Family Data Plans Will Have More Revenue Impact than Capped Plans

Verizon Wireless is getting ready to launch a new "family data plan" or "multiple device plan" that could have important ramifications for the whole U.S. mobile business. 


As customers now can buy plans that support multiple users or phones on a single account, so Verizon Wireless is planning to allow users to purchase multiple-device plans where a single bucket of mobile data can be shared across a number of account devices.


That will represent the biggest change in mobile data pricing since the advent of capped plans, but will have more-important consequences. If history proves an accurate guide, Verizon Wireless will sell many more smart phones, while many more users will start to use mobile-connected tablets as well. 


That, in fact, was the reason family plans for voice and texting were adopted as well. At the point where almost every adult already had a cell phone, family plans were designed to effectively lower the cost of adding incremental devices for the one big population of untapped users: teenagers. 


In principle, the same thing should happen as Verizon Wireless and other service providers adopt the same approach. AT&T has said it also will do so, while T-Mobile USA says it will not do so. One suspects that objection by T-Mobile USA will fall, if the plans reshape consumer expectations, as one might suspect will be the case. 


The big difference for family data plans is that Verizon also is trying to wean customers off "unlimited" data plans for smart phones. The "stick" of capped data plans will be counter balanced by the "carrot" of multiple-device plans. 


"A lot of our 3G base is on unlimited," Verizon Communications CFO Fran Shammo said. "When they migrate off 3G they will have to go to data share. That is beneficial to us," Shammo says. 


One might expect that gross revenue will grow as users adopt the new plans, the same way gross revenues have grown when users have switched to family plans for voice and data. On the other hand, revenue per device should decline. 

Conceptually, family data plans and capped data plans are distinct issues, but are linked to an extent as Verizon is making changes to both policies at the same time. 

Verizon says "customers will not be automatically moved to new shared data plans."  If a 3G or 4G smart phone customer is on an unlimited plan now, and they do not want to change their plan, they will not have to do so. But the expectation generally is that, as new devices are purchased, most of those new phones will be bought with capped data plans. 

The exception is that customers who purchase phones at full retail price and are on an unlimited smart phone data plan will be able to keep that plan. 

Still, the big change is that Verizon's revenue metrics increasingly will shift from "revenue per customer" to "revenue per account." For service providers, the revenue impact of family data plans will have more impact than the shift to capped data plans. 

Amazon likely to launch 10.1-inch Kindle Fire in 3Q12

Amazon is likely to launch a 10.1-inch Kindle Fire in the third quarter, while tentatively suspending the launch of a speculated 8.9-inch model. That move, coupled with a potential move by Apple into the seven-inch form factor, could set up an interesting battle between the two tablet suppliers with the most-robust content ecosystems. 


On the other hand, end user choices might hinge on what tablet applications they "mostly" use and require. Some might find the more "general purpose" iPad is preferable to the "content optimized" Amazon Fire approach.


It might also be easier for work-related tablet apps to be supported on the iOS platforms, rather than the Kindle platform. 

63% of U.K. Homes can Buy Service at 24 Mbps

Some 63 percent of U.K. households now have access to superfast broadband, Ofcom, the U.K. communications regulator, now says. That represents is a combination of coverage now provided by the Openreach network as well as service provided by Virgin Media. 

U.K. consumers in February 2012 were getting access about 22 percent faster  than they were in February 2011, Ofcom says. 

In November 2011, the average actual U.K. residential broadband speed was 7.6 Mbps, compared with 6.2 Mbps in December 2010, and 6.8 Mbps in May 2011. 

The increases mainly are a result of consumers moving onto higher-speed packages.  In November 2011, for the first time more than half (58 percent) of U.K. residential broadband connections had an advertised speed of above 10 Mbps, up from 48 percent in May 2011.

However, more than 40 percent of broadband consumers remain on packages with speeds of 10 Mbps or less, even though many of them would be able to get a higher speed at little or no extra cost if they switched package or provider.

That gap, as much as anything suggests why getting consumers to buy faster broadband access is anything but automatic. 

Coupons Boost Sales, Even When Consumers Don't Use Them

Coupons are a popular advertising marketing tool. In 2010, U.S. consumers redeemed 3.3 billion coupons, cutting about $3.7 billion from purchase prices, though only about one percent are ever used.

But a new study suggests strong sales lift, even from consumers who do not use those coupons.

