"Headwinds" for U.S. Mobile Service Providers

Mobile data services have for the better part of a decade been the clear near-term driver of revenue growth for mobile service providers, roughly driven by smart phone adoption. So, oddly enough, we now see carriers making tough decisions about how fast they actually can grow those smart phone businesses.

A key issue in recent years has been the practice of subsidizing the retail price of smart phones to spur adoption. But operators seem to be rebelling at the idea of continuing to do so at current levels. In some cases that might mean new fees when upgrading to a new smart phone.

In other cases, carriers will try to convince customers to buy devices that are easier to subsidize. Some will even try to stabilize smart phone adoption rates, adding new accounts, but not as many as might be added if carriers conducted more aggressive marketing.

Those steps will help carriers protect their dropping profit margins, but at the risk of slower smart phone adoption.

"Over the longer term, we believe the wireless industry faces the twin headwinds of 100 percent penetration and, eventually, decelerating smartphone additions as the base reaches saturation," Jefferies' analysts wrote. "Voice revenues are already in decline. We believe a material drop off in the growth rate of data revenues from slowing smartphone adoption, particularly in 2H12, is a growing risk," Jefferies says.

Mobile and Broadband Spending by Consumers Will Grow 18% in 2012

Overall U.S. communications and media spending by consumers, marketers and institutions is expected to reach $1.4 trillion by 2015, giving it a compound annual growth rate of 5.7 percent, according to a new forecast from the private equity firm Veronis Suhler Stevenson. That’s substantially faster than GDP, which has a projected CAGR of 4.4 percent over that period, the report suggests.

The fastest growth by far is in consumer Internet and mobile services, expected to grow 18 percent in 2012.

What Would a "Revolutionary" Apple TV Experience Include?

It's hard to say what Steve Jobs actually mean by “I finally cracked it” when referring to the issue of television experience and appliances, the latter being extremely important for Apple, whose business is selling appliances that disrupt and dramatically improve end user experience.

The answer to the question also is important to the rest of the video entertainment ecosystem as well, as entertainment television could represent the next big growth opportunity not only for Apple, but a huge risk of ecosystem change for nearly every part of the TV business ecosystem.

Was Jobs referring to some new software and navigation method only? Did he mean some new relationship with the content producing part of the ecosystem? Or did he mean some change in TV design and hardware, or some combination of all of those elements?

BTIG Research believes that “cracking” television would entail tying together computer, mobile devices and the living room TV, along with its cloud-based storage system (iCloud). 


Some might argue integrating online and video TV subscription services, to unify the content experience, would be part of the experience. Some might argue that is an interesting first step, but only a half step.


The big awaiting revolution is creation of a "fun and easy to use" experience that allows consumers to watch what they want, when they want it, program by program, without having to buy whole channels they never watch, and do not want. 

Smart Phone Subsidies: Changes Coming

A broad debate has been growing among mobile service providers about the financial impact of high smart phone subsidies on profit margins, and that concern now seems to be headed in the direction of lower subsidies. That could have important ramifications for device suppliers and customers as well as service providers.

For service providers, the effort is to maintain profit margins that have in many cases been hammered by the cost of the subsidies. But the new policies also should slow iPhone sales, and should boost sales of other devices. Consumers will slow the rate of device upgrades and will face higher prices.

The impact on application and device innovation is less clear, but could lead to some slowing of device upgrades, with uncertain but clearly negative impact on new applications that depend on device features and capabilities.

Up to this point, for example, Verizon has not charged a fee to its subscribers when customers decide to upgrade to a new device. But Verizon now will institute a $30 fee when that occurs. For Verizon Wireless, that could add up to $1 billion to Verizon’s annual earnings, and also boost profit margins, BTIG argues.

Smart phones have been very helpful for mobile service providers, boosting average revenue per user by driving mobile broadband subscriptions. But the subsidies generally used to spur sales are bcoming a major drag on earnings, and change is coming. Basically, service providers will have to risk lower sales growth, and less mobile broadband revenue growth, to limit handset subsidies. It might be a Faustian bargain.

In fact, what seems to have happened is that user behavior has changed, with users upgrading those “expensive” smart phones faster than they had generally been upgrading their feature phones, analysts at BTIG say.

As a result, U.S. mobile service providers plan to take steps to reduce handset upgrades as a way of raising operating margins. That is likely to affect sales of Apple iPhones, generally considered the most-expensive device to support.

AT&T, Sprint, Deutsche Telekom, Vodafone, America Movil and Telefonica are among firms planning to take steps that will slow iPhone sales in the coming year.

In the United States, BTIG expects iPhone sales to decline four million sequentially to nine million with the largest impact coming from AT&T, Apple’s largest customer.

In 2011, AT&T represented 17 percent of iPhone sales for the year and 19 percent in the fourth quarter of 2011.  Apple iPhones represent fully 37 percent of AT&T’s post-paid subscriber base and 47 percent of post-paid service revenue, BTIG says.

