Why Mobile Commerce Will be Big

That mobile commerce is expected to grow so much is not too surprising, in context. Keep in mind that more people now have mobile subscriptions than electricity, safe drinking water, bank accounts, credit cards, TVs or PCs.

Looked at on a household basis, mobile spending now represents nearly half of household spending on communications and entertainment services.

 Since 2001, when fixed-line phone service was more than 65 percent of total subscription spending on communications and video services, fixed-line spending now has fallen to a bit over 25 percent. The percentage of video entertainment and broadband access spending also has been growing, Sharma says.

Annual state of_global_mobile_industry_2012_chetan_sharma_consulting

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Why Fiber to the Home Costs So Much

Up to 80 percent of the total broadband investment cost is related to civil infrastructure works, the European Commission says. Another way of putting matters is to say that as much of 80 percent of the cost of building fiber-to-customer networks is not affected in a positive way by Moore's Law.

The fact that computing power and storage keep getting more powerful and cheaper is helpful for application providers. But those improvements don't affect the cost of digging trenches, stringing cable and undertaking other forms of construction.

But that's only part of the problem. The other issue is that the financial return from any FTTH project is becoming more challenging in a competitive environment.

Is the investment case for fiber to the home networks getting more challenging? Yes, Rupert Wood, Analysys Mason principal analyst, has argued  A shift of revenue, attention and innovation to wireless networks is part of the reason. But the core business case for triple-play services also is becoming more challenging as well.

All of that suggests service providers will have to look outside the traditional end-user services area for sustainable growth. Many believe that will have to come in the form of services provided to business partners who can use network-provided information to support their own commerce and marketing efforts. Those partners might be application developers, content sites, ad networks, ad aggregators or other entities that can partner with service providers to add value to their existing business operations.

Current location, type of device, billing capabilities, payment systems, application programming interfaces and communication services, storage services, profile and presence information might be valuable in that regard.
 
Fiber to the home long has been touted by many as the "best," most "future proof" medium for fixed access networks, at least of the telco variety. But not by all. Investment analysts, virtually all cable and many telco excutives also have argued that "fiber to the home" costs too much.

Over the last decade or so, though, something new has happened. Innovation, access, usage and growth have shifted to wireless networks. None of that is helpful for the FTTH business case. That is not to say broadband access is anything but the foundation service of the future for a fixed-network service providers. Fixed networks in all likelihood always will provide orders of magnitude more usable bandwith than wireless networks.

The issue, though, is the cost of building new fiber networks, balanced against the expected financial returns.

“FTTH is often said to be ‘future-proof’, but the future appears to have veered off in a different direction,” says  Rupert Wood, Analysys Mason principal analyst. Regulatory uncertainty, the state of capital markets and executive decisions play a part in shaping the pace of fiber deployment. But saturation of end user demand now is becoming an issue as well.

The basic financial problems include competition from other contestants, which lowers the maximum penetration an operator can expect. FTTH has to be deployed, per location. But services will be sold to only some percentage of those locations. There is a stranded investment problem, in other words.

The other issue is that the triple-play services bundle is itself unstable. FTTH networks are not required to provide legacy voice services. In fact, the existing networks work fine for that purpose. One can argue that broadband is needed to provide the next generation of voice (VoIP or IP telephony), but demand for fixed-line voice has been dropping for a decade. So far, there is scant evidence that VoIP services offered in place of legacy voice have raised average revenue per user. Most observers would note the trend goes the other way: in the direction of lower prices.

And though entertainment video services offer a clear chance for telcos to gain market share at the expense of cable operators, there is at least some evidence that overall growth is stalling, limiting gains to market share wins.

Broadband access also is nearing saturation, though operators are offering higher-priced new tiers of service that could affect ARPU at some point. So the issue is that the business case for FTTH has to be carried by a declining service (voice), a possibly-mature service (video) and a nearly-mature service (broadband access).