The study by University of Virginia Darden School of Business professors found that unredeemed coupons are still valuable to the companies that issue them.

“In fact, the coupons that wind up in the trash ultimately may deliver greater returns to a company than the coupons that are redeemed,” Rajkumar Venkatesan and Paul Farris write in the article “Unused Coupons Still Pay Off” in the May issue of Harvard Business Review.

Venkatesan and Farris analyzed the advertising campaigns of eight national retailers involving more than 500,000 targeted coupons for items representing more than 300 brands mailed out over 16 months.

The professors found that consumers who got the coupons but didn’t use them still “typically increased their purchases in the associated stores.”

In fact, these consumers accounted for 60 percent of the coupons’ “sales lift," the additional amount spent on both promoted and unpromoted items.

The professors predict that a company targeting 1,575 households with customized coupons for groceries over one week should succeed on two levels, first by prompting coupon redeemers to spend more than non-redeemers who nonetheless will be prompted to visit the store and spend.

Also, as a group, the non-redeemers will spend more at the store than the redeemers simply because there are more of them.

Coupons often get tagged as “bottom of the funnel” tools but clearly they also drive brand awareness and sales lift, says BIA/Kelsey. Redemption rates, while important, are not the only success metric.

Venkatesan and Farris conclude that new media players such as Groupon and Living Social are best evaluated not just in terms of list building and redemption but also in terms of long term sales lift even from non-redeemers and presumably even those on the list but who never bought the coupons.

Apple Might See Little Value in Mobile-Capable Retailer POS

Apple is among the few firms that one would expect to take a "revolutionary" approach to mobile payments, if it decides the capability is important, and can create or transform the device market. 


Already, when consumers buy inside Apple stores, there is no use of traditional point of sale terminals. 


Apple’s patents and stores suggest that the company envisages a world in which POS terminals are no longer fixed or discrete devices within the retail environment, but simply use standard mobile devices.


In other words, Apple, given its device focus, likely sees the mobile device itself as the way to do "check out."

74% of Smart Phone Owners Use Location Features

Some 74 percent of smart phone owners get real-time location-based information on their phones, a  February 2012 study by the Pew Internet and American Life Project has found. Those inquires typically involve getting directions, recommendations or information related to their current location. 


That has implications for content and app providers, retailers and advertisers and marketers, as the unique feature of a smart phone is its "always with you" and location-aware properties, providing a contextual capability no other device possesses. 

Mobile Banking Adds Value, But Does it Add Revenue?

In Africa, use of mobile phones as a substitute for branch banking has clear upside for banks. In developed markets, the business case is much softer.

In fact, it is possible that mobile banking actually will wind up costing banks money, in a direct sense. The problem is that mobile banking now is becoming one more channel a bank has to support, while incremental revenue opportunities do not exist.

The business model essentially hinges on the "soft" advantages, such as ability to help retain high-value customers, retain parity with other banks in terms of new customer acquisition, and possibly some incremental value in terms of avoided retail branch openings. 

A study by the Federal Reserve System shows that mobile phones are changing the way consumers access financial services. 

Today, 87 percent of the U.S. population has a mobile phone, and according to Nielsen, more than 50 percent of U.S. consumers already are using a smart phone.

Some 21 percent of mobile phone owners have used mobile banking in the past 12 months. 

Some 68 percent of those consumers with Internet access and a bank account have used online banking in the past 12 months, by way of contrast. So some would note that mobile banking already is a channel a third the size of online banking. 

You might argue that online banking has the advantage of allowing users to conduct transactions and get information without creating additional needs for tellers. Mobile banking, though, doesn't necessarily even provide that advantage, since the online channel already is widely used. 

Will TV Double Apple's Share of Household Spending?

Morgan Stanley analyst Katy Huberty argues that average annual U.S. household spending on Apple products is likely to double from $444 in 2011 to $888 in 2015 if the company enters the television television set :market.

Facebook Goes Public

Mobile Data Consumption Will Grow 10 Times, Service Provider Revenue 2 Times, by 2016

Global mobile data traffic will grow from 3.89 trillion megabytes in 2011 to 39.75 trillion megabytes in 2016, amounting to a ten-fold increase, according to Informa Telecoms & Media.

In contrast, global mobile data revenues will grow from $325.8 billion in 2011 to $627.5 billion in 2016, amounting to a two-fold increase.

That is one key reason why service providers are moving away from “unlimited” usage plans. The growth in traffic will far outstrip the growth in revenues.

