LTE Is Not Changing Mobile Service Provider Pricing Models?

Launching a new network sometimes can represent a chance to change retail packaging and pricing, and those changes can be quite significant. Fixed network service providers did not make much incremental revenue from dial-up Internet access services, with the exception of some additional line sales, as was the case for home fax lines or teenager lines.

The shift to broadband created a fundamental new category of consumer services essential for triple-play bundles, which Verizon says now are purchased by fully 70 percent of its customers.

Some have argued that new networks such as WiMAX or Long Term Evolution offer service providers a chance to create packages that are different, including "on demand" or "casual" pricing such as "service by the hour or day," for example.

Analysts at Ovum say mobile service providers selling LTE are "failing to deliver innovative pricing models."

That lack of new charging models  is a missed opportunity for operators, Ovum argues.

“We looked at the LTE pricing strategies of operators in Europe, Asia-Pacific, and theUS, and were disappointed with our findings," says Nicole McCormick, Ovum senior analyst.

“LTE provides operators with the opportunity to experiment with new and innovative pricing models, which allows them to find the best way of deriving revenues from the premium service," she says.
“However, most operators have not grasped this opportunity."

She points to "unlimited access" plans and "large buckets" as examples.

Some of us might disagree. Clearwire has offered access by the day, week or month, but not many seem to have bought it.

And now both AT&T and Verizon Wireless have reshaped wireless pricing by essentially offering consumers fixed prices for voice and texting (unlimited for domestic terminations), with variable pricing for mobile broadband.

One might argue that is a substantial change. Though some will object, the new plans, such as Verizon's "Share Everything," answer some crucial questions, such as how mobile service providers can earn money from voice and messaging features at a time when there are a growing number of alternatives.

One might liken the new Share Everything plan as turning the former voice and texting plans into a "network access" fee, with variable charges only for data consumption. Focusing too narrowly on creativity in "4G" models might miss those subtleties.

Giving consumers more options for data services is an arguably important area to explore and innovate around. But it also is important to avoid losing two other vitally important revenue streams, while innovating around retail broadband packaging. Share Everything does that.

Historic Switch in Demand Drivers for Fixed Broadband is Occurring

Get ready for a historic shift in the relationship between devices and broadband access accounts. Traditionally, there were more PCs owned than users of the Internet, and more users of the Internet than buyers of household broadband service.

Soon, if not already, there might be more broadband accounts in service than PCs or notebooks that use those networks. That historic reversal would mean a change in the traditional reason for buying broadband access.

Traditionally, the reason for buying broadband access services was for fast Internet access for some sort of PC. These days, there are other reasons.

Some users might want a fixed connection, solely or in part, to offload data sessions from a mobile network to a fixed network, to get access to the Internet from some other devices, such as a tablet or iPod.

Some might want broadband access to support Internet access for game playing consoles or some other video device (Roku, for example) that displays Internet video on a TV. In other words, there are many more devices, other than PCs,  that derive value from a fixed network broadband connection.

In the past, some might have argued that broadband access penetration would approach 100 percent of homes for one simple reason, namely that some users would see video content as the reason to buy broadband, rather than PC access to the Internet.

But there now are all sorts of reasons to buy broadband, beyond connecting PCs to the Internet. Connections for tablets and smart phones are only the latest reasons.

Research firm Consumer Intelligence Research Partners released the results of a study it conducted of more than 1,000 iPad buyers between December 2011 and April 2012. CIRP asked those recent buyers what they're most likely to do with their tablet and found that 40 percent of respondents indicated they surf the Web on the iPad, leading all possible activities.

A separate study sponsored by Business Insider found similar results. That reader survey got 2,242 responses. The Results aren’t really all that different from the first and second surveys. Basically, people use tablets for browsing, web-based communications and other content consumption activities.

In fact, a larger percentage and absolute number of people might soon be finding that connecting devices other than PCs or notebooks to the Internet provides most of the reason for buying fixed network broadband.

Notably, the Business Insider poll suggests 45 percent of users are doing their browsing on a tablet, 24 percent on a notebook and 17 percent on desktop PCs. About 14 percent of browsing now is conducted on a smart phone.