And then there is wireless substitution. Fixed-line voice already is being cannibalized by mobile voice. Some observers now expect the same thing to start happening in broadband access, and many note new forms of video could displace some amount of entertainment video spending as well.

The fundamental contradiction is that continued investment in fixed-line networks, which is necessary over time, occurs in a context of essentially zero growth.

Atlantic-ACM, for example, now forecasts that U.S. wireline network revenue, overall, between now and 2015, will be flat at best. Compound annual growth rates, in fact, are forecast to be slightly negative, at about 0.3 percent. Where total industry revenue was about $345 billion in 2009. By 2015, revenue will be $337 billion, Atlantic-ACM predicts.

That is not to argue against replacement of aging networks; in fact that is a necessary and normal part of any network deployment. The issue is the declining amount of revenue any such network can generate.

"Overall consumer spend on telecoms has long since ceased to grow in developed economies," says Wood.

And though FTTH promises dramatically-higher bandwidth, demand is a bit uncertain at the moment. "Even though many cable operators have been offering superfast fixed broadband connectivity for some time in Europe and North America, take-up of such services remains troublingly low."

Aside from some early adopters, Wood argues, new services that uniquely take advantage of FTTH are needed. Industry executives are aware of that need, and have been for quite some time.

The issue is that the scale and pace of innovation in wireless now outstrips what is happening on the fixed line network. That makes the revenue upside for FTTH a tougher challenge. In some markets, cheaper copper-based alternatives might continue to make more sense, Wood argues.

That is particularly true in Europe, says Wood, where consumer willingness to pay a premium for additional bandwidth is low and where broadband prices are already significantly lower than in North America.

"This level of commitment to FTTH looks unsustainable and fundamentally unreasonable, especially when VDSL networks will pass far more households," says Wood. "We therefore expect telcos that have opted for FTTH roll-out beyond proof-of-concept trials and greenfield sites to back away from further commitment and, in some cases, reduce the scale of their FTTH roll-out plans."

So the strategic issue now would seem to be whether continued FTTH momentum can be sustained. It would be an unexpected turn of events, if it turns out Wood is correct.

What "Showrooming" Could Mean for Service Provider Strategy

Telcos facing steadily declining voice revenues, the historic driver of the largest part of their business, now face challenges similar to what Best Buy faces with online competition. As consumers switch to use of mobile phones as the primary way they "use" voice, their need to buy landline voice keeps dropping.

Likewise, consumers looking for the latest in gadgets increasingly buy from Amazon.com, though using Best Buy as a place to check out those products. That "showrooming" problem is not going away.

Some analysts think Best Buy's long-term future might rely on turning its business model upside-down and embracing showrooming, and there are glimmers of insight for telecom service providers as well.

The radical notion is that, Instead of selling electronics gear, Best Buy could gradually become a supplier of  instruction, service, support, connections, returns and pickup. All those things are tricky or less satisfying operations online, some argue.

In a communications service provider context, the analogy might be a shift to greater reliance on providing "big data mining" and support for third-party partners who want access to huge service provider audiences.

As Best Buy shifts to third-party services for consumer electronics manufacturers, becoming physical support locations for those partners, and de-emphasizing product sales, so telcos and mobile service providers could grow their "big data" service businesses.

Best Buy could embrace being a showroom, welcoming price-checking shoppers into the store to play with the latest electronic gadgets, then helping them buy online, even from another seller. As crazy as that might sound, Best Buy executives say they make more profit from electronics product supplier payments than from the sales of gear.

In a similar way, communications service providers might someday find they make more money from services sold to business partners than to end users. That isn't to say it would be easy. But there are precedents.

Retailers can lease space to third parties. Think Apple Stores that already are inside Best Buy. Telcos know about wholesale. It's the same concept.

ROI is Good, Measuring it Often is Quite Hard

Return on investment is an important measure. In marketing, though, it is notoriously difficult. Among the reasons is that most larger brands use multiple channels and touch points, but tend to measure and attribute returns based on a single channel. 

