Apple is Now a Mobile Company

The iPhone now is Apple's biggest business, and it was a "zero" revenue contributor three years ago. Where Apple had fourth-quarter 2009 Mac revenue of $4.5 billiion, it had iPhone revenue of $5.6 billion, up 90 percent year over year. The iPod contributed $3.4 billion in revenue.

Even if one assumes no Mac revenue is attributable to portable devices, iPhone and iPod revenue from fully mobile devices amounts to $9 billion out of a total $13.5 billion in quarterly revenue, or two thirds of total.

Voice as a "Spice"

Consultant Thomas Howe describes the way voice can work in a new context by calling it the equivalent of "spice." In other words, it might often be the case that, within the context of an enterprise application, voice is a feature used to enhance a process, rather than a stand-alone function or application.

In that sense, click-to-call is an example. Most people would agree that is the case. What remains unclear, at least for service providers who will continue to make signficant revenue selling voice as a stand-alone service, is whether "spice" is a business for them, or not. In some cases, it will be; but in other cases it will not.

To the extent that spice can be an interesting revenue stream for service providers is whether they can figure out ways to combine traditional calling functions with enteprise application features that integrate "calling" with information relevant to the call, that is valuable to the enterprise and is worth paying for, from the corporation’s point of view.

Monetizing such "hard to replicate" data by combining it with voice is where telcos have a great opportunity to grow, says Howe. There are many areas where only telcos can deliver voice and have the information that will add value to the call, such as authentication, location, even availability.

The issue is that many other providers in the business ecosystem also have the ability to integrate such functions in new ways. Google and Apple, for example, may well be able to leverage "location" information without needing the assistance or permission of the service provider.

Still, it should be possible to create services that confirm a person is home to receive a delivery, or to assist in scheduling at-home or at-office appointments.

Identity authentication, more than simply location or "phone number" identity, might be useful for transactions as well.

Few Takers for 50 Mbps Access

Time Warner Cable has about nine million high-speed access customers. It has about 20,000 customers for its fastest DOCSIS 3.0 service, which depending on configuration can support speeds up to about 43 Mbps per 6 MHz channel in the downstream direction, or more, if more bandwidth is made available.

All that means is that few customers are willing to pay $100 a month or more to get really-fast broadband access running at speeds of about 50 Mbps maximum.

How Important is AT&T's U-Verse?

AT&T books something on the order of $124 billion a year worth of revenue. In the fourth quarter of 2009, AT&T booked U-verse revenues representing an annualized $3 billion. Some will note that this represents about three percent of AT&T's annual revenues.

By way of contrast, wireless already contributes about $56 billion annually. For the quarter, wireless revenues were $12.6 billion and wireless data was about $3.9 billion.

A rational observer might note that U-verse, AT&T's broadband and TV services effort, represents less revenue annually than mobile data does in one quarter. One might also argue that U-verse is not a revenue contributor that really "moves the needle" in terms of overall AT&T revenue performance.

One might also infer that a rational AT&T executive would not spend nearly the time on fiber-to-customer services that he or she would spend on wireless services, given the relatively small contribution U-verse can make to the overall bottom line, even if such broadband services represent the future of the fixed access business.

On the other hand, U-verse services have a much-higher growth profile, growing at about a 32-percent rate in the fourth quarter, where mobile revenues grew at about a nine-percent rate. Wireless data is growing at about a 26-percent rate.

Still, a rational executive might conclude that the gross revenue implications of high wireless data growth rates are vastly more signficant than equally-high growth rates for U-verse broadband services.

Some U-verse growth cannibalizes digital subscriber line revenue. And though video services have room to continue growing, that revenue source is fundamentally bounded by the total size of the U.S. multi-channel video business, where AT&T essentially takes existing revenue and market share away from cable competitors.

The wireline data business essentially can aim to grow to nearly 100 percent of the existing base of AT&T's existing huge installed base of wireless voice customers. AT&T has more than 85 million mobile voice customers.

The entire U.S. cable customer base is about 62.6 million accounts, and AT&T does not have a universal U.S. footprint. AT&T ultimately might cover 30 million U.S. homes out of 115 million total with its U-verse network.

If AT&T often appears to be a wireless company first and foremost, there is a good reason.

In 2014, 80% of Broadband Access Will Be Mobile, says Huawei

By 2014, 80 percent of the world's two billion broadband users will be using mobile networks for their access, says Huawei. Of those two billion users, 1.5 billion will be first-time subscribers.

Predictions such as that are one reason regulators and suppliers need to be much more cognizant of how much is changing in the global communications business. Policies that relate to broadband access and deployment must reorient to reflect user behavior and supply that will be overwhelmingly mobility-based in just a few years.

