Will Historic Consumer Spending Patterns Hold Up?

Long-term interest rates are quietly heading higher, and consumer confidence is headed lower, economists and financial analysts now say. Rising rates are a drag on the economy, making it more difficult for businesses and households to finance spending and investment.

This is going to slow the economic recovery and challenge my thesis that communications and multi-channel video entertainment businesses suffer slower growth, but still grow, even in recessionary times.

Just to recap, over the last 25 years, in every recession, telecom and cable TV revenues, for example, have grown, year over year. Growth rates slowed, but were never in negative ranges, overall.

That does not mean consumers were not economizing, they likely were. But overall spending on what have come to be viewed as essential services has not faltered in any recession over the last 25 years.

What tends to happen in a recession is that consumers stop buying incremental or enhanced features and products. That can take the form of less spending on premium TV, pay-per-view and on-demand content; delaying the purchase of a new mobile phone or switching to a prepaid account.

Consumers also typically shift spending away from other activities in recessionary times, propping up core communications and video entertainment services.

There has been pressure of other sorts, though. Firms including Verizon and Time Warner Cable mention that housing market distress has lowered new customer acquisition rates. When people are not moving into new houses, or stop renting and move in with relatives, or lose their homes, that reduces new subscriber additions and increases churn.

But there are other structural changes bubbling away underneath. Fixed voice lines mostly have been a case of shifted market share from telcos to cable operators, but also some apparently-growing amount of abandonment in favor of mobile. Roughly the same thing has been happening in the video business, as cable operators slowly lose share to both telco and satellite providers.

Trading market share leaves the overall business about where it was, overall. Over the past decade, though, service providers have benefitted from one truly new product--broadband Internet access--and skyrocketing additional mobile accounts. To the extent voice lines actually are shrinking, not just being shifted to new providers, mobile revenues and broadband have more than compensated for the losses.

In all likelihood, mobile broadband now is going to replace mobile voice as the revenue and growth driver for the next five year period. Assuming there is no change in the underlying rate of mobile substitution, and no sudden replacement of the multi-channel video product by an over-the-top alternative, I would continue to stand by my prediction that, even in the face of sluggishness on the economic front, cable and telco providers will continue to show revenue growth, if slower than they would like.

The real danger comes from some unexpected shift of demand that radically changes spending patterns. That is the sort of thing one cannot anticipate very well, and the reason I spend so much time trying to follow consumer behavior.

related story on growth issues

Two-Tier Internet is Not Necessarily a Bad Thing, Says Esther Dyson

"The biggest problem that net neutrality has is nobody knows what they’re talking about when they talk about it," says Esther Dyson, noted computer industry analyst. "The issue is who pays and whether they’re monopolies or not, so there’s a whole lot of, I think, disingenuous discussion about control without ever really looking at the fundamental issue, which is somebody’s got to pay for more bandwidth if consumers are gonna be uploading and downloading video."

"As long as there’s healthy competition, I have no problem if someone pays extra for additional bandwidth, as long as that doesn’t cut off people’s access to the other stuff," says Dyson. That does not mean she believes access providers should be able to put up walls around Internet content. 

"There’s this disingenuous discussion of if you don’t allow us to pay extra, you’re not gonna get free content," she says. "Well, of course not, but let the consumer decide whether they want paid or subsidized."

Beet TV

"Superphones" Will Drive Widespread Media Consumption, Glaser Says

Many observers have called the mobile phone or smartphone the "fourth screen" for multimedia content, and RealNetworks agrees with that assessment.

In fact, a new generation of devices one might call a "superphone" will be a primary way users consume video and audio content, says Rob Glaser, former RealNetworks CEO.

The future of media will be information consumed on superphones while on the go, Glaser argues. By 2013 the installed base of smart and superphones will exceed the installed base of PCs, and those Web-surfing devices will be mobile.

People want digital persistence, he argues. In other words, they want their content to be available everywhere, at any point in time, Glaser argues. That implies a world in which content is available on any number of devices, with methods for verifying the right any single has to use paid-for content.

That's part of the thinking behind the cable industry's "TV Everywhere" initiative, but also a way for cable distributors to maintain their relevance in a world with alternate distirbution channels.

Such ability to experience TV or video on mobile devices will have repercussions for a wide range of participants in the video ecosystem. Mobile providers will have to supply an order of magnitude more bandwidth. Devices will have to adapt to form factors conducive to media player usage.

Distributors will have to work to maintain their relevance in the content distribution system, and mobile marketers will find mobile video a more-attractive marketing medium.

Books Lead Apple App Store Inventory

There are lots of applications available in the Apple App Store. But a huge number of those items are discrete book or game titles, not applications. And those most applications downloaded from the App Store are of the "free" sort, about 75 percent of the books and games are "for fee" downloads.

In fact, "books" are the biggest category in the store, followed by games.

The App Store is an awful lot like iTunes, it appears: a distribution mechanism for content.

