European Mobile Operators are Cutting Smart Phone Subsidies

European mobile service providers in several European markets are looking to reduce the high level of subsidies they currently offer to new and upgrading smart phone customers.


In Spain, Vodafone appears to be ending the practice of subsidizing smart phones for new customers, following a similar announcement by market-leader Movistar (Telefonica) earlier in the month.


Vodafone Spain plans to offer free finance programs for the purchase of new handsets and introduce a scheme to buy back old phones from upgrading customers.


Operating costs are the clear reason for clipping the subsidies. When a service provider subsidizes a $600 device to the tune of perhaps $400, it essentially is making a loan to the subscriber until the full amount is recovered.


What remains to be seen is the impact of subsidy changes on the rate of innovation in handsets and applications, if, as some would suspect, the end of subsidies slows down the rate at which consumers replace their handsets, and might reduce the rate at which they buy some of the more-powerful and latest devices.


There is some evidence to that effect.

Mobile Broadband Significantly Boosts Service Provider ARPU

Although mobile broadband ARPU (average revenue per user) has not completely offset declines in voice revenue for mobile operators at the global level, it has gone some way to stabilise falling blended ARPUs for those operators who have deployed mobile broadband networks and built up a high level of smartphone penetration within their customer base, Wireless Intelligence reports.

A global study of the difference in blended ARPU between mobile broadband operators and those operators that do not provide mobile broadband services shows that the latter group have seen their average blended ARPU decrease at twice the rate of that of the former over the past five years.

Blended ARPU, mobile broadband operators and non-mobile broadband operators, 2005–11
Source: Wireless Intelligence

2011 Appears to Have Been an Inflection Point for Streaming Movie Rentals

It looks as though 2011 was an inflection point for U.S. users watching movie content. 


Online movie viewing was fairly negligible from 2007 2010, but seems to shifted to a different and higher profile in 2011, according to IHS Screen Digest.

It isn't clear how much the new Netflix emphasis on streaming has contributed to the new trend.
But Netflix streaming accounts now outnumber disc rental accounts.

US Movie transactions: online vs disc
Units: billions

Data source: IHS Screen Digest

More Consumers Cord "Shaving"

"Cord cutting," the abandonment of video entertainment services by consumers who might substitute online video, broadcast TV or "no TV" for their former subscriptions are a continuing concern for all video subscription providers.

Most studies continue to show that the threat has not become a serious reality. Just 3.7 percent of the 1,000 Americans surveyed by Altman Vilandrie & Co., for example, reported actually cutting the cord and stopping their subscription to TV service.

But 20 percent of consumers say they now "shave," spending less money on cable TV service compared to the previous year, thanks to the wealth of online video.

At least 20 percent of those under 44 say they have "seriously considered" cutting the cord, however, the survey also found. More Consumers 'Shaving' Cable

Longer term, this is going to be a bigger problem, though. At some point, a combination of more content available online, higher subscription prices and more content licensing by content owners will start to tip the scales. Major change will not happen, though, until the owners of the most-popular network TV fare decide to make their content available without requiring "sell through," where a consumer has to buy a full video subscription first, before becoming eligible to watch streamed video on other devices, inside the house or outside the home.

Google Files for Patents on Ability to Deliver Ads that Incorporate Noise, Temperature, Light Indicators

Mobile devices are interesting to marketers of all types because of the feedback and context such devices can provide, compared to any other medium.

The mobile capabilities of note for for advertising include all the sensors a mobile phone can include, building on location, but possibly including other background factors such as local temperature, ambient sound and light.


Google, in fact, has filed for U.S. patent 8,138,930, describing ways that a phone, or other device, can detect local temperature as well as the ambient sound and light levels, all of which could aid message targeting.

Many Small Businesses Don't Need a Website?

Though a branded website might once have been an essential marketing tool for most small businesses, some now argue it is less essential. It might go too far to say it is "unnecessary." But it might be true to say that, in some cases, where a firm is active on social media, a branded website requires less support, because it is less important.

Social media is the reason. Yes, you do need something for potential customers to bring up in their browsers when they type in "yourcompanynamedotcom."

