China Authorizes 4th Mobile Operator

China has authorized a fourth mobile operator, allowing state-owned China Broadcasting Network--which was created in 2014 to consolidate cable TV and broadcast operations in China--to enter the mobile services market.

Two angles are noteworthy. First, CBN marks the entry of the cable TV industry in China into the mobility business. Second, the move illustrates a continuing divide among communications regulatory authorities about the “best” market structure for mobile communications.

Given a choice, most seem to believe “four” providers a better structure (at least in terms of competition) than “three.” French regulators are foremost among proponents of a “three supplier” structure, largely to bolster the climate for more-robust investment.

The tension illustrates the problem regulators face. On one hand, they would likely prefer both vigorous competition and robust investment. On the other hand, excessive amounts of competition will choke off appetite to invest.

source: Light Reading

source: China Internet Watch

On a long term basis, some argue any structure with two suppliers, though not generally considered to be as good in terms of innovation, is the most stable market structure, the reason being that it is difficult for three providers each to maintain a minimum market share of about 30 percent.

That is a level many believe correlates with a minimum cash flow capability required to sustain long-term viability. By that test, China’s mobile operator market already is unstable, as only China Mobile has at least 30 percent market share.

Globally, profitability of operations for individual players correlates strongly with in-market scale measured by achieved revenue market share, McKinsey consultants have noted.

Sustaining an EBITDA margin of 30 percent can be considered a minimum proxy value for achieving capital returns above the weighted cost of capital, McKinsey says.

Entrants unable to capture a significant revenue share of their market--more than 25 percent-- will be unlikely to achieve EBITDA margins above 30 percent.

That implies a sustainable long-term structure featuring just two providers.

source: McKinsey

There is an important caveat, however. If, somehow, the average cost of creating a mobile business should change in an important way, reducing especially infrastructure capital investment and operating costs, then it is possible sustainable market structures could change.

It might be possible, long term, for more than two major suppliers to be profitable. But that might hinge on major changes in capital requirements and operating cost. That is why all developments in network virtualization, access to shared and unlicensed spectrum, and networks based on use of unlicensed and shared spectrum, are important.

Such developments can change the industry cost profile.

Telecom Outsourcing Will Grow 3% Annually Through 2020

It never is easy for any executive to clearly identify a company’s “core competence.” Asked to do so, most people cite a list of “things we think we do well.”

That is not core competence. To the extent a firm has such competence, and it is possible many firms do not, it is the singular capability that competitors cannot replicate. It is not “things we think we do well,” if other competitors also can make a credible claim in those areas.

As it turns out, many mobile operators find that operating access networks really is not a core competence, or at least adds little value.

Still, outsourcing is rather a subtle thing. About 52 percent of carrier outsourcing revenue in 2015 was in the areas of network maintenance, build, planning and design, not core operations.

Managed service revenues for outsourced operations, network maintenance and network planning and design s expected to grow at a three percent CAGR from 2015 to 2020, driven by a mix of full operation outsourcing and radio access network (RAN) sharing, according to Infonetics estimates.

In 2015, global outsourcing services revenue increased three percent over 2014 to reach $69 billion.

In 2014 worldwide telecom outsourcing and managed services revenue decreased 0.4 percent from 2013, falling to $66.6 billion, according to IHS Infonetics Research.

Network maintenance, build, planning and design accounted for over half of service provider outsourcing revenue in 2014.

Managed service revenue—the sum of operations, network maintenance and network planning and design—totaled $36 billion in 2014.

Telecom outsourcing services will reach $76 billion by 2020, growing at a compound annual growth rate of two percent and driven by mobile network outsourcing deals as more and more mobile operators try to keep their opex under control by removing non-core tasks.

source: Infonetics

Europe, Middle East, Africa remained the world’s largest outsourcing and managed services market in 2015 and is expected to do so through at least 2020.

Survey Shows Heavy Industry Leading IoT Deployments

In 2016, 43 percent of organizations will either already be using the Internet of Things or be implementing it within their environments, according to Gartner's survey of 465 IT and business professionals.

