Zero Rating, Lower Prices Change U.S. Mobile Customer Behavior

source: P3

Zero rating does change user behavior. As Facebook has argued, its Free Basics program, which allows mobile users access to a bundle of apps without the need for a data plan, dramatically increases use of mobile Internet apps and creates demand for mobile Internet access.

It now appears that similar programs such as the T-Mobile US "Binge On' program, which zero rates use of video streaming services, also increases usage of streaming apps.

As economic theory also suggests, lower prices for some product in demand will stimulate usage. And that seems to be happening in the U.S. mobile market, as the return of "unlimited usage" plans and bigger usage buckets at lower prices per gigabyte seem to be spurring customers to use more mobile data.

That can be seen most clearly in new research about the amount of mobile app use happening when connected to mobile networks, compared to Wi-Fi networks. Simply, U.S. mobile users are showing more preference for accessing mobile apps when on the mobile network, than when on the Wi-Fi network.

That could indicate less reluctance to use favor apps on the go, since data consumption now is less an issue than before. For users of data plans with zero-rated video streaming, that likely also means customers are not as concerned about data charges, so see no need to flip to Wi-Fi access to avoid such charges.

That might come as a surprise. Most projections about mobile customer use of Wi-Fi suggest the percentage of Wi-Fi connection time is growing, compared to use of mobile network connection time.

And while that might still be true as a general statement, U.S. users of mobile apps seem to be spending more time using the mobile network than Wi-Fi, according to a study conducted by P3 and commissioned by Fierce Wireless.

In the United States, Wi-Fi's share of mobile app connection time has been declining since the beginning of 2016.

source: P3

In January, some 60 percent of the time Verizon subscribers were using a mobile app, those interactions used a Wi-Fi connection.

By August, mobile app use when connected to Wi-Fi dropped to 52 percent.

In January, Sprint subscribers used Wi-Fi for apps 56 percent of the time. By the end of August, Wi-Fi was used for apps 45 percent of the time.

T-Mobile US customers had the smallest decline in Wi-Fi usage for apps.

In January, Wi-Fi connections supported 40 percent of app usage time. By August, that figure was 39 percent.

Users of all the studied networks consume more data on Wi-Fi compared to the mobile network.
Only T-Mobile US customers spend more time using apps on the mobile network. Analysts at P3 believe that is a direct result of T-Mobile US “Binge On” plans that do not count streaming consumption against a data usage plan.

Verizon users show the fewest app sessions, lowest total data consumption and least amount of usage time among the four top U.S. mobile operators. T-Mobile US subscribers are the heaviest users across these categories.

Some would suggest that is because Verizon generally is considered to have the highest prices of the four carriers, while T-Mobile US has been the most-aggressive on price over the past several years.

Basic economic theory suggests that when a supplier lowers the price of some product in demand, customers buy or use more of that product.

The price war now raging in the U.S. mobile market has meant the return of "unlimited use" and "more for your money" plans. That, in turn, seems to be changing consumer behavior, at least where it comes to use of mobile apps.

The other possible contributor to change in behavior is widespread access to faster 4G networks. Where in a 3G environment Wi-Fi tended to be faster than the mobile network, it now often is the case that 4G is faster than Wi-Fi.

To the extent that users switched to Wi-Fi for reasons of speed, that makes less sense, now.

Also, to the extent that users switched to Wi-Fi to conserve usage, the unlimited features and lower cost of mobile data, with bigger buckets of usage, barriers to use of the mobile network also have fallen.

source: P3

CenturyLink Faces a Key Strategic Problem

In some ways, it should come as no surprise that CenturyLink plans to lay off seven percent to eight percent of its fixed network workforce by the end of 2016. Revenue is falling and new revenue sources are not big enough, nor feature high enough profit margins, to offset the legacy losses.

It is not the only firm to face those problems. Virtually all U.S. fixed network operations face the same fundamental problems.

