Mobile Industry Will Reach Milestone Sometime After 2016

Data revenue will grow to 65 percent of total U.S. wireless service revenue as voice declines to 35 percent in 2016, according to Hugues de la Vergne, principal research analyst at Gartner. That might not seem so significant, but keep in mind that, in recent decades, voice has represented at least 70 percent of all industry revenues. 

A replacement of voice revenues by data revenues at that level would be a key milestone for an industry that has for some time been grappling with the issue of how to replace lost voice revenue and profit margin.
Growing adoption of smart phones, with the new and significant data plan revenue, will play a key role, of course. Almost by definition, a smart phone activation will come with a boost in monthly revenue, from data access, of $20 to $40 a month.

But different retail packaging likely will play a key role. New shared data plans offered by AT&T and Verizon Wireless are intended to lift overall revenues while creating a usage-based data revenue model, while encouraging users to add tablets to their accounts for mobile broadband access.

What remains unclear is the extent of demand for such plans. Some think the entire industry eventually will move in that direction, as was the case with some earlier packaging innovations, including the mobile industry's abolition of domestic long distance with AT&T's Digital One Rate, or the adoption of family plans for domestic voice and texting.

But that is far from a universal view. T-Mobile USA, for example, has argued that the plans are not advantageous for consumers. And there are many subtleties. Most believe that the new plans primarily will encourage smart phone adoption, and secondarily tablet mobile connections.

Some of us might argue it is possible that the big secondary effect will be to lift personal mobile hotspot service sales, not the additional mobile network connections for tablets. The reason is that a personal mobile hotspot capability solves the same problem as a paid mobile connection for a tablet, and also has additional value.

When the personal hotspot capability is provided by the smart phone, there is no need to carry another device, such as a dongle or discrete hotspot device. Also, the personal hotspot conveniently can connect multiple devices, where a dongle connects only one device.

But that isn’t the only potential way data revenues might grow. As the number of devices with mobile network modems increases, so will the number of instances where it makes sense to have mobile network broadband.

The issue is whether that also will lead to demand for multi-device data rate plans, as Gartner believes.

The disagreement about adoption probably will not be decided, one way or the other, for some time. The reason is that the current structure of the shared data plans does not offer significantly better economics for users, compared to what they already can buy.

There are some marginal advantages and inducements to add tablet devices, for example, but the price advantage might not be so obvious to most users, or valuable.

But Gartner believes multi-device rate plans will be a key driving factor in the expansion of U.S. data revenue from $81.4 billion in 2011 to $151.9 billion in 2016.

Voice represents something on the order of 72 percent percent of total mobile service provider revenue, according to ABI Research estimates.

Messaging represents about 21 percent of total revenue, so declining messaging revenue is less a problem than lost voice revenue. 

Mobile Internet revenue still is growing, in every market, so there is more time to react to the eventual maturation of that market, which at the moment only represents about six percent of total mobile service provider revenue globally, by ABI Research estimates.


The rate of mobile data revenue growth is important  because voice revenues are declining. ABI Research also forecasts annual mobile voice revenues to reach $580 billion in 2010.

From 2011 on, rising subscriber saturation will increasingly erode mobile voice revenues, not just in developed markets but also in a number of emerging markets. By 2014, mobile voice revenues will have contracted by 9.6 percent.

While mobile operators have received a substantial boost from value-added services such as messaging and mobile Internet, competition is squeezing margins for a variety of services and carriers. Total mobile data services should generate $169 million in 2009 and will grow at a compound annual growth rate of nine percent until 2014.

By the end of 2009 the declines in annual average revenue per user (ARPU) will have been felt most severely in Asia-Pacific (-8.7% to $105) and Africa (-7.8% to $134). ARPU in 2009 in North America will have contracted, but only by -0.6% to $526).

All that means mobile service providers will have to work to resist voice revenue erosion while simultaneously growing data revenues.

Dunkin Donuts Launches Own Mobile Payment App

Dunkin’ Donuts has launched its first-ever mobile application for payment and gifting for iPhone, iPod touch and Android smartphones. With the new Dunkin’ App, paying for food, beverages, and merchandise at Dunkin’ Donuts restaurants throughout the U.S. is as simple and speedy as scanning a smart phone using a mobile Dunkin' Donuts Card in-store or at the drive-through, according to Mobile Commerce. 

The "mGift" feature also allows users to send virtual gift cards using text message, email, and Facebook Connect.

Consumers Not So Hot on Network Connected Tablets, Apparently

According to Engadget, AT&T has ended its subsidies for tablets sold with mobile data plans. You can make your own decisions about why the program is ending, but there might be a parallel with the earlier carrier experiments with subsidized netbooks. 

You might argue the value-price relationship is not perceived as adequate. You might argue that with pervasive Wi-Fi, people don't quite so often "need" a network-provided data plan. You might argue people prefer devices other than the ones AT&T had been offering. 

You can argue all of those could be reasons for lukewarm customer interest. You might also argue that AT&T doesn't want to incur the financing cost. 

Whatever your choice of reasons, there still does not seem to be a big move by consumers to pay for tablet mobile connections, even though some predict that will happen. Wi-Fi-only devices typically outsell units equipped for 3G access, for example. 

The ratio of Wi-Fi-only tablets tablet sales with carrier network connections, for example, is highly skewed to Wi-Fi-only devices. 

Consumers appear to avoid getting tablet mobile service plans, preferring to run tablets on Wi-Fi networks. 

With nearly 50 million tablets in the U.S. market, carrier-networked devices constitute roughly eight percent of the total. 

Barclays Expands ‘Pingit’ Service to Africa

Barclays has launched an international version of its "Pingit" mobile person to person payments system  in Kenya.