Some 29 percent of respondents already have deployed IoT technologies. Some 14 percent expect to do so in 2016.

"Heavy" industries, including utilities, energy suppliers and manufacturers are lead users at present, with 56 percent of businesses in those categories indicating that they will have implemented IoT by year's end.

"Up until now, the leading adopters of IoT have been more the industrial, heavy-industry-type businesses" involved in mining, manufacturing and the like, Gartner research Chet Geschickter, said.

Manufacturing and utilities are currently the top industry verticals currently driving the Internet of Things (IoT), says Jim Tully, Gartner VP.

In 2015, manufacturers had an estimated 307 million installed devices while utility companies had deployed 299 million. Those two verticals are responsible for over 600 million of the IoT devices currently in use.

"This makes intuitive sense; control systems using sensors have always been an integral part of manufacturing and automation processes, and we certainly see a lot of smart meter deployments by utilities leading to energy efficiency improvements and operations like automatic billing, energy management and monitoring," said Tully.

Geschickter noted that demand from consumer- and service-oriented companies in "light" industries is picking up. By the end of the current year, 36 percent of these businesses will have implemented IoT technologies.

CenturyLink "Between a Rock and a Hard Place"

CenturyLink, the third-biggest “telco” fixed network services provider is "caught between a rock and a hard place,” according to Jennifer Fritzsche, Wells Fargo senior analyst for telecommunications services.

Basically, CenturyLink is not competitive with cable TV offers, so it either must step up investment or admit defeat and hope to make up revenue losses elsewhere.

Operating revenues for first quarter 2016 declined to $4.40 billion, compared to $4.45 billion in first quarter of 2015.

In its business customer segment, revenues of $1.58 billion declined 3.4 percent year over year. Total consumer segment revenues of $1.49 billion declined 0.5 percent, year over year.

source: CenturyLink

source: CenturyLink

FCC Says Set-Top Monopoly is a Big Issue; Consumers Might Not Care

As the U.S. Federal Communications Commission moves towards requiring third party supply of decoders used to receive linear TV programming, a survey by Leichtman Research suggests consumers do not care too much about renting decoders.

“Pay-TV subscribers tend to express little enmity toward set-top boxes,” Leichtman Research suggests.

Some 20 percent of respondents to a Leichtman Research poll agree that  “set-top boxes from TV companies are a waste of money.” On the other hand, 44 percent of respondents disagree with the statement.

About 42 percent of respondents agree that set-top boxes from TV companies provide features that add value to the TV service. Some 16 percent disagree that the boxes add value.

The study also found that 77 percent  of TV sets in pay-TV households have a service provider set-top box, with a mean of 2.2 boxes per pay-TV household.  

Virgin Media to Add 1 Million FTTH Connections; BT to Add 2 Million

Virgin Media, owned by Liberty Global has said it will use fiber to home to connect about a million U.K. homes by 2019. That is historically unusual, as cable operators have insisted loudly that the hybrid fiber coax network is extensible enough to underpin the business.

The Virgin Media decision is a rather major step towards use of a physical media platform suggesting Virgin sees an end to HFC as a market-leading platform.

To be sure, there is a key difference between the protocols telcos normally run when deploying FTTH and what Virgin Media will do.  Virgin Media will use a technique known as Radio Frequency over Glass (RFoG).

The advantage is quite simple. Doing so allows Virgin Media to retain use of the same modulation techniques used to support HFC customers. That means a single set of headend resources can support either access method.

RFOG also means the same mix of services can be provided to all customers, no matter which network they are served by. That is important for marketing consistency, as it means Virgin Media will not risk confusing customers about what services they can get, depending on which network they use.

The big change: Fiber to the home is described as the “best and most modern” access technology. That is an extremely rare statement for any cable TV executive to make.

For its part, BT now says it will add two million fiber to home connections by 2020.

Of course, it might also be possible to infer the migration path. At some point, the primary advantage of RFOG (backwards compatibility) becomes a disadvantage (the full bandwidth of a passive optical network cannot be tapped).