Mobile phone users will, in 2016, on average consume 6.5 times as much video, over eight times as much music and social media, and nearly 10 times as much games as in 2011 according to Informa Telecoms & Media.

And although the revenue pie will grow, the share earned by mobile operators will shrink. If you exclude simple access and text messaging, the percentage of revenue earned by mobile service providers from content or commerce operations will drop from 56 percent in 2011 to 41 percent in 2016, Informa Telecoms & Media argues.

In 2016, the average mobile user also will be browsing six times as many web pages and downloading 14 times as many megabytes of applications on their handset as in 2011.

Text (SMS) and picture (MMS) messaging traffic will continue to grow, but at a much slower pace than most other mobile data services. On average, mobile users sent 118 text messages and two multimedia messages a month in 2011, compared to the 146 text messages and four multimedia messages  in 2016.

But usage of over the top messaging services, namely instant messaging and email, will see higher growth. Compared to the global monthly average of 31 mobile instant messages sent in 2011, users will be sending 118 in 2016.

The services that put the greatest strain on mobile networks also won’t be the apps and services that bring the most revenue for mobile service providers, Informa says.

“The top three data guzzlers on mobile phones over the next five years will be applications, video streaming and web browsing, in that order of importance,” says Guillermo Escofet, senior analyst at Informa Telecoms & Media. “Yet, the top revenue earners in 2016 will be web browsing first, followed by P2P SMS and applications.”

Video streaming will represent less than one percent of mobile data revenue in 2016, despite representing a third of handset traffic, he argues.

"Social Proof" is Becoming Essential for Sales

There's one very good reason why all brands need to develop their online presence, make use of user product reviews and testimonies. By 2017, Millennials will be the single largest buying demographic in the United States. 


And Millennials require "social proof" when buying. That means they pay attention to what other people say about products. 

Tablet Traffic Will Exceed Smart Phone Traffic in 2013

Beginning with the launch of the iPad just over two years ago, tablets have been transforming the way consumers and brands interact on websites, Adobe says, after analyzing  23 billion visits to the websites of more than 325 brands across North America, Western Europe, and Asia-Pacific.

The share of website visits from tablets grew approximately 10 times faster than the rate of
smartphones within two years of market introduction and grew more than 300 percent in 2011.

Tablet share of website traffic will exceed smartphone traffic by early 2013 and reach 10 percent of total website traffic in early 2014.

Also, although consumers consider the tablet website experience to be nearly as engaging as with PCs, they use PCs to visit websites three times as frequently as tablets. Still, usage will migrate in the direction of tablets.

Perhaps the most shocking prediction is that tablet traffic will surpass smart phone traffic within 12 months. Within one year of the iPad launch, (second quarter of  2010 through first quarter of 2011), tablet visits represented one percent of total website visits, reaching 4.3 percent of total visits just one year later, an increase of 330 percent, Adobe says.

In contrast, within the first two years of the iPhone market entry, smart phones accounted for 0.4 percent of total website visits, taking nearly three years to reach one percent of total visits.

At this faster growth rate, tablet visits will surpass smartphone visits by early 2013 and generate
over 10 percent of website visits in 2014.

On the other hand, consumers use PCs to visit websites much more frequently, even though tablet and PC engagement levels are similar.

In December 2011, there were approximately six times as many PCs as tablets in
North America and Western Europe, but they generated 19 times as many website visits during the first quarter of  2012.

For every brand website visit made with a tablet device, 3.2 visits are made using a PC.

Consumers consider tablets and PCs to be nearly interchangeable for media consumption and for repeated interactions with financial service providers. However, they are less likely to accomplish the purpose of these visits using smartphones. This suggests that consumers
consider tablets to be similar to PCs for visits that are repeated, routine and involve passive consumption of content.


In contrast, PC conversion rates are 30 percent to 60 percent higher than tablet conversion rates for retail and travel websites, suggesting that consumers prefer PCs for visits involving research, comparison of alternatives, and online purchasing.

"More Computers Than Cushions" in Livingrooms

A boom in spending on consumer electronics will continue, with most living rooms having more computers than cushions," says Giles Warner, a partner in Deloitte's UK Customer Management practice. 


Warner says people increasingly see spending on consumer electronics as essential rather than discretionary, and also as good value.


"We're predicting consumers will prioritize spending on technology," he said. Deloitte believes  "there'll be an explosion in the number of devices people use," as a result. 