But small businesses that are active on other sites with social capabilities might well find that they can get their messages out on third party sites, about as effectively as on their own sites.

According to a Citibank study, that is precisely what many small businesses are doing. Although the vast majority (70 percent) of business owners use their company website for marketing purposes, more than 40 percent of small business owners now use social media channels (including Facebook, Twitter, LinkedIn) to reach consumers.Those tactics are not exclusive, but simply indicate the expanded range of options small businesses now possess.

Only 6% of iPad App Sessions Use Mobile Broadband

Only about six percent of Apple iPad sessions appear to use a mobile broadband connection, according to Localytics. Recent estimates indicate that a larger proportion of new iPads are being sold with the ability to use mobile broadband. But it still appears that most people, most of the time, use Wi-Fi.

Anecdotal reports suggest one of the reasons why Wi-Fi seems to dominate tablet use: users simply run through their data allotments too quickly when watching video on their tablets. Also, few users so far seem to want to spend the extra money on one more mobile broadband connection.

When a user owns multiple mobile devices, all of which benefit from mobile broadband, and when all require a mobile broadband plan, costs become significant fairly quickly. The fixed network broadband model of "one connection, many devices" seems to make more sense than the "each device, a separate connection fee" model now used by mobile service providers.

Google says "Write for People," Not Algorithms

Google search executive Matt Cutts recently made a telling statement about the "problem" of search engine optimization, or more precisely, the abuse of SEO.

Cutts said that sites would be penalized if they “throw too many keywords on the page, exchange way too many links, whatever they’re doing to go beyond what a normal person would expect.“ For some of us, that is a welcome development, as too much attention has been paid, in recent years, to writing to suit Google and other search algorithms, not people.

Write for people, not the search engines. Over the coming years, Google will reward that sort of behavior. It's a welcome change. Now we can get back to writing for other human beings, without the distractions of all the SEO optimization stuff we are "supposed to do."

LTE Phone Shipments To Reach 67 Million Units In 2012

Global Long Term Evolution fourth-generation network device shipments will grow ten-fold in 2012, to reach 67 million units, up from 6.8 million units in 2011.

Strategy Analytics says the growth will be driving by adoption in the United States, Japan and South Korea, especially driven by Verizon Wireless, NTT Docomo and SK Telecom. The growth comes after a several year period where the paucity of LTE phones has limited uptake of service on the 4G networks.

Surprising New Data on Telecom Revenues

There are some interesting conclusions one might draw about the relative importance of several service provider products, in the latest communications industry revenue forecast published by the Telecommunications Industry Association. The most-obvious take away is the dominance and importance of wireless services.

U.S. wireless revenue in 2012 will be about $335 billion, while fixed network voice revenue will be about $132 billion, with an additional $38 billion in broadband access revenue and $6 billion in television revenue, for a total of about $176 billion in fixed network revenue.

In case you hadn’t noticed, in the U.S. market, wireless now is 66 percent of total revenue; all fixed network services just a third.

Globally, the trends are even more lop-sided, as mobile revenue is, by some measures, 4.5 times bigger than fixed-line revenue, already.

The other observation is that, as vital as all the new revenue streams are, legacy voice continues to be the most-important source of revenue for fixed-line service providers. With the growth of broadband access, entertainment video and VoIP, that might come as a surprise.

So what of voice, the traditional “most important” revenue source. As it turns out, legacy voice still is, far and away, the most important revenue source.

VoIP will continue to expand at double-digit rates in 2012 followed by high single-digit gains, averaging 9.4 percent on a compound annual basis for the forecast period to $18.9 billion, in the U.S. market.

That compares with circuit-switched voice revenue that, though declining at a 1.5 percent compound annual rate through 2015, still will represent, in 2015, a $127 billion revenue stream. VoIP will amount to about $19 billion in 2015.

In other words, as a revenue source, legacy voice is seven times bigger than VoIP.