But cable operators are big on “hybrid,” gradually evolving access networks. Still, at some point, HFC will run out of gas. In a strategic sense, that always has been true. But it never has been a tactical necessity.

It still is not, in this case. Comcast seems to be taking a different tack in its U.S. operation, planning to make use of FTTH to support symmetrical 2-Gbps access networks across perhaps 85 percent of its current footprint. Those networks will not use RFOG.

Sigfox Launches 100-City U.S. IoT Network

Sigfox, the Internet of Things communications network, is deploying across 100 U.S. cities in 2016. 

Sigfox operates in the non-licensed ISM bands (similar to Wi-Fi), using the 868 MHz band in Europe and the 902 MHz band in the United States.

Sigfox is optimized for low-power, low-bandwidth Internet of Things devices that must communicate over metropolitan area distances. By way of comparison, Sigfox signals propagate further than GSM (2G) signals.

The network supports messages of up to 12 bytes per message, allowing each sensor or device to send as many as 140 messages each day.

That capacity limit suggests why some service providers are exploring other options, including narrowband versions of 2G, 3G and Long Term Evolution 4G networks.

Though some applications might do quite well with Sigfox, other potential applications might need to send bigger messages. That leaves some app or service providers needing to support multiple networks to handle IoT requirements of different bandwidths.

Though there is at present no one single answer for the ultimate demand parameters, some connectivity providers might well prefer a single network to handle a range of requirements, even at the cost of battery life performance, signaling overhead and infrastructure cost parameters.

Sigfox and several other IoT communications platforms are under development. In addition, a number of other protocols might be used. LoRa is one of the proposed IoT communications platforms.

But NB-LTE and LTE-M are rival proposals that build off of 4G networks.

U.S. Consumers are Plain Unhappy with Most Communications, Entertainment Services

U.S. consumer satisfaction with fixed network telephone services has been falling since 1994.

Satisfaction with Internet access providers has fallen since recordkeeping began in 2013, not to mention that ISPs rank dead last for consumer satisfaction among all industries tracked by the American Consumer Satisfaction Index.

Subscription TV services are in a tie for last place among all industries tracked by ACSI.

Satisfaction with mobile services generally had grown until about 2013, when satisfaction hit a plateau before dropping in 2015.

It always has been hard to explain precisely why subscription entertainment or communications services generally have scored so poorly in the customer satisfaction area.

Two contradictory arguments might be made. Perhaps service providers need to invest far more in “satisfaction-driving” measures.

The opposite might also be argued: that for whatever reason, virtually nothing service providers have done, or accomplished, will boost satisfaction even to cross-industry norms.

Recent gains by U.S. airlines, also historically an industry at the bottom of satisfaction ratings, suggests that product enhancements matter, and can raise scores. The problem for ISPs, telcos, cable TV companies and satellite TV provides might be that only rebalancing the value relationship will really help.

Many believe legacy subscription TV provides too little value, in relationship to price. That might also be the case for communication services.

But that also illustrates a key dilemma. Seeking to position themselves higher on the value scale, access providers still seem to be viewed as products where perhaps two dimensions of experience are crucial: speed and price.

It will be hard to break out of a “commodity-like” status while that remains the case.

U.S. Consumer Satisfaction Falls for 8 Straight Quarters

Somehow, no matter what investments U.S. businesses are making to better serve their customers, consumer satisfaction continues to fall.

A steep downward trajectory in national customer satisfaction continues, as the free fall of the American Customer Satisfaction Index (ACSI) reaches the two-year mark.

The aggregate ACSI score for the fourth quarter of 2015 is down 0.5 percent to 73.4 on a 100-point scale, its lowest score in a decade after eight consecutive quarters of decline.

Customer satisfaction might not be identical to the equally nebulous concept of “quality of experience,” but one has to presume that less satisfied consumers are experiencing declining
Experiences with a broad array of services and products.

Perhaps significantly, the ACSI suggests that, although he cause of the sustained decline in customer satisfaction is unclear,”  it does coincide with a weakening of corporate earnings and with a reduction in unemployment.