In part, that is because digital appliances have assumed greater importance in consumer lives, but also in part because digital appliances are more affordable. The average US household spent only $1,200 on consumer technology in 2011, or less than 2.5 percent of median income. Consumer tech purchases start at the low tens of dollars for basic mobile phones, and rise to hundreds of dollars for high-end smart phones, tablets, laptop computers and televisions.



While a decade ago the average PC or big screen TV typically cost more than $1,000. Three decades back, the average television cost an inflation-adjusted $1,800. Today that $1,800 could
get you two large flat screen televisions, two tablets, two netbooks, three smartphones, and still leave change to take the family out for dinner, Deloitte argues. 

What's a "Service Provider" These Days?

Over the last couple of decades, it has become a common practice for the value of consumer electronics products to be supplied by services associated with products. Apple's iTunes and App Store provide a clear example. But service and repair contracts likewise have become an important source of revenue and profit for device sales.


Something like that also is happening in the enterprise information technology business as well. 
Steve Shalita, VP of marketing at NetScout Systems, says NetScout considers itself not a "network management" company, but a service delivery management company.


"Today in IT, they don't deliver applications any more," Steve said. Instead, they deliver services. Many consumer applications likewise also have been cloud-based services from the start. 


That has implications for telecom service providers and cable operators as well, even though they always have been service providers. With cloud computing and mobility, more software products are becoming network-accessed services. 


That means it is conceivable that communications service providers could become more important providers of IT services in the future. 

Facebook IPO Won't Be Good for Data Centers

Facebook's "Initial Public Offering"  will be good for Facebook, many of its employees, the banks underwriting the offering and many other social networking firms, as their valuations get a boost from Facebook's valuation. At some level, it will be good for firms selling products that many instant millionaires will be buying.


But the IPO probably won't be good for several data centers that currently sell services to Facebook, as Facebook is transitioning its hosting to its own facilities.


Facebook currently spends more than $70 million a year leasing “plug-and-play” data center space from Digital Realty Trust, DuPont Fabros Technology, CoreSite Realty and Fortune Data Centers.  


As a result of its new liquidity, Facebook will be able to migrate from  third-party space to its own facilities. 


Facebook is said to represent between four percent and 20 percent of total annual revenue for these providers, who might start to see the migrations in a couple to several years. 


Facebook is said to spend $30.1 million a year on four facilities it leases from Digital Realty in Silicon Valley and northern Virginia. That represents 4.6 percent of Digital Realty’s annual revenue. Digital Realty has leases with Facebook with an average of 86 months (about seven years) remaining, according to Data Center Knowledge. 


Facebook is the second-largest  tenant for DuPont Fabros, with annualized base rent of about $22 million, which is at least 20 percent of DFT’s annualized base rent. Facebook’s leases, primarily in northern Virginia, have an average remaining term of 6.5 years. (77 months).


Facebook is the largest single customer for CoreSite, paying $11.5 million in annualized rent for 74,112 square feet of space in three facilities, including an entire building in Santa Clara. Facebook represents 12.6 percent of CoreSite’s lease revenue. The Santa Clara lease expires in March 2016.

Could Nokia Go Bankrupt?

Nokia does not have much presence in the U.S. market, so few consumers will be concerned, no matter how the company fares globally. 


But some analysts point out that Nokia faces some danger of going bankrupt. Nokia had more than 10 billion Euros in free cash in 2007. In 2012 Nokia has less than half that on hand.


Nokia lost 2.1 billion Euros during the past five quarters. If this rate of erosion continues, then Nokia might run out of cash in about two years, according to analysts. 

Why Telcos Will Go "Over the Top"

The main reason service providers do not like “over the top” services and applications is that they generally represent direct competition. In other words, over the top apps are substitutes for key products service providers sell.

But that is one key to how things will change in the future. If a major reason over the top apps and services are disliked is that they pose a threat to revenue, then a major reason for adopting an over the top approach is if doing so can create new revenue opportunities.

The business decisions are tricky. In some ways, over the top apps always will represent some danger of cannibalizing existing revenues. But service providers already understand and have embraced other ways of building new revenue streams by going “over the top.” They just haven’t used the term.

Instead, it has been more common for service providers to go “out of region,” as when acquisitions are made in areas where a given firm does not already provide service. European telcos buying assets in Africa provide examples. Cable companies buying other firms in different regions is another example.