So you might say that 59 percent of browsing activities now occur on devices that really are not the “best” devices for content creation.

Also, as new smart phones start to push towards larger screens, such as the five-inch screen on Samsung Note, there will start to be less difference between smart phones and seven-inch tablets. The point is that much of the use case for a “computing” device these days is Internet-based content consumption.

In the United Kingdom, for example, household Internet access rose to 80 percent in the first quarter of  2012, up three percentage points on the previous year, and for the first time exceeded the penetration of PCs and laptops, according to Ofcom.

Internet access through a broadband connection stood at 76 percent of households, up two percentage points from the first quarter of 2011 but with a different mix between fixed and mobile connections.

Mobile broadband through a dongle or connection built into a laptop declined four percentage points to 13 percent of households in the first quarter of 2012, while fixed broadband household take-up rose five percentage points to 72 percent.

Three-quarters of the mobile broadband decline was among mobile-broadband-only households, while households with fixed and mobile broadband connections fell by one percentage point.

The decline in mobile broadband internet access is likely to have been substituted by the rise in fixed take-up and the increased use of Internet on a mobile phone (up seven percentage points to 39 percent).

Where once it would have been possible to model broadband adoption by tracking “PCs in the home,” that methodology increasingly would be defective. Already, a significant percentage of users rely on mobile broadband, rather than fixed, because they rely on smart phones, rather than PCs, for most of their Internet activities.

Dutch Banks, Telcos Abandon Mobile Wallet Venture

ABN Amro, ING, KPN, Rabobank and Vodafone say the initial project plans proved "too costly and too long" to implement, according to Finextra.

Initially seen as a venture that would launch in 2012, the system would have used near field communications and payment software located in a secure part of the subscriber information module in the user's phone.

The consortium, dubbed "Sixpack," earlier in 2012 set back their planned launch date until 2013 as they awaited the outcome of a European Commission investigation into Project Oscar, the proposed mobile payments JV from a group of UK telcos.

But it appears the potential partners now believe time to market is of the essence, and that it will take too long to launch. T-Mobile, for example, originally was a member of the consortium, but dropped out late in 2011.

One suspects regulatory clearance became an obstacle, though the rest of the market also is evolving rapidly, making "time to market" an issue.

The consortium represented about 90 percent of the mobile market share, as well as 90 percent of the banking market share in the Netherlands. That might not have won approval from European Community regulators who must approve the venture.

Average U.S. Mobile User Consumes 450 MBytes Each Month

The "average"  U.S. mobile subscriber used 450 MBytes of data each month, in the first quarter of 2012,  Nielsen says. In the first quarter of 2011, the "average" user consumed 208 Mbytes.

Of course, there is no such thing as an "average" user, measured as a "mean." Rather, usage historically always is highly skewed, with a very small percentage of users consuming high amounts of data, while most users consume relatively modest amounts of bandwidth.

In fact, one study by Arieso found that one percent of mobile users consume 50 percent of all downstream data, suggesting a Pareto style distribution (basically, an 80/20 rule, where 20 percent of instances account for 80 percent of results).

That suggests that the top one percent of users consumes 10 times (an order of magnitude) more data than users at the 80th percentile of usage.


In addition, overall usage will skyrocket, as well. 

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 game content as in 2011 according to a forecast from Informa Telecoms & Media. 

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

The point, though, is that "mean" usage tells you almost nothing about "typical" usage. 

New Cracks Appear in Video Business Framework

There are some new cracks appearing in the traditional U.S. cable TV framework, which has included an informal “agreement not to compete” against other cable operators, as well as growing friction between all leading video distributors and leading programming suppliers, going well beyond the normal contract renegotiation disputes that happen from time to time.

In an unusual show of support, in recent days Time Warner Cable Inc., Cox Communications Inc. and Mediacom Communications Corp. have each publicly backed DirecTV's position in the firm’s negotiations with Viacom, as each of those companies share a similar concern about the spiraling cost of programming, which is resulting in annual rate increases for consumers that are significantly above the rate of inflation.

And that isn't all. In potentially historic development, Cablevision Systems Corp. appears to be readying a potential competitive challenge to other cable operators in perhaps 44 U.S. markets. That would violate an unwritten understanding among cable operators not to compete with each other.