VoIP Will be a Mixed Blessing for Mobile Service Providers

This prediction for use of mobile VoIP by about 2013, made by In-Stat, might suggest the reasons why incumbent voice providers have been somewhat hesitant to fully embrace VoIP.

The pie chart suggests that a majority of VoIP activity on mobile phones will be provided by third party, over-the-top providers, not the "service providers" themselves.

That's roughly the same experience fixed line operators have had: most of the usage is enabled by third-party application providers or competitors, notably cable companies.

Some might find it odd, but VoIP actually has been a mixed blessing for incumbent voice providers. It represents the next generation of voice, but the next generation of voice turns out to be an application "anybody" can provide.

VoIP proponents have hammered away at the theme that VoIP is about new features, not price. The market keeps demonstrating by its spending that price is what VoIP "really is about." Features are nice, especially in the business market, but consumers seem to buy based on their ability to "save money," rather than for the whiz-bang new features.

The fundamental dilemma for an incumbent voice provider is that they essentially must invest more money, to provide new features end users won't pay for, at lower or the same prices. To a certain extent, that's the similar problem service providers face when upgrading to fiber-to-home or fiber-rich access networks. Video services are truly new. But broadband access has been following a "more speed for the same money" trajectory, for the most part. Fiber-rich access networks have made possible new faster tiers, sold for more money, to be sure.

But it would be tough to make the argument that the new sales of faster access, plus revenue from new video services, have earned sufficient return to justify the investments in a classic sense. More often, such investments are strategic, intended to ensure that a provider still has a business, more than investments that immediately produce attractive revenue lift.

VoIP has been a mixed blessing for incumbent telcos, though it has been very satisfying for cable operators and some over-the-top providers.

Mobile, Broadband Growth Have Shifted to the Developing World

Not since abour 2006 have there been more fixed broadband lines in service in the most-developed broadband markets than emerging countries, and by 2009 a group of about 15 nations, including the BRICs, as well as countries in Southeast Asia, South American and Eastern Europe had surpassed the developed countries in total subscribers.

These days, the 15 emerging countries have the biggest share of broadband lines and the fastest growth rates as well, says Point Topic.

It's worth pondering that for just a moment. In 2000 there were 738 million global mobile subscribers. In 2010, there are 4.3 billion mobile subscribers, and most of those subscribers live in the developing world, according to the International Telecommunications Union.

It took just four years to double the number of global mobility users, from 2000 to 2004, and just another four years to double yet again, from 2004 to 2008. That sort of growth does not happen much in the telecom business, and has not happened before in the developed world.

Broadband growth is likely to assume something of the same pattern, but likely will be driven by mobile, not fixed access. Mobility has proven to be a raging, unexpected success story for people in developed regions. Broadband is about to repeat that feat.

Quietly, without much fanfare, communications really has become a capability available to all the world's people, after many decades of attempts by policymakers and providers to figure out how to do that. In the end, better technology has made all the difference. We don't use wires, we use airwaves. We don't use analog, we use digital. We don't use physical goods; we use electronic goods.

By 2014 just 15 developing nations will account for over 320 million broadband lines, 43 percent of the world total of 740 million broadband lines, by that time.

The fastest-growing group of 15 countries will have broadband growth rates of 14.2 percent annually. Another group of 12 countries, including the United States, Japan, Greece and Taiwan, will see annual growth of about 5.5 percent each year through 2014. Some 13 countries, including Western European nations, Canada, South Korea and Hong Kong, will see 4.6 percent annual growth rates.

All of those statistics are important for one compelling reason. Global subscriber and revenue growth for voice services, mobile services and broadband now has shifted to developing regions of the world.

Boston Tops "Good for Telecommuting" List

Boston is the top U.S. medium-sized or large city for telecommuting, according to a new survey of 3,600 workers in 36 markets.

The survey, commissioned by Microsoft Corp., examined urban areas based on factors including the percentage of workers who say their jobs can be done from outside the office; the percentage of companies with formal work-from-home policies; the extent of support from bosses for working from home, as gauged by workers; and the extent of technological support provided by employers to enable working from home.

Most respondents said they were more productive when working from home. The top complaint listed was the lack of face-to-face interaction with colleagues.

Fewer than half of the companies surveyed had telecommuting policies. Within those companies that did have such policies, a little more than a third of workers took advantage of the opportunity.

Those workers listed achieving work/home balance, saving on gasoline and avoiding long commutes as their top reasons for telecommuting.

As for where they did work outside the office, many employees listed family vacation spots as a top choice. About a quarter of telecommuting workers said they set up operation in coffee shops. Some 10 percent worked from doctors’ offices.

The increase in telecommuting is being driven by the economy, which has made companies less willing to relocate staff, and by technology, which makes remote work lots easier.

After Boston, top telecommuting cities were:

Raleigh-Durham, N.C.
Atlanta
Denver
Kansas City, Mo.
Richmond, Va.
Austin, Texas
New York
Sacramento, Calif.
Portland, Ore.

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