CenturyLink revenue fell 0.7 percent in 2015 to $17.9 billion. Analysts project revenue will decline two percent in 2016, according to Bloomberg. So revenue is shrinking.

“We all understand the pressure caused by the decline in our legacy revenues; it creates a $600 million negative impact on our business each year,” said Glen Post, CenturyLink CEO.

“While we continue to see positive growth in our strategic products, the profit margins of these strategic products and services are considerably lower than those associated with the legacy revenue we are losing,” Post added.

source: Seeking Alpha

CenturyLink faces some of the same issues Frontier Communications an Windstream face. All are former rural fixed network telcos that grew and repositioned, in major ways, as business specialists.

But all three firms are fixed network only operators, in a market where mobile drives revenue growth in the broader market. None of the three firms own mobile revenue streams.

AT&T has become one of the biggest linear video providers in the U.S. market by virtue of its acquisition of DirecTV, and many believe the company will deemphasize fixed network linear video services in favor of satellite delivery.

So the big challenges include how to restructure their businesses for potentially-smaller gross revenues and lower profit margins in the mass market portions of their businesses.

Stranded asset issues are going to grow, as well, as fewer customers deliver revenue to support fixed costs.

So it is not a surprise that CenturyLink is trying to reduce its operating costs. It has to do so.

Sabrina Brady's "My Best Day Ever"

Sabrina Brady's "my best day ever" doogle for Google. Indeed. 

source: Google

Tier-One Telcos Do Not Recover Their Cost of Capital

source: PwC

There is a very good reason why tier-one service providers are working so hard to drive down their capital investment and operating costs: they must do so.

In fact, at least one analysis suggests tier-one service providers have not been recovering their cost of borrowed capital for a decade and a half or more.

Researchers at PwC studied the financial performance of 78 fixed-line, mobile and cable operators with a collective annual capex of some $200 billion, nearly 66 percent of the industry’s total spend.

The research found that, over the past decade, the average long-term return on investment (ROI) has been just six percent.

That is three percentage points less than the cost of the capital itself. In other words, operating revenue is not covering the cost of capital.

Capital investments by telcos globally are growing slightly, according to researchers at Ovum. And that might not be a good thing, as much as investment underpins creation of next-generation networks.

The problem is that service provider revenues are not keeping pace with investment levels. That is one reason why Facebook and Google efforts to create lower-cost access network platforms are important: ISP cost needs to decline. If all facilities-based service providers can use the new platforms, they win.

On a global basis, telecom service provider revenues grew about one percent in the second quarter of 2016, year over year.

That growth is the first for service providers since the third quarter of 2014.

Industry capex over the last 12 months was roughly $340 billion, flat versus the prior two years.

Revenues have been falling, with the result that service capex levels are historically high, at about 20 percent of revenues.

5G Will Create a New "Fiber to Tower" Market

source: SNL Kagan

Among other things, 5G networks should dramatically expand what we have traditionally viewed as the “fiber to tower” backhaul market. There are about 300,000 macro cell sites in the United States and perhaps 200,000 towers.

It remains unclear how many 5G or 4G small cells ultimately will be built. But it is reasonable to assume almost all the growth will come from putting small cells on existing structures, not installing towers.

Looking only at service provider cell sites (not enterprise or consumer), millions of new sites will be added globally by about 2020.

If in some urban areas the density is roughly “fiber to every other light pole,”

If, as expected, millimeter wave small cells have a transmission radius of about 50 meters (165 feet) to 200 meters (perhaps a tenth of a mile), it is easy to predict that an unusually-dense backhaul network will have to be built (by mobile network standards).

In the past, mobile operators have only required backhaul to macrocells to towers spaced many miles apart. All that changes with new small cell networks built using millimeter wave spectrum (either for 5G mobile or fixed use, or for ISP fixed access).

Keep in mind that street lights are spaced at distances from 100 feet (30.5 meters) to 400 feet (122 meters) on local roads.