BTIG estimates 65 percent of AT&T’s post-paid customers either own an iPhone or are in a family plan with at least one iPhone user.  

For AT&T, the financial impact of iPhone subsidies is clear. AT&T profit margins had grown for five straight years beginning in 2005, but reversed in 2010, apparently related directly to iPhone 4 demand and subsidies, BTIG argues.

In January of 2011, AT&T tightened its upgrade policy and eliminated the popular one-year upgrade offers for iPhone owners. BTIG argues the iPhone subsidies have reduced AT&T margins by at least 10 percent in 2011.

So unless AT&T tightens its upgrade policies, company earnings per share would drop. In fact, AT&T says it has built its business model for 2012 around the idea that it will sell no more smart phones, overall, than it did in 2011, about 25 million units.

BTIG analysis suggests something quite significant. Despite the importance of smart phone accounts for growth of key broadband revenue, AT&T has decided to essentially cap smart phone sales to preserve its profit margins.

The impact should be clear: fewer iPhones sold by AT&T, and possibly fewer iPhones sold by other mobile services providers. That could lead to market share gains by other smart phone makes and models, or could spur Apple to produce lower-cost iPhones.

What the carriers hope for is the ability to sustain average revenue per user growth, and higher profit margins.



source: Yankee Group and CNet

Are Tablets "Naturally" Mobile Products?

During 2011, some 33 percent of all tablets sold globally had the ability to use mobile broadband networks natively, according to ABI Research. According to Chetan Sharma, only about 10 percent of all tablets in use actually used mobile broadband networks.

That illustrates both the tablet upside and challenges for mobile service providers. Mobile phones have little value without a service. Tablets likewise have little value without Internet connectivity, but can use any Wi-Fi connection to do so.

In other words, tablets are more naturally suited devices for mobile broadband services than desktop PCs, perhaps only slightly less well suited for mobile broadband than notebook PCs, but not "naturally connected" devices such as mobile phones. U.S. mobile data generated $67 billion in mobile data revenues in 2011, accounting for 39 percent of the overall revenues. For 2012, Sharma expects mobile data revenues in the U.S. market will reach $80 billion.

That is one reason retail mobile stores always sell phones, sometimes feature tablets, but never try to sell PCs, though some have tried to bundle notebooks and mobile broadband services.

That might change, marginally, once more service providers decide to sell mobile broadband plans the way that fixed network providers sell their broadband connections. Essentially, fixed broadband with local Wi-Fi  inherently supports multiple devices on a single account.

Tablets won't become more interesting for mobile service providers until the equivalent "family data plans" are available.

Apple iPhone Share Growing, in Some Demographics?

It just makes sense that if a particular product is a run-away leader in market share, that buying intentions might match that share. Also, it often happens that market share dominance leads over time, to even more dominance.

Rivals to Apple know what happened in the MP3 player market. Many suppliers in the tablet market would be forgiven a fear that Apple is doing in the tablet market what it did in the MP3 market.

The smart phone market arguably has been more competitive, but a new survey by ChangeWave Research suggests Apple could be increasing its share of market, at least among the typically technology-sophisticated ChangeWave audience.

The latest ChangeWave Research survey of 4, 413 respondents suggests 56 percent of those who plan on replacing their phones in the next three months plan to get an iPhone. In a highly-fragmented market, that is a big number.

That might not be reflective of overall market trends, as other studies tend to show gradual market share gains by many rival Android models, with a dip in Apple's market share.

BlackBerry's woes also are clear from the survey. Where BlackBerry once had smart phone market share in the 30-percent to 40-percent range, it now has declined to two-percent to three-percent ranges.

Intuit acquires AisleBuyer: "Showrooming" Antidote?

Intuit has acquired AisleBuyer, which has a mobile application that allows merchants to support e-commerce operations by mobile phone.

Using AisleBuyer, users scan a product’s bar code in a store, see reviews and ratings, as well as pay for a product with a credit card, on the spot. The notion is that  Intuit's small business payment business benefits from extending merchant retail capabilities further in an online commerce direction.

The deal illustrates a key trend in recent months, namely a bigger emphasis in the mobile payments space on "commerce" than crosses the traditional in-store retailing and e-commerce sides of the retailing business.

In other words, retailers seem to be thinking in new ways about "brick and mortar" and online retail. Where it might once have been more common for store-based retailers to see online as the competition, thereby stifling their own online operations, many retailers seem to have shifted their thinking.

Now an online retailing effort is seen as competition with Amazon and other online outlets, not competition with the retailer's own online store. At the same time, there is a new understanding that "showrooming," where potential buyers check out online prices and delivery while in stores looking at merchandise, is a new problem to be solved.

Nobody can tell yet hot successful brick and mortar retailers will be at fending off showrooming, or how the balance between online and physical retailing will change in the future. The Intuit acquisition clearly is a bet on a future that has smaller retailers engaging in both online and traditional retail operations, supporting online shopping both in-store and at all other times.