Many, for example, attribute sales to the "last-click" by a buyer, while some might atribute an ultimate sale to the "first click." Others, with channel partners at work, will recognize a sale as coming from that channel, essentially ignoring all the work done by all the other channels, or the touch points that might have contributed to a sale.

First-click and last-click attribution models are easiest to measure, but their use can over- or under-credit an ad format’s influence on conversion activity. 

For instance, February 2012 data from Adobe measuring revenue per visitor to US websites, broken down by attribution model, showed that search generated 38 percent more revenue when measured via first-click attribution than last-click. 

Social’s first-click slant was even more dramatic: 88 percent. 

Additional Q1 2012 findings from digital marketing firm RKG showed similar differences.

The point is that a "one-touchpoint experience" is atypical for internet users and not a good measure of digital effectiveness. Nor is that common for complex products sold to business customers, either. 

Questions About Prepaid Growth in U.S. Market

MetroPCS Communications and Leap Wireless International reported an abrupt slowdown in customer growth during what is traditionally their strongest quarter, raising concerns the sputtering U.S. economy is forcing more consumers to eschew prepaid wireless service or seek even cheaper options, the Wall Street Journal reports.

The trend also follows a more aggressive push by larger carriers, such as Sprint Nextel Corp.  and T-Mobile USA, to capture users at the lowest end of the market. It isn't yet entirely clear what combination of forces is at work. Perhaps T-Mobile USA and Sprint, or other prepaid providers, simply are taking more market share.

Tablet Ownership Will Grow 200% Next 2 Years

In the consumer market, tablet ownership will increase by 200 percent across the U.S. and Western European markets over the next two years, predicts Futuresource Consulting. The obvious question device suppliers will ask is "what does that mean for sales of other devices?"

Futuresource predicts that sales netbooks will be harmed, but some would argue that netbooks have been a declining product category for some years. Most consumers seem to see tablets as an addition to conventional PCs or Macs rather than a replacement. What might be less clear is the impact of tablet sales on notebooks, which many users now use as their "PC."

An installed base of nearly 52 million was achieved in 2011 across the two regions, with the market on track to exceed 153 million units in 2013. Ownership will be highest in the USA, with Western European markets showing significant opportunities for growth.

Bigger Screens Drive More Tablet Usage

The Kindle Fire, has almost doubled its share of the tablet market in the past two months from 29.4 percent share in December 2011 to 54.4 percent share in February 2012, according to comScore. 

 Samsung’s Galaxy Tab family followed with a market share of 15.4 percent in February, followed by the Motorola Xoom with 7.0 percent share. The Asus Transformer and Toshiba AT100 rounded out the top five with 6.3 percent and 5.7 percent market share, respectively.

U.S. Market Share of Android Tablets by Unique Devices Dec-2011, Jan-2012, Feb-2012 Total U.S. Source: comScore Device Essentials*
	% Share of Android Tablets
	Dec-11	Jan-12	Feb-12
Amazon Kindle Fire	29.4%	41.8%	54.4%
Samsung Galaxy Tab Family	23.8%	19.1%	15.4%
Motorola Xoom	11.8%	9.0%	7.0%
Asus Transformer	6.4%	6.2%	6.3%
Toshiba AT100	7.1%	7.0%	5.7%
Acer Picasso	6.0%	5.2%	4.3%
Acer Iconia	2.8%	2.6%	2.1%
Dell Streak	2.2%	1.7%	1.3%
Lenovo IdeaPad Tablet K1	0.7%	0.9%	1.2%
Sony Tablet S	0.9%	0.8%	0.7%
Other	8.9%	5.6%	1.6%

As you might expect, screen size is directly associated with higher content consumption. For example, 10″ tablets have a 39-percent higher consumption rate than seven-inch  tablets and a 58-percent higher rate than five-inch tablets.

Average Browser Page Views per Tablet Feb-2012 Total U.S. Source: comScore Device Essentials*
Tablet Screen Size	Browser Page Views per Tablet
10 inch	125
9 inch	116
7 inch	90
5 inch	79