The point is that buying assets out of region is similar in principle to some forms of over the top service. Incumbent local exchange carriers have created competitive local exchange carrier operations to sell services “out of region,” for example.

Over the top is trickier for the simple reason that customers and non-customers can use the apps or services, so there always is some risk of substitution for existing services a provider sells. But over the top also can represent an “out of territory” growth strategy.

Think of it as a shift of focus from “selling services to current customers, where we have network” to “selling services to non-customers who are out of territory.” That’s a big shift, as traditionally service providers have operated on a territorial basis, with licenses or franchises that specify where they can build networks and provide services.

Over the top changes all that. As Google apps can be used by any person with web browser and broadband access, so too can a telco-owned app be used by anybody with a web browser and broadband access, in territory or outside it.

Sooner or later, service providers will figure out how to do so on a broader scale. Telefonica, T-Mobile, Deutsche Telekom and others have invested in their own over the top apps. In part, that has been a defensive move in markets where use of over the top apps are a major part of consumer behavior.

But over the top also has been viewed as a way of creating new customers out of region or out of territory.

If you think about it, the Verizon and Coinstar joint venture to create a streaming version of Redbox is part of a pattern at Verizon and elsewhere, namely that over the top services increasingly are being viewed as a way to sell services to “non-customers.”

In essence, the new streaming service will reach beyond the footprint of Verizon fixed network customers and appeal to all 30 million Redbox customers who have been renting DVDs from the Redbox kiosks.

According to Verizon Communications CFO Fran Shammo, Verizon was looking to create a streaming service that would extend “outside of just the FiOS footprint, utilizing the content that FiOS has and bringing that into the rest of the United States.”

Some think something similar will happen as Verizon’s agency agreements with Comcast, Cox Communications, Time Warner Cable and Bright House Networks develop, as well. Those efforts so far have had each of the partners co-selling cable TV, fixed network broadband access and fixed network voice, plus wireless service, outside the Verizon fixed network footprint.

In essence, Verizon is using the agency agreements to sell services to “non customers” outside the Verizon fixed network footprint.

Likewise, T-Mobile USA has found much the same results with its “Bobsled” over the top VoIP service.

Since April 2011, more than 10 million calls have been made on the over the top Bobsled application made available by T-Mobile.

Of the millions of Bobsled calls made to phone numbers, 80 percent originate from outside the United States, though messaging seems to be a U.S. phenomenon. Although Bobsled Calling has seen significant international usage, Bobsled Messaging users are predominately U.S. based, with 90 percent of messages sent domestically.

Usage statistics also show one of the key present realities of over the top apps sponsored by communications service providers, namely that usage might often be by "non-customers."

Of the more than one million Bobsled Calling users, 95 percent are not T-Mobile wireless subscribers, T-Mobile says.

That should suggest one key strategic difference between a carrier-offered app or service, and an over the top app, namely that in some cases the OTT apps do not necessarily cannibalize current customer use of carrier services, but essentially are an "out of region" service that gets used by non-customers.

Verizon's New Plan to Wean Some Customers Off Device Subsidies

Verizon's plan to end all sales of "unlimited" service has another option that represents Verizon’s effort to wean customers off device subsidies.


Verizon says "customers will not be automatically moved to new shared data plans."  If a 3G or 4G smart phone customer is on an unlimited plan now, and they do not want to change their plan, they will not have to do so. That's a big clarification. 


But there is more. "When we introduce our new shared data plans, unlimited data will no longer be available to customers when purchasing handsets at discounted pricing," Verizon says. 


But here's another important clarification. "Customers who purchase phones at full retail price and are on an unlimited smart phone data plan will be able to keep that plan."


It appears Verizon has several related moves underway, all at once. It will try a new method of reducing phone subsidies, with a mobile data "carrot." Buy a phone at full retail price and a user can buy an unlimited plan.


Verizon will be adding new multiple-device mobile data plans as well. That will shift Verizon's revenue metrics from "revenue per customer" to "revenue per account." 


Presumably all the moves have been modeled for revenue impact, potentially allowing Verizon to reduce operating expense (phone subsidies) and boost revenue (moving most customers to capped plans and creating incentives for adding additional devices to a mobile broadband account. 