That is not to deny the importance of VoIP in the consumer market. In 2012, VoIP access lines will be about 49 percent as large as circuit-switched lines, for example, suggesting that perhaps 58 million VoIP lines are in service. But the notable point is that VoIP does not represent all that much revenue. In 2015, declining circuit-switched voice will still represent an order of magnitude more revenue than VoIP.

In contrast, fixed network broadband access services will amount to about $46 billion in annual revenue by 2015. Entertainment video will contribute about $14 billion in annual revenue in 2015.

So VoIP will be a bigger revenue stream than entertainment television, but not by much. In 2015, legacy voice still will be the single most-important revenue stream for fixed-line service providers, by far, even though it is declining.

Consumers Actually Not Too Keen on "Smart Utility Metering"

Many proposed new services just never seem to get traction with consumers. "Smart utility meters" seem to be running into that issue as well. One of the primary goals of the smart grid movement is to empower consumers with greater control over their use of energy in the home.

There's just one important problem. Up to this point, many customers have been less enthusiastic about smart meters than the utilities originally anticipated, and in fact smart meters have been the subject of significant consumer opposition in some service territories, according to Pike Research.

Meanwhile, utilities and their vendors have struggled to identify the appropriate user experiences and business models for home energy management and smart energy devices.

But a new survey by Pike Research found that 47 percent of consumers would be “extremely” or “very” interested in home energy management products and services that would allow them to monitor and control energy usage in their home.

About 45 percent of survey respondents stated that they would be interested in connected smart appliances that would help them manage their electricity consumption more efficiently.

You just have to square those apparently favorable "opinions" with the demonstrable "actions" that indicate consumers oppose the methods used to enable those features they claim they want.

Some of us might suggest a simple explanation. So far, the emphasis on "smart meters" is on benefit for the utility. There often is an implied benefit for the user in terms of "managing" their own usage, but only after an investment in new appliances.

That means, In many cases, users might not see the actual benefits without major new investments in home technology. Without those investments, the smart meters provide consumption information, but perhaps with spending implications too slight to bother with.

That's not unusual. Supplier "good ideas" do not automatically translate into massive end user adoption. People have to see the value, and the value has to be really significant before they will change their behavior and spend more money.

Will Telcos and Cable Companies Really Compete with Apple and Google?

One hears more talk these days that telcos and cable companies are competing with, or about to compete with, the likes of Google and Apple. It’s a catchy headline. But is it a serious reality? Maybe.

Some would say service providers are moving to develop new services ranging from mobile advertising to new messaging technologies to counter competing and often free services from Apple and Google. Google Wallet and Isis are direct competitors, for example. Will Telcos and Cable Companies Really Compete with Apple and Google?:

Essentially, contestants in the communications and entertainment ecosystem are finding they increasingly must compete not only with other competitors within a portion of the ecosystem, but even to a certain extent with partners in the rest of the ecosystem.

That’s the sense in which there is validity to assessing how much, and where, telcos and cable companies might actually find themselves competing with traditional partners in the value chain.

There are growing examples of at least potential conflict between participants in different parts of the Internet ecosystem. Google says it is launching a line of consumer devices, and already owns Motorola Mobility. So the app provider is in the device part of the ecosystem. Apple likewise in both the apps and device parts of the ecosystem.

There perhaps is a latent possibility that Apple could wind up in additional roles. Some have speculated that Apple could launch its own mobile service, not so much to grab voice revenues but to complement its device and application experience in new ways. Others think Apple would be foolish to do so.

The point is that such a move would not be entirely unthinkable. In the telecom portion of the ecosystem, there likewise is movement into applications, even over the top applications. What might be more intriguing are more radical moves. At least in principle, would any access provider seriously consider abandoning its access role for some other spot in the ecosystem. That hasn't ever happened.

Sure, service providers exit some geographic operations. Some have abandoned the network operator  function, though remaining in the retail access business. Some might divest wired network operations to focus on mobile-only operations.

But not telco or cable operator has taken the rather drastic step of abandoning access provider roles for some other position in the ecosystem. And that would be the fullest expression of the notion that a telco or cable company actually competes with Apple or Google.