“When unemployment is high, the job market is more competitive and employees in the service sector often make an extra effort to ensure that customers are satisfied,” ACSI says. “As job security has strengthened over the past two years, perhaps that extra effort is no longer there.”

Paradoxically, ACSI suggests, higher employment possibly has lead to less effort by suppliers to keep customers happy.

Even more telling, ACSI suggests that price increases and lack of wage growth are factors.

With consumer product price hikes outpacing wage gains, people probably are experiencing declining “value,” as price rises.

That might be instructive: “quality of experience” is never under the full control of any supplier.

You often will hear that “quality of experience” matters for a consumer service, and that arguably is true, at a high level. But QoE also is horrendously complicated, as it includes every element that contributes to a customer’s use of a service.

“Quality” is what a consumer says it is. And sometimes, “quality” means low price, wide selection or some other element, not necessarily “best performance” in a technical sense.

Netflix speed index results for the United States show relatively modest differences between ISPs, in terms of “speed,” for example, where it relates directly to the ability to support Netflix streaming.

YouTube analysis also often shows relatively similar rankings for cable TV and telco performance, as well.   

In some cases, content availability outweighs “quality” measures. In the old analog video business, the quip often was made that consumers would choose, and value, wide variety of content access over image quality.

The evidence was mass markets for video cassette rentals, even if image quality was inferior to other image sources, such as linear TV delivered over cable TV networks.

In most markets, quality matters. But so does “price”  and any number of other elements, typically including customer service, accurate, clear billing and so forth. So “value” is the issue.

“Quality of experience” is a bit tough for end users to measure, or for service providers to provide. But it is not hard to argue that QoE still is dominated by “speeds and feeds” as well as price, despite the many other elements that play a part.

A survey conducted by Incognito Software illustrates the point. Asked what contributes to their perceived quality of experience, 45 percent of respondents said “speed.”

source: Incognito Software

When asked what would most-immediately improve experience, 39 percent suggested “price” was too high. But 25 percent, the second-greatest number of responses, concerned “speed” that was too slow.

source: Incognito Software

And that might be the perennial problem: on what fundamental basis should any high speed access service be evaluated, if not on “speed” and “cost.” Some of us might add “latency,” but that is very hard for an end user to evaluate, across providers.

Network reliability might not be the issue it once was, in the sense that all the major providers arguably operate networks that are roughly comparable, in terms of outage performance, for example.

Performance-affecting impairments were more important when most connections were of relatively low bandwidth (sub-2 Mbps, for example), but impairments are much less troublesome now that speeds routinely have climbed up into the scores to hundreds of megabits per second range.

Network quality is tough for consumers to evaluate, if they can evaluate that element at all, some might argue.

The larger point is that quality of experience is tough to measure, tough to enhance or control, when macroeconomic forces such as wage growth and unemployment apparently have such large impact.

Altice Formally Becomes the 3rd-Largest U.S. Cable TV Firm

The Altice purchase of Cablevision Systems Corporation “will serve the public interest, convenience, and necessity,” the U.S. Federal Communications Commission says, and has approved the transaction.

The deal makes Altice the third-largest U.S. cable TV provider, after Comcast and Charter Communications.

Cablevision has 3.1 million subscribers in New York, New Jersey, and Connecticut and  also operates a network of over one million Wi-Fi Internet access points across the Cablevision footprint.

Cablevision’s subsidiary, Cablevision Lightpath, Inc., offers competitive telecommunications services to companies in the New York Metro area and also owns Cablevision Media Sales, the company’s advertising sales division.

Cablevision provides news and information in its service area through the News 12 programming networks; Newsday, a Long Island daily newspaper; amNewYork, a free daily serving New York City and Star.

source: Leichtman Research

Altice, a publicly-traded holding company incorporated in the Netherlands, sells fixed and mobile voice, video, and broadband services in France, Belgium, Luxembourg, Portugal, Switzerland, Israel, the French Caribbean and Indian Ocean regions, the Dominican Republic.

Altice serves approximately 34.5 million subscribers worldwide.