As a rough approximation, think of a small cell, in a dense deployment area, spaced at roughly every other street light, up to small cells spaced at about every fourth light pole.

That is a lot of new cells, with a low-cost backhaul requirement. That is why dense fiber networks now are seen as a business asset by Verizon and Comcast, for example. Very few other providers will be able to connect “every other light pole” to high-capacity backhaul, affordably.

North Carolina Municipal ISP Cannot Operate Outside its Jurisdiction, But Could a CLEC Affiliate Do So?

Much of telecommunications regulation revolves around jurisdiction: which level of government, and which entities, have the right to regulate some particular part of the telecommunications business.

And, as always, every regulatory framework fundamentally shapes telecom services business models.

And all debates about the desirability of municipal-owned Internet access and communications set aside for the moment, the issue of which unit of government has the right to regulate the scope of operations for municipal communications networks now also includes the issue of whether a municipality can serve customers outside its jurisdiction.

So it is that a municipal Internet access service in Wilson, N.C., which also has been serving customers outside its jurisdiction, will have to shut down those out-of-district operations.

Ignore for the moment the long-standing dispute about appropriateness of local government competing with private firms able to supply services or performance of private firms in that regard.

The latest issue is that, where lawful, can municipal service providers operate outside their jurisdictions? At the moment, the answer seems to be “no.” What remains unclear is whether a separately-constituted “competitive local exchange carrier” could do so, if that CLEC is owned by a municipality.

Telecom Capex is a Problem: Spending as a Percentage of Revenue Has to Drop

Capital investments by telcos globally are growing slightly, and that might not be a good thing, as much as investment underpins creation of next-generation networks.

The problem is that service provider revenues are not keeping pace with investment levels. That is one reason why Facebook and Google efforts to create lower-cost access network platforms are important: ISP cost needs to decline. If all facilities-based service providers can use the new platforms, they win.

On a global basis, telecom service provider revenues grew about one percent in the second quarter of 2016, year over year.

That growth is the first for service providers since the third quarter of 2014.

Industry capex over the last 12 months was roughly $340 billion, flat versus the prior two years.

Revenues have been falling, with the result that service capex levels are historically high, at about 20 percent of revenues.

The trick is understanding how to balance capital investments between acquisitions and network investments. In many instances, revenue or profit might be more immediately affected, and to a greater degree, by acquiring assets, rather than investing in existing facilities.

That is one sense in which constantly-growing network capex is a “bad thing.” Money might more profitably be spent elsewhere.

The other issue is the cost of next-generation networks, in circumstances where all legacy revenue sources are declining. It is simple common sense that investments must match revenue expectations. If revenue is falling, or flat, so must capex fall or remain flat, over time.

As a practical matter, capex often is “lumpy” and “staircase” shaped, as investments are made to upgrade, then ratcheted back, and then boosted again to gain the next important increment of network capabilities.

And even if telecom has been a standards-driven and regulation-heavy industry for half a century, at least, a greater percentage of those standards might be created in new ways in the future, as a way of attacking costs.

To wit, competing carriers might begin to identify essential functions that do not confer competitive advantage, and collaborate with key rivals to lower costs in such areas.

Many carriers already have sold their mobile towers, or share tower costs, for example.

A few have outsourced operations tasks not seen as providing the ability to differentiate. In many markets, wholesale networks are the way retailers get use of those functions.

That sometimes is seen as the capital-efficient way to do things. Sometimes that is seen as the only way to boost competition when investment in facilities by other contenders is deemed extremely unlikely.

By definition, that approach fundamentally leads to commoditization of the access function, as all suppliers have the same speeds and quality of service.

So there are strategic reasons why various service providers might not want to open source or otherwise share business functions. Most importantly, every operator will try and gain some source of distinctiveness in their offers, if possible.

The trick is figuring out which essential functions offer the possibility of creating business value, and which do not; which functions are essential and which are not.