Historically, in fact, telcos have gone the other way, progressively abandoning producing their own devices and apps, for example. The old AT&T system included both network operations, retail services, phones and manufacturing of network gear. Since 1984, the movement has been almost exclusively in the direction of shedding network equipment, consumer equipment, research and development and app creation.

Now, for the first time, we might be seeing signs of movement back in the other direction, to some extent. It wouldn't be surprising to see service providers enter the over-the-top applications business in a bigger way, for example.

Mobile News Consumption Leaps

Nearly 37 percent of smartphone users in France, Germany, Italy, Spain and the United Kingdom reported using news sites in January 2012, an increase of 74 percent over the past year. 

For smart phone users who used news sites on a near-daily basis, the growth rate was even stronger at 82 percent. Users in the United Kingdom showed the highest penetration with nearly half (46.8 percent) of smart phone users reporting having accessed news sites at least once in the past month,  according to comScore. 

The data shows that mobile devices of all types now are becoming content consumption devices, not just communication devices. 

Growth in News Access Amongst Smartphone Audience 3 Month Average Ending January 2012 vs. January 2011 Total EU5 (FR, DE, IT, ES and UK), Age 13+ Source: comScore MobiLens
	Year-Over-Year % Growth for  Smartphone Audience Accessing News
	Almost Every Day	Ever in Month
EU5	82%	74%
France	59%	62%
Germany	82%	80%
Italy	75%	67%
Spain	160%	127%
UK	76%	63%

Iing news at least once monthly and 15.8 percent accessing news almost every day.

Some Things Haven't Changed: Apple and Samsung Own 90% of Device Earnings

For at least the past year, it has been clear that Apple and Samsung are disproportionately accounting for handset earnings.

In its latest report about the state of the handset industry, UBS noted that Apple and Samsung together are taking over 50 percent of revenue in the handset industry, but perhaps 90 percent of the profit.

Smart phones now account for over 30 percent of shipments, and over 75 percent of total industry revenues.

M2M Services will Be 20% of Europe Telco Revenue by 2017

Machine-to-machine services aren't generating all that much revenue at the moment, in Europe, representing perhaps 4.2 percent of total revenue in 2011, according to Frost & Sullivan analysts.

Keep in mind that most observers consider "connected devices" such as tablets to be part of the M2M revenue stream. But revenue will grow significantly to more than 20 percent of total revenue by 2017, Frost & Sullivan predicts.

That's a big deal, in terms of new revenue, from new lines of business, in and industry where it is very hard to "move the revenue needle."

TIA Industry Forecast Shows Relationship Between Networks and Business Models

There are some interesting conclusions one might draw about the relationship between “networks” and “business models” in the latest communications industry revenue forecast published by the Telecommunications Industry Association.

Consider that U.S. wireless revenue in 2012 will be about $335 billion, while fixed network voice revenue will be about $132 billion, with an additional $38 billion in broadband access revenue and $6 billion in television revenue, for a total of about $176 billion in fixed network revenue.

One obvious conclusion about the implications of networks for business models is that whether a network is wireless or fixed, a ubiquitous network, serving virtually all potential users--business or consumer--must, in fact, sell to both consumers and businesses.

There will be, in 2012, about 59 million consumer landline voice accounts in service, compared to 57 million business lines in service. A network that must serve virtually every house and business must sell to all those customer segments.

But other types of networks enable different business models.

How and Why Service Providers Should Embrace "Over the Top" Communication Apps

Communications service providers need to decide how they want to respond to the over-the-top voice and messaging apps, and they need to act on that decision before subscribers transfer their loyalty, a new white paper by Metaswitch Networks argues.


“Operators can either stand back and let the OTTs take the lead, becoming a pipeline for OTT services, or they can respond by building their own multi-device communication platform; adding VoIP calling to handsets and extending voice, video, messaging and file sharing services to tablets and PCs,” the white paper argues. 


One way of looking at the business of "over the top" apps is simply that service providers have been disgruntled about such apps because huge new revenue streams and businesses have been built using broadband access. But the primary objection is not the "you use my pipes" angle, but the "somebody else is building those businesses and reaping the benefits" reality.