India Will Become 2nd-Biggest Smarthphone Market in 2017

India will overtake the United States to become the second-largest smartphone market in 2017, says Morgan Stanley.

“Following our survey of more than 2,600 urban smartphone buyers in India, we raise our global smartphone unit growth estimate by one percentage point in each of 2017 and 2018,” Morgan Stanley said.

The firm expects 23 percent compounded annual growth rate for Indian smartphones through 2018, representing about 30 percent of the global unit growth.

Reliance Jio’s entry into the mobile services market, with its  own handset brand “LYF” could be disruptive, if Jio gains 30 million subscribers in 2016 and 60 million in 2017, as Morgan Stanley researchers predict.

The high-end smartphone market in India is small, with only six million units at the $300-plus range, or six percent of the total, at the moment.

Such predictions have had India vaulting up the ranks since 2013.

source: IDC

Unless Cost Structures are Revolutionized, Sustainable Mobile Markets Will Feature Just 2 Providers

Sprint added 58,000 net accounts in the first quarter of 2016, including 22,000 postpaid phone accounts, part of a total net gain of 56,000 postpaid accounts. On a year-over-year basis, Sprint dramatically improved its account metrics, up about 1.5 million net accounts, year over year.

Sprint still faces issues in terms of gross revenue and operating profit. Operating revenues still are dropping, though Sprint reached positive operating income for the first time in nine years, the company says.

Taking nothing away from Sprint’s improving performance, and that of T-Mobile US, some might argue that all analysis of mobile markets globally tends to suggest that national regulator efforts to sustain four-supplier markets ultimately will prove untenable.

source: Sprint

Simply, it has not yet been conclusively demonstrated that any mobile market can sustain more than two operators,  long term, with current industry cost structures. In other words, all debate about whether “three or four” mobile operators is the minimum essential to support competition might ultimately prove moot.

Globally, as well as In the Middle East and Africa region, profitability of operations for individual players correlates strongly with in-market scale measured by achieved revenue market share, McKinsey notes.

Sustaining an EBITDA margin of 30 percent can be considered a minimum proxy value for achieving capital returns above the weighted cost of capital, McKinsey says.

Entrants unable to capture a significant revenue share of their market--more than 25 percent-- will be unlikely to achieve EBITDA margins above 30 percent.

That implies a sustainable long-term structure featuring just two providers.

source: McKinsey

There is an important caveat, however. If, somehow, the average cost of creating a mobile business should change in an important way, reducing especially infrastructure capital investment and operating costs, then it is possible sustainable market structures could change.

It might be possible, long term, for more than two major suppliers to be profitable. But that might hinge on major changes in capital requirements and operating cost. That is why all developments in network virtualization, access to shared and unlicensed spectrum, and networks based on use of unlicensed and shared spectrum, are important.

Such developments can change the industry cost profile.

Between 2008 and 2015, Developed Market Telecom Markets Shrank

source: McKinsey

The years 2008 to 2015 were troubling for telecom service providers in developed markets.

And though there was growth in developing markets, average voice revenue per mobile account dropped substantially.

Despite forecasts from most market research firms that prediced growing revenue on a global basis, consultants at McKinsey say telecom industry revenue actually shrank in developed markets.

At the same time, fixed network voice accounts and average revenue per user dropped in all regions. 

Mobile voice subscriptions climbed in all regions, but mobile voice ARPU dropped dramatically in all regions.

Mobile voice average revenue per user fell in all regions: down 97 percent in the Middle East and Africa region; dipping 12 percent in developed markets while declining 37 percent in “emerging markets,” according to McKinsey consultants.

Data revenue average revenue per user, on the other hand, grew in all regions: up seven percent in MEA; climbing 11 percent in developed markets and rising 12 percent in emerging markets.

Fixed network accounts fell in all regions: down three percent in developed nations and off two percent in emerging markets while dropping one percent in MEA.

Fixed network voice ARPU dropped much more: down five percent in developed markets; lower by 10 percent in emerging markets and dipping by seven percent in MEA. While fixed network data subscriber numbers grew in all regions, data ARPU dropped in all regions.