Competition and Investment are Rival Goods in the Telecom Market

As regulators in the European Community have found, there is a tension between policies that promote competition and policies that promote investment in facilities.

It is impossible to argue that the wholesale regime in EC countries has not dramatically boosted competition. It has done so.

In France, Orange in late 2013 had about 41 percent market share.  In Germany, Deutsche Telekom in 2013 had about 33 percent mobile market share.  

In the United Kingdom, BT, the former incumbent, had about 27 percent market share before its acquisition of EE, and now has 31 percent market share.  

source: Point Topic   

But EC regulators also are grappling with a perceived slowness to upgrade to next-generation networks. Service providers always argue the very policies that make wholesale attractive are the very rules that make aggressive investment less attractive.

Basically, policies that support one objective nearly automatically work to undermine the other objective.

If regulators want both, there is a balancing act to be undertaken.

The same process is at work in the U.S. special access market. A proposed Federal Communications Commission policy to re-regulate prices will boost competition, but limit investment.

That will help small business buyers of special access, non-facilities-based mobile service providers and non-facilities-based competitive local exchange carriers.

But those same rules will discourage additional investment in legacy special access, especially in rural areas.

Mobile Apps Represent 75% of All Mobile Minutes of Usage

source: comScore data, Business Insider graphic

Over the past three years, total digital media time spent by U.S. mobile users has grown 53 percent, driven mostly by mobile apps and, to a lesser extent, mobile web. Interaction with mobile apps now represents nearly 60 percent of total time spent with media content.

Desktop usage has actually declined by 11 percent, according to ComScore.

Smartphone apps alone now account for nearly half of all digital media time and 75 percent of minutes of mobile usage in total.

source: ComScore

Universal Internet Access in 6 Countries Would Eliminate 55% of Global Digital Divide

source: ITU

Providing universal Internet access to just three countries (India, China and Indonesia) would eliminate 45 percent of the “unconnected to Internet” population of the globe.

Doing so in just six countries (adding in Pakistan, Bangladesh and Nigeria) would solve the digital divide problem for 55 percent of the world’s people, according to the International Telecommunications Union.

About 20 countries account for 75 percent of those not using the Internet, according to McKinsey researchers.

The World Bank points out that many of these offline populations share common characteristics. They are predominantly rural, low-educated, with lower incomes, and a large number are women and girls, according to the World Bank.

Affordability is an issue. According to ITU’s latest price research, a monthly fixed broadband package cost 1.7percent  of average income in developed countries, compared with 31 percent  of average income in developing countries, and 64 percent of average income in Africa.

Mobile broadband costs one to two percent of monthly income in developed countries, compared with 11 percent to 25 percent  of monthly average income in developing countries.

Lack of networks also is a big issue. Of the nearly four billion people not connected to the Internet, some 1.6 billion live in remote locations where networks do not exist. That is why Facebook and Google are developing unmanned aerial vehicle systems, Google is developing Project Loon and both are working on fixed access networks.

Among the 3.9 billion people who are not online, many people may be unaware of the Internet’s potential, or cannot use it because they lack the necessary skills or because there is little or no useful content in their native language, on top of facing other barriers to Internet access, including unreliable power supplies and/or sparse network coverage.

with just 137 million customers and a broadband penetration rate of just 13 percent, compared with a mobile penetration rate of 80 percent , India’s digital leap is just starting.

source: ITU

Why is Verizon Getting Fewer iPhone 7 Orders?

Why is Verizon apparently having a harder time getting iPhone accounts, as exemplified by Verizon customer demand for the Apple iPhone? Promotional pricing by competitors, one might argue.

Pre-orders of iPhone 7 and iPhone 7 Plus at Sprint (NYSE: S) are up more than 375 percent in the first three days over last year.

Since Sprint  began accepting pre-orders for the new iPhone 7, new and existing customers have been placing orders for the devices at a rate nearly four times greater than this time last year.