In other words, "over the top" is a problem only when a service provider does not participate meaningfully in the revenue stream. That doesn't mean the biggest part of a service providers business necessarily can shift to over the top. But some portion, and perhaps a strategically-important portion, can do so. 

Google Might Share Revenue with Mobile Service Providers Offering Google Wallet

"Slow" is a word many would use to describe progress being made by Isis and Google Wallet as other contestants including PayPal seem to be getting traction by taking less complicated routes to market.

There now is speculation Google might be considering sharing revenue with carriers such as Verizon Wireless and AT&T if they support Google Wallet on their devices, Bloomberg reports.

That Google would be considering ways to accelerate progress is not surprising. Neither Google Wallet nor Isis have moved as fast as many had hoped would be possible.

There might be incentives for the carriers, though. In addition to the revenue sharing, Google also could shift gears in another direction and build a system that relies on upgraded retail point of sale terminals without using any features of the phone, a move that would cut the mobile service providers out of a role in the payment process.

The approach would avoid using the phones--or related servers-- to authenticate purchases and accounts, instead using only a new network of servers. In part, such a move would conceivably allow Google Wallet to accelerate adoption by taking the phone out of the picture as a "gating" factor, much as PayPal has been doing.

Though it is counter-intuitive that taking the "mobile" out of mobile payments would make sense, getting wider adoption, faster, is important in a new market. Whether end users or retailers care very much about "how" the new payment features work is open to question.

If Google Wallet gets wider adoption, with or without direct use of the phone, it has more opportunities to add phone-based approaches incrementally.

Does Video Entertainment Competition Affect Rates?

Competition is supposed to improve consumer welfare by driving prices lower. Perhaps oddly, that does not necessarily seem to be the case for entertainment video prices, at least when looking narrowly at prices for the "expanded basic" tier of service offered by all video service providers.

Over the 12 months ending January 1, 2010, the average price of expanded basic service increased by 3.2 percent, to $54.27, for consumers living in communities where there is "no effective competition," according to the Federal Communications Commission.

For the effective competition communities, the average price of expanded basic increased by 4.6 percent, to $54.77, the FCC study suggests. "What?" you might be thinking. Prices rose more in the competitive markets than in the non-competitive markets? At least for the expanded basic tier of service, that was the case.

That does not mean the same relationship might hold if all fees and features are considered. But the averages of the price differentials for three service packages (basic, expanded basic, next tier) overall between the effective-competition and the non-competitive groups are not statistically significant, the FCC says.

In addition, in contrast to prices charged prior to 2009, expanded basic prices are growing fastest in the effective-competition communities, at 4.6 percent over the 12 months ending January 1, 2010, compared to 3.2 percent over the period for non-competitive communities.

Of course, it always is difficult to measure "productivity" or "value" for products whose characteristics change over time. Whatever the changes in nominal prices, there now are more channels offered in the "expanded basic" tiers, so that the cost-per channel is lower.

Over the study period, price per channel declined by 6.1 percent in non-competitive communities, to
58 cents per channel, and by 10 percent in effective-competition communities, to 51 cents per channel.

Nominal prices, in other words, do not capture the enhanced value provided the added channels. Consumers, though, do not pay on "price per channel," but simply the nominal package price, so that distinction might not be "consumer relevant."

The price per channel is 12.3 percent lower in effective competition communities than in non-competitive communities, which reflects that operators in effective competition communities carry more channels on expanded basic service than in non-competitive communities.

"Research Online, Purchase Offline" is Big, Growing, a Driver of Mobile Commerce

In the G-20 countries, consumers researched online and then purchased offline (ROPO) more than $1.3 trillion in goods in 2010, the equivalent of about 7.8 percent of consumer spending, or more than $900 per connected consumer, according to the Boston Consulting Group. 



ROPO provides an indication of why mobile shopping—using a smartphone to identify deals, compare products and prices, and “seal the deal” while on the go—is becoming more important worldwide.

As device prices fall, especially in developing markets, increased smartphone penetration will have a dramatic impact on both retail commerce and e-commerce—further blurring the lines between online and offline buying, BCG argues.