To be sure, Cablevision is restricting its efforts to broadband access and voice, at least for the moment, avoiding a direct challenge to cable TV operator core video revenues. But the growing tensions between program suppliers and distributors, plus the potential competition between cable operators, show how tensions are growing in the video business.

Illiad "Free" Illustrates Service Provider Responses to Disruptive Attacks

Iliad, which launched its “Free Mobile” service in January 2012 in France, has been wrecking havoc on its competitors France Telecom, SFR and Bouygues Telecom.

Vivendi SFR, for example, anticipates a 2012 earnings decline of 12 percent.

Average France Telecom revenue from each account will fall almost 10 percent in 2012.

The competitive responses by French competitors to Illiad illustrate the possible responses to new competition, and the instances where "better" responses are possible. In this case, service providers had no choice but to embrace the "worst" option, a dramatic drop in retail pricing, either in the form of new tiers of service, or in the form of across the board price cuts.

"Better" options often allow for the possibility of allowing attackers to take some share, but preserving the structure of pricing within the market. In this case, the attack was so serious that sustaining the existing pricing regime was untenable.

Illiad signed up 2.6 million customers through mid-May 2012 offering no-contract service priced at two euros and another at 19.99 euros a month, significantly lower than had been offered by the other contestants.

Predictably, that has caused customer defections, and caused the other competitors to lower their pricing. That, in turn, is slicing revenue. Facing certain revenue shrinkage, the affected service providers are looking to cut costs to bring earnings back into line.

Though service providers sometimes can afford to wait before responding, Illiad's attack allowed no option but the undesirable revision of pricing levels.

In some other cases, service providers have essentially been able to manage a gradual decline of an aging product, such as international long distance, or defer a major move into a new market until both the opportunity and strategic situation were clear. That largely was the case for broadband access services, for example.

But Illiad has disrupted the market pricing framework, with no time for any option other than slashing prices, generally.

Verizon Meets 2Q 2012 Expectations; Future is the Challenge

Verizon met investor expectations for second-quarter 2012 financial performance, with growth fueled by wireless services, while fixed network and enterprise revenue remained flat. At the very least, those results point out the strategic challenges Verizon faces.

"On a national basis, wireline voice revenues are expected to continue their long-term decline, while the mobile market could grow to over $200 billion by 2015," Verizon says.

"Highlighting an overall theme in the telecommunications market, however, wireless voice revenues are expected to be flat to slightly down in the coming years but will be more than made up by rapid growth in data revenues thanks to the adoption of smart phones and the emergence of machine-to-machine services," Verizon also says.

Of course, saturation will be an issue for smart phone-driven revenue gains, while M2M represents a key growth opportunity. At the moment, growth rates for mobile advertising and hosting services also are key growth opportunities, at least on a percentage-growth basis. The problem is that it remains unclear how large is the revenue opportunity, that can be captured by service providers, in hosting and cloud infrastructure, or mobile advertising.

For the moment, it is data revenues that constitute both a logical and large revenue opportunity. 

Segmented by markets, the overall U.S. revenue picture shows that more than half of telecommunications spending is still in the consumer market segment, although the general business and enterprise (large-business and government) markets continue to grow.

A look at Verizon's revenues and recent strategic moves demonstrates the change in demand for telecommunications services over the past several years. 

Wireless services made up approximately 60 percent of Verizon's revenue in 2010, while traditional wireline services are shrinking as a percentage of Verizon's total revenue. 

Within the wireline market, however, Verizon has generated growth in revenues from broadband and video services.  Verizon's FiOS Internet and TV services now account for 54 percent of consumer wireline revenues, while strategic services represent 46 percent of global enterprise revenue.

At year-end 2005, Verizon reported annual operating revenues of $75.1 billion -- with wireline services generating $37.6 billion and wireless services generating $32.3 billion. 

Five years later, at year-end 2010, Verizon reported annual operating revenues of $106.6 billion -- with wireline services generating $41.2 billion and wireless services generating $63.4 billion. In addition to changing market demand and technology, part of the change in revenue mix was due to divestitures of traditional wireline assets combined with acquisitions of wireless assets.