T-Mobile US says it is seeing iPhone 7 orders four times higher than comparable rates for the iPhone 6.

AT&T has reported “higher than expected” orders for the new iPhones.

Verizon says demand for the new iPhone was about what it expected.

Perhaps it is promotional pricing by Sprint and T-Mobile US that explains the difference. Prior to the iPhone 7 launch, Sprint and T-Mobile US, plus AT&T to an arguably lesser extent, had launched new “unlimited usage” plans.

Verizon, AT&T Make IoT Moves

Verizon and AT&T have taken other moves to support their moves into the broader Internet of Things business, on both the “use my network for connectivity” and “use my platform to build your apps” dimensions.

Historically, the cost to connect remote sensors (now considered part of the Internet of Things) to a 4G mobile network has been higher than linking using Wi-Fi, Bluetooth, Zwave or ZigBee.

Verizon believes it can close much of that gap by directly embedding Qualcomm Technologies by embedding the ThingSpace  IoT functions directly on Qualcomm chips used for communications.

ThingSpace is Verizon’s global IoT app development platform.

ThingSpace will embedded on the Qualcomm Technologies’ MDM9206 Category M (Cat M1) LTE modems.

The embedded ThingSpace IoT platform will be available for OEM integration in early 2017, Qualcomm says.

Verizon also acquired a “smart cities” systems supplier--Sensity Systems--intended to add a comprehensive suite of smart city solutions to its ThingSpace platform.

Verizon also has acquired Fleetmatics, a vehicle telematics and fleet management supplier, as well as Telogis, a provider of connected vehicle solutions.

Mobile Webpages Load Slow, But Ads are a Big Part of the Problem

After an analysis of 10,000 mobile web domains, DoubleClick found that most mobile sites have an average load time of 19 seconds over 3G connections.

You might assume that 4G Long Term Evolution networks would perform much better. They are better, but not that much better. “On a 4G network the average time isn’t much better: 14 seconds,” DoubleClick says.

That is important since other studies suggest that 53 percent of mobile site visits are abandoned if pages take longer than three seconds to load.

Conversely, sites that load in five seconds get 25 percent  higher ad viewability, experience

70 percent longer average sessions and have 35 percent lower bounce rates

Some 46 percent of consumers say that waiting for pages to load is what they dislike the most when browsing the mobile web, DoubleClick says.

Oddly enough, ads arguably are the main reason mobile webpage load times are a problem.

On average, mobile ads take five seconds to load, or roughly twice as long as ads on desktop.

That’s because, while a mobile webpage size is 1.49 Mbps, on average, mobile ads are 816 KB, more than half of the mobile page download size, according to Business Intelligence.

How Artificial Intelligence is Directly Related to Core Telecom Service Revenues

It is not always completely obvious how various technologies are related to the core of the telecom industry. Consider artificial intelligence, which might be considered an esoteric matter of little direct relevance for core telecom service revenues.

So here's an argument about why artificial intelligence (or machine learning or cognitive technologies in general are of direct relevance for tier-one telecom service providers.

After the mobile data market has reached saturation, and amidst declines in all other legacy service revenues, how will tier-one service providers replace at least half of all current revenues within a decade? 

Some of us argue that, at the moment, the conceivable big new revenues come from the broad Internet of Things and machine-to-machine communications areas, simply because all those sensors and servers will require communications, often mobile communications.

So core telecom revenues might substantially hinge on IoT and M2M. But making sense of all that data necessarily requires a number of other developments, including artificial intelligence (or machine learning or cognitive technologies). 

In that sense, artificial intelligence (the ability to make sense of mountains of possibly unstructured data) is directly related to the future of core telecom service revenues. 

That might be why IBM’s Watson will be embedded into Cisco routers and services.

So IoT essentially requires artificial intelligence, and mobile operators require the big revenues IoT will drive.