Level 3 Tests of Comcast Xfinity Traffic "Are Consistent" with Prioritiztion

With the important caveats that there is a history of conflict between Comcast and Level 3, and with the caveat that "there are a number of factors that can influence download performance for Internet traffic," two Level 3 engineers say it might appear that Xfinity packets delivered to Xbox terminals "consistently" get good performance in both the congested and uncongested tests, while Netflix traffic is significantly impaired when the home connection is congested.


"These results seem to be consistent with the practice of prioritization," says Andrew Dugan, Level 3 Communications SVP of Network Engineering & Architecture, and Nasser El-Aawar, Level 3 Principal Network Architect.

4G LTE Makes a Difference

Long Term Evolution, the fourth generation mobile network air interface that has become the global choice for 4G, makes a big difference.


In the Kansas City market, which RootMetrics last tested in August 2011,  AT&T's average download speed was about 4.1 Mbps. In the latest test, after AT&T launched its LTE network, average speed rose to 16.3 Mbps in the downstream direction.


The average upload speed jumped from 1.5 Mbps to 5.9 Mbps, according to RootMetrics. 


Verizon’s average download speed, boosted by its LTE network, grew from from 1.2 Mbps to 17.1 Mbps. The average upload speed increased from 1 Mbps to 10.7 Mbps.


T-Mobile USA which has not launched an LTE network saw average download speed increase from 2 Mbps to 4.3 Mbps, while  average upload speed moved from 0.5 Mbps to 1.3 Mbps.


Sprint, which likewise has not yet launched its LTE network saw average downstream speeds decrease to 3.1 Mbps from  4.6 Mbps in August 2011.

Dish Network Gambles with "Hopper"

Dish’s "Hopper" is a digital video recorder that allows Dish customers to automatically hop past all the commercials on some prime-time network TV shows. Understandably, the TV networks aren't too happy about that, even if Dish customers might like the feature.


It's a gamble, to be sure. Consumers never claim to "like" commercials, but generally would rather view commercials if that means they get "no incremental cost" access to content they want. DVRs have been a threat, in that regard, and Hopper is one of the biggest threats so far, at least for major broadcaster prime-time fare, which Hopper will record automatically.


Dish Network therefore is gambling that it will gain more than it loses. The gains might come in the form of more subscribers and higher satisfaction. The losses will come if the networks retaliate against Dish in some significant ways. 


The growing tensions between programmers and video distributors are not going to end, and Hopper provides only one example of the building tensions within the video ecosystem. In a sense, Dish is gambling that the "surgical" approach, allowing users to skip virtually all commercials on broadcast network prime-time programs, will please customers more than it irritates the few affected networks.


Hopper would have faced across the board opposition had it proposed eliminating all commercials from all programming, automatically. Of course, that also is a theoretical impossibility, since the Hopper hard drive actually could not store all programming, in any case. 


But Hopper poses a threat to broadcaster advertising streams, depending on how popular it becomes. 

Comcast to Boost Bandwidth Cap to 300 Gbytes

Comcast is going to test new metered bandwidth plans, with a boost in the basic usage cap from 250 Gbytes a month up to 300 Gbytes a month, with incremental changes for consumption above the cap.


The 300 GByte usage allotment will be tested for Internet Essentials, Economy, and Performance tiers, with additional gigabytes costing$10 for 50 GBytes, Comcast says. 


In markets where Comcast is not trialing the new plans, Comcast will suspend enforcement of its current usage cap. 


To be sure, streaming media providers would prefer to have no caps at all. Netflix is an example. 


But the new plans will strike many as a fair way to allow users to make their own choices about how much bandwidth they want to consume, while still allowing Comcast to better match consumption to its costs of providing bandwidth. 

Would Regulators Allow T-Mobile USA and Sprint to Merge?

CEO Dan Hesse apparently believes regulators at the Department of Justice and Federal Communications Commission would be open to wireless industry consolidation if the resulting combination created more competition for Verizon Wireless and AT&T Mobility. 


That line of thinking might obviously include Sprint merging with T-Mobile USA, as difficult as that might be, for reasons of incompatible air interfaces, at least until Long Term Evolution displaces much of the legacy air interface (CDMA and GSM). 


"I actually believe that Washington would be receptive to consolidation to provide more balance to the big two," he said. Others might not be so sure. A big issue when the AT&T purchase of T-Mobile USA was considered was the degree of competition in the U.S. mobile market. 


To be sure, there remains continuing sentiment that the U.S. mobile market is not "stable" over the long term. 



Is the share of market now characteristic of the U.S. market sustainable? Many would say "no." Among the common observations is that two of the top four national providers have market share two to three times greater than two of the others.