Barclays launched Pingit in February 2012 for its 11.9 million current account customers, who download the bank's Pingit app to their smart phone and can make instant money transfers to anyone with a U.K.-based mobile phone and a current account with any U.K. bank.

In the U.K. market, the app works on Apple iPhones, Blackberry and Android devices. Users call the recipient's mobile number using the Pingit app, key in an amount between £1 and £300 and hit send. The money is moved between the two current accounts using the Faster Payments service, and takes as little as 30 seconds.

Barclays plans to launch launch the mobile-to-mobile service in Kenya, adding service to a number of other African countries, including South Africa, later in 2012. 

Barclays also will launch in Spain, Italy, Portugal and France in 2013.

The bank estimates the service, which will be available to customers and non-customers, will reduce the cost of sending money to Africa by at least half. 

Barclays will charge a commission on the currency exchange but no fee to use the service. 

That suggests a £100 transfer will cost less than £3. Traditional money transfer providers typically charge both a fee and a spread on currency, which could mean a £5-£10 charge on a £100 transfer.

FaceTime Now a Reason to Buy AT&T "Mobile Share"

The large mobile service providers are not without significant persuasive tools where it comes to inducing customers to buy important new service plans that protect legacy voice and messaging revenues while tying mobile bandwidth consumption to retail prices.

One of those tools is use of Apple's FaceTime video calling feature. AT&T has announced it will limit how iPhone users can use FaceTime over AT&T's 3G and 4G networks when Apple's new iOS 6 software launches.

Users will not be able to use FaceTime over 3G or 4G unless they sign up for one of AT&T's new shared data plans. Users with an individual data plan will only be able to use FaceTime over Wi-Fi.

One suspects both Verizon and AT&T will have to do much more before usage of the new plans really becomes the norm. Right now the actual savings for switching to the new plans are fairly subtle, and therefore not so compelling.

More value will be needed, ultimately, and that probably will include a much clearer value-price relationship. Right now, a rational consumer would be hard pressed to identify significant savings or clear additional value.

Telco Reinvention Trend Requires Enough Capital to Buy Way Into New Markets

Telco and cable revenue trends in the U.S. market continue to  illustrate a fundamental principle some of us believe is foundational for both telcos and cable companies working in developed markets.

And that fundamental reality is that any service provider in a developed market must plan for a business environment where perhaps half of all current revenue has to be replaced by new sources over about a 10-year period. The corollary is that that rate of adaptation might have to be conducted more than once.

That might sound like a radical assumption, but it is precisely what happened in the U.S. service provider market when long distance revenues, which had driven industry profit, began a long descent. In 1997, long distance still represented about half of all industry revenues. But a decade later, mobile revenue had taken the place once held by long distance, representing in 2007 nearly half of U.S. communications service provider revenues.

Keep in mind that this “rule” applies most directly to service providers in developed markets. In developing regions, where service uptake still is growing, those challenges will take longer to develop.

The most-recent quarterly earnings report from Comcast shows the same sort of trend in the U.S. cable industry, where video revenues have shrunk to about 52 percent of total Comcast “cable operations” revenue , while other services now contribute 48 percent, and are growing.

In fact, including the NBC Universal contributions, it already is true that Comcast earns less than half its total revenue from cable TV distribution. In fact, cable TV video distribution operations now account for only 33 percent of total Comcast revenue.

That’s an example of the same process: the need for suppliers in competitive and mature markets to replace large amounts of revenue from lost legacy revenues.

Telcos already have been through one such transformation, as overall revenue now has shifted from “long distance” to wireless, at least for the tier one U.S. providers. The next set of transitions will see the revenue contributions from mobile voice and text messaging dwindle in favor of new sources.

There is an important caveat: it is much easier for a large service provider to make these sorts of transitions, than for a small provider to make such a fundamental transition.

There are examples of former “rural” telcos repositioning them as business service providers. Windstream and Frontier Communications provide obvious examples.

Warwick Valley Telephone Company, for example, calls itself a “cloud communications” company.  It might be more accurate to say “unified communications” revenues, but cloud or unified communications revenues were $3.3 million in the second quarter of 2012, an increase of 169 percent from $1.2 million in prior year period, against total revenues of $6.9 million, WVT says. In other words, “cloud computing” revenues now were about 47 percent of total revenues, in the second quarter.

The increase in revenues of over $1 million is primarily attributable to the consolidation of financial results for the acquisition of Alteva and organic unified communications services revenue growth, partially offset by a decline of nearly $1 million in “telephone segment” revenues, the company says.

That’s important because the results were achieved by a major acquisition. “As a percentage of consolidated revenue, the UC segment contributed 47 percent of revenues in the second quarter as compared with 21 percent in the same period of the prior year and 46 percent in the first quarter of 2012,” WVT says.

The “Telephone” segment contributed 53 percent of revenues in the second quarter of 2012 as compared with 79 percent in the second quarter of 2011 and 54 percent in the first quarter of 2012.

The point is that some service providers will be able to dramatically recast themselves by making strategic acquisitions.

Tier one service providers are moving away from primary reliance on voice services, towards wireless data, video and other services and products. Cable operators are shifting to business voice and data services, and away from entertainment video. And smaller rural telcos are becoming business services specialists.

Hard to Calculate Total Cost of Ownership, Return on Agility

"In the many meetings with customers in which I have done a deep dive on their architecture and applications to help them create an accurate cost picture, I have observed two common patterns: 1) It is hard for customers to come to an accurate Total Cost of Ownership (TCO)  calculation of an on-premise installation and 2) they struggle with how to account for the “Return on Agility”; the fact that they are now able to pursue business opportunities much faster at much lower costs points than before," says Werner Vogels, Amazon CTO.

Amazon's TCO white paper attempts to quantify the return.

Capacity vs. Usage Comparison