provider if it offered free data
• 85 percent were extremely/somewhat likely to use more data if it some didn’t count against their monthly data usage
• 65 percent were extremely/somewhat likely to sign-up with a new wireless provider offering free data

Free data services help draw users to new entrants and start-ups competing with dominant mobile apps and web providers, CTIA and others argue.

Specifically, 94 percent of Millennials (18-34 years old) were more likely to try to a new online service if it was a part of free data offering.

Similarly, free data services enhance competition in the mobile services business. Some 77 percent of the Millennials said they were more likely to sign-up with a new wireless provider that offered free data, and 98 percent of the Millennials were more likely to stay with their current wireless provider if it offered free data services.

Mobile Remittances in China Surge

According to WeChat, owned by digital media business Tencent, 420 million people sent each other lucky money using the app’s payment service on the eve of Chinese New Year.

According to WeChat, it has seen a total of 8.08 billion red envelopes sent so far for Chinese New Year, eight times more than last year.

To put this into context, according to PayPal it made 4.9 billion transactions in 2015 (half of the number of transactions made on WeChat just for Chinese New Year) and only 28 per cent were made on a mobile device.

As in African markets, mobile  remittances have been highly successful because they replace existing methods of money transfer and payment that are costly and time-consuming.

That will be a factor in U.S. markets, but never has been seen as the primary value of mobile payments. That traditionally has been viewed as a “retail payment” mechanism.

The obvious point is that adoption curves for mobile “wallets” or “payment” services in the U.S and other markets where “financial inclusion” and “banking” systems are more developed, will be different from China’s pattern, or Africa’s pattern.  

Adoption of mobile banking, payments and money transfers is going to be much more rapid where such capabilities bring “convenient banking” services to people who do not have such access.

Adoption is likely to be far slower in markets where banking services are ubiquitous.

Similarly, Chinese social network Weibo released figures showing that 134 million active users logged on during the eve of Chinese New Year, with 100 million receiving lucky money digital envelopes using the platform.

Compared to China’s markets, it is likely that U.S mobile payments will be less driven by peer-to-peer cash transfer and much more by remote payments. In-person retail payments--the “poster child” for U.S mobile payments--might actually be dwarfed by remote payments.

In other words, U.S. mobile payments activity is likely to be driven by payments that today are conducted using debit or credit cards, but for online transactions, not so much retail payments.

source: Forrester Research