Many observers would say a market with four national providers is about one too many for a sustainable and stable market. But even without more merger activity among any of the top four providers, will any single U.S. provider be allowed to gain 50-percent market share?


In principle, one is tempted to say "yes." But regulatory intervention to prevent such an outcome probably would happen before that happened. 

Some observers think the U.S. mobile market already has become substantially non-competitive.


The Department of Justice, for example, recently opposed the acquisition of T-Mobile USA by AT&T, citing a standard methodology for determining the competitiveness of markets.

One of the ways to measure market concentration is the Heffindahl-Hirshman Index or HHI, often used as a measure of market concentration. The HHI is the square of the percentage market share of each firm summed over the largest 50 firms in a market. Here is the pre-merger market HHI which already suggests that the market is uncompetitive. HHI is the problem

For some of us who just want a quick rule of thumb that tells you when there is potential antitrust concern, 30 percent market share tends to work.That has been the figure cable TV executives in the United States have worried about, and which the Federal Communication Commission at one point set as the limit of subscriber market share for any U.S. cable operator. Both AT&T and Verizon Wireless already have market share that exceeds that figure.

 

The Justice Department will generally investigate any merger of firms in a market where the HHI exceeds 1,000 and will very likely challenge any merger if the HHI is greater than 1,800. With a HHI over 2,300 any deal will be heavily scrutinized and most likely rejected. Even a merger between T-Mobile USA and Sprint, with a resulting 28 percent market share, would probably not be allowed on the same antitrust grounds.

The competitive equilibrium point in the mobile industry seems to when the market shares of the top three providers are 46 percent, 29 percent and 18 percent, argues Chetan Sharma says. In any country, that "rule of three" seems to hold.

That roughly corresponds with a rule of thumb some of us learned about stable markets. The rule is that the top provider has twice the market share of the contestant in second place, while the number-two provider has about twice the market share of the number-three provider.

That suggests the U.S. mobile market still has room to change. At the moment, Verizon Wireless has perhaps 34 percent share, while AT&T has about 31 percent share. Classic theory would suggest the ultimate market share could approach a market with the top-three providers having a market share relationship something like 50:25:12.

That would have highly-significant implications for the four current providers that today represent 93 percent of all subscribers. One of the leading contestants reasonably could hope to grab half of the available market, while two of the contestants could face significant losses.


All that assumes regulatory action did not occur before that market structure was obtained, though.

Why Google Needs "Mobile First" for Search

Profit margin might be one reason why Google "needs" a device play to support its mobile search business. “On a tactical level, while we estimate mobile queries account for just 20 percent of searches, we believe they are growing four times to five times as quickly as desktop queries, Goldman Sachs analysts say.


"We estimate Google pays Apple roughly 75 percent revenue share to be the default in the Safari search bar, which we estimate accounts for roughly one third of all mobile queries,” Goldman Sachs says and GigaOm reports. 


In principle, Google could boost its profit margins on mobile search advertising by shifting more traffic (search queries) to its own devices, for example. 

Promotional Pricing Adds Uncertainty to Cable, Telco Revenue Gains

By offering reduced triple play pricing, cable operators are successfully softening subscriber gains made by satellite and telco video competitors. What is not clear is what might happen when those offers expire and consumers start paying the list prices.

IHS Screen Digest, for example, expects that the third and fourth quarters of 2012 will likely see the resumption of cable video subscriber declines as promotional pricing comes to an end for new customers.

At the same time, IHS Screen Digest expects that cable operators will continue to make significant gains in broadband subscribers, and to a lesser extent, voice subscribers.

The same observation about what happens when promotional pricing ends might also be made about cable gains in broadband access as well, as there are some signs firms such as Comcast are offering new subscribers free service for six months, while telcos such as CenturyLink are offering “half price for six months” offers.

On the other hand, there is a general perception that cable access services remain in stronger demand than telco digital subscriber line services. AT&T U-verse, for example, only recorded a net gain of 103,000 customers in its first quarter of 2012.

Verizon, for its part, added 193,000 new FiOS subs and a loss of 89,000 DSL subscribers, vision2mobile reports.

In the first quarter of 2012, Comcast added 439,000 high-speed Internet customers while Time Warner Cable picked up 214,000 residential broadband subscribers.

One might argue that cable operator promotional pricing has more impact in the video area than in the broadband and voice areas, though, in part because broadband and voice are growth areas for cable operators, while video is a declining product.