Huawei also points out that voice services revenues also are steadily declining."In the past five years, the revenue for fixed voice services decreased by 15 percent, reflected by a decreasing growth rate for mobile voice services in 2009," Huawei says.

If that is a fundamental trend, as Huawei believes it is, then policies cannot be designed on the assumption that voice revenues, traditionally the underpinning for the whole global business, will continue to do so in the future.

In other words, instead of assuming service providers are powerful gatekeepers who need to be restrained, it might be more apt to view them as endangered suppliers who must replace the bulk of their revenues over the next decade or so, simply to remain in business. That certainly is not how telecom companies have been viewed in the past, but to ignore the changes could be dangerous.

U.S. regulators were so intent on introducing more competition in voice services in the early 1990s that they nearly completely missed the fact that the Internet, broadband and over-the-top applications and services were about to change the industry. Basically, the intended market result was to cause incumbents to lose market share while competitors were to gain share, precisely at the point that nearly every competitor was about to face a declining market for voice services.

It takes little insight to observe that a narrow focus on fixed broadband might likewise be dangerous at a time when usage is shifting so profoundly to mobile modes.

To use an analogy, regulators must resist the temptation to "fight the last war," rather than the different new war that is coming.

Is Verizon a "Wireless" Company as AT&T Is?

Is Verizon now a "wireless company with a wireline business"? Some might argue that is the case. Others might argue Verizon is a company with significant wireless and broadband businesses. At AT&T, it is easier to make argument that the company really now is a wireless company with wireline businesses.

Part of the reason for the difference is Verizon's decision to go to a "fiber to the home" access network, while AT&T has chosen a less-costly "fiber-to-neighborhood" approach. But those decisions are conditioned by the different potential customer bases in each telco's territory. AT&T is less dense, so FTTH is aq more expensive choice. Verizon also has more business customers, and fewer consumer customers, relatively speaking.

Analysts at Trefis, for example, estimate that mobility counts for 34 percent of Verizon's equity value, with broadband access contributing 36 percent. Services to larger businesses and organizations account for 17 percent of Verizon's equity value.

The consumer and smaller business revenue stream accounts for just 10 percent of Verizon's equity value.

At AT&T, wireless accounts for a whopping 51 percent of equity value, while Internet and television services account for 16 percent. Services to business customers, plus wholesale, accounts for 12 percent of equity value. The landline voice business accounts for 12 percent of equity value.

AT&T really is a wireless company with a wireline business.

VZW added 2.2 million net wireless subscribers in the last three months of 2009. Verizon remains the marker leader in size, quickly approaching the 100 million-sub mark with 91.2 million total mobile customers.

Total wireless service revenues remained flat quarter-over-quarter at $13.5 billion and were up only five percent year-over-year.

But wireless data revenues continued to balloon, increasing $200 million over the third quarter to $4.3 billion and 26.6 percent  year-over-year. Data now accounts for 31.9 percent of all service revenues.

Wireline service revenues fell $100 million quarter over-quarter to $11.5 billion, representing a 3.9 percent drop year-over-year. On the residential side, access line loss showed no signs of improving with Verizon posting a further 12.3 percent decline.

Verizon also is losing digital subscriber line accounts as it switches customers over to the FiOS service. Verizon lost 107,000 broadband lines, primarily DSL accounts, as its FiOS service grew by153,000 net new customers, including both broadband access and video customers.

FiOS now has 2.9 million TV subscribers (25 percent penetration) and 3.4 million Internet customers (28 percent penetration).

But wireline figures also were distorted by the addition of Alltel assets.

Wireless profit margins also are higher than wireline. Wireless had 45 percent margins in the fourth quarter of 2009, while wireline margins fell to 23 percent.

Mobile Broadband Prices: As Usage Climbs, Something's Gotta Give

Sooner or later, mobile broadband consumption patterns are going to force mobile Internet service providers to better match consumption with usage, for the simple reason that the cost of supplying end user bandwidth probably will grow faster than the cost of infrastructure, on a per-megabit-per-second basis, will drop.

That obviously affects the mobile broadband business case, especially if video comes to represent 90 percent of all bandwidth demand, as Cisco now predicts and as global backbone networks already demonstrate.

At the current average traffic levels of 500 MBytes a month, revenue per MByte outstrips delivery costs for HSPA, LTE and WiMAX at monthly retail prices starting at $20 per month, says Monica Paolini, Senza Fili Consulting president.

At $20 per month, mobile operators operate at a loss for subscribers using more than 1 GByte per month in a 3G network, or for subscribers using more than 5 GBytes per month on a 4G network, Paolini says.

At 10 GBytes per month, data subscribers do not generate any net benefit for mobile operators on a 3G network. On a 4G network 10 GBytes of usage might be a break-even proposition.