By 2016, IHS Screen Digest expects that the cable subscriber market share will have shrunk by 6.9 percent from 2011, with satellite making gains of 3.6 percent and telco video share growing 42.5 percent.

But cable will grow broadband subscribers by 18.6 percent, and voice subscribers by 19.7 percent, IHS Screen Digest says.

Total combined revenue from video, broadband and voice will therefore grow by 11.5 percent during the same period, from $81.3 billion to $92.8 billion. IHS Screen Digest argues. That continued trend of revenue growth also is what virtually all observers expect for telcos as well, at least those such as AT&T and Verizon that can rely on robust wireless revenue gains.

Bobsled by T-Mobile Shows Over the Top Issues

Since April 2011, more than 10 million calls have been made on the over the top Bobsled Calling application made available by T-Mobile. 


Of the millions of Bobsled calls made to phone numbers, 80 percent originate from outside the United States, though messaging seems to be a U.S. phenomenon. Although Bobsled Calling has seen significant international usage, Bobsled Messaging users are predominately U.S. based, with 90 percent of messages sent domestically.


Usage statistics also show one of the key present realities of over the top apps sponsored by communications service providers, namely that usage might often be by "non-customers."


Of the more than one million Bobsled Calling users, 95 percent are not T-Mobile wireless subscribers, T-Mobile says.


That should suggest one key strategic difference between a carrier-offered app or service, and an over the top app, namely that in some cases the OTT apps do not necessarily cannibalize current customer use of carrier services, but essentially are an "out of region" service that gets used by non-customers. 


Bobsled Messaging is now available for download free of charge on all Android-powered smartphones and tablets through the Google Play Store on Android and can be accessed through any browser-enabled device. 


The Bobsled Calling application also is available for download from the iTunes App Store. 


That might suggest one as-yet misunderstood way service providers can approach OTT apps, especially those which are functional substitutes for current "paid" services. In many instances, OTT is a way of extending service to non-customers or non-subscribers.


That means OTT can be an out of region growth strategy similar in principle to the ways service providers have grown by launching service outside their legacy service territories. 


In Bobsled's case perhaps five percent of users might be using the app to reduce spending on T-Mobile USA services. The other 95 percent are not T-Mobile USA customers. That suggests there is a large incremental revenue opportunity among non-customers. 

DirecTV to Offer 10 Mbps Satellite Broadband

DirecTV has announced partnerships with ViaSat and Hughes' HughesNet to offer satellite-delivered broadband access services across the United States at speeds of 10 Mbps or more. That might be significant to the extent that it means virtually any rural household will have immediate access to 10 Mbps broadband access, without the need for additional construction or capital investment. 


The move by DirecTV illustrates the use case for satellite-delivered broadband, namely its ability to rapidly and efficiently provide broadband access in rural areas at vastly lower cost, immediately, to isolated households.


Not all policy advocates will be completely happy with potential speeds or retail pricing. But it is hard to argue that there are more-efficient ways to invest capital for the purposes of providing broadband access to the three percent or so of the "hardest to serve" households in the United States. 

Verizon Wireless Expects Slight Revenue Dilution From Family Mobile Data Plans

One major reason Verizon Wireless is launching family or multi-device mobile data plans in the summer of 2012 is that “we have kind of constrained the marketplace now around connecting more devices because everybody thinks, well, if I connect that device, I now have to buy an additional data plan with that that has its own tiered pricing with it,” Fran Shammo, Verizon Communications CFO says.

“If I can add as many devices as I want and share that data plan, that is a lot more efficient from a family share perspective, from a small-business perspective,” Shammo says. “And I think at least where I sit and I look at that, I say to myself, okay, there is a large ramp of devices out there that, especially when you think about families, they are not connecting those devices because
of the incremental cost in the model we have today.”

But Verizon believes it is “not going to take a huge revenue dilution” when it launches the plan. That probably means a belief that average revenue per unit might dip, but that more units will be sold.

1/3 of New Netflix Customers are Returning Subscribers

Netflix CFO David Wells says about a third of "new" subscribers joining Netflix actually are former subscribers who are returning. 


"Rejoined or folks rejoining the service still remain about a third of our new subscribers that are coming in," Wells says. "We've said before that the brand hit will take years to recover from and I think that's still true, with the bulk of the recovery coming in the full year and I think we still feel that way,"