How Much Can Consumer Communications Spending Grow?

How much can consumer spending on communications, including mobility services, broadband and other services continue to grow, as a percentage of total household spending? The answer to that question could well determine the health of the global telecom business.

And there are clear indications that household spending on a range of communications services and appliances has been growing over the past couple of decades. In fact, a spending rate below three percent was the norm until the recent Internet and mobile era.

In part, you might argue, that is logical. People now are buying multiple services (broadband access, video entertainment, mobile telephone service, fixed telephone service) where in the past they were only buying a single service, namely fixed network telephone service.

There also are some indications that overall spending on devices and services is reaching unprecedented levels.

U.K. household spending on communications, broadly defined, are as high as 12 percent of total household spending, the U.K. government says.  That figure seems unprecedented and out of line with historic percentages in most markets. If such levels can be reached, then there is room for overall spending on devices and services to more than double.

In the U.S. market,  household communications and information technology spending has recently been in the five percent of spending range. That includes both “communications” subscriptions and devices such as computers and other “office” technology.

And there are clear indications that consumers are spending a greater percentage of their disposable income on mobile services, in particular. Even there, though, there are nuances. People surveyed on behalf of the Cisco nternet Business Solutions Group seem to find mobile broadband a discretionary item. 

Cisco Internet Business Solutions Group found that despite consumers’ fondness for smart phones, they do not prioritize their mobile data spending accordingly. 

Most consumers in all countries surveyed would cut mobile data services first or second if they needed to reduce their household communication and entertainment expenditures.

Why haven’t consumers adapted their spending priorities to favor mobile data? Possibly because when consumers do use their smart phones for data access, the research shows that about 80 percent of mobile Internet activity is not truly mobile, but nomadic. 

That has potential implications. In future recessions, might consumers try to save money by cutting back on mobile data, in addition to subscription video and fixed network voice service? The data suggests there is a possibility of such behavior, as fixed network broadband and mobile voice are the most-important services. That suggests the last services to be cut would be fixed broadband access and mobile voice.

U.S. consumer spending on phone services rose more than four percent in 2011, the fastest rate since 2005, according to Department of Labor statistics.

And mobility now drives much of that spending. In fact, families with more than one smart phone sometimes pay more for mobile service than they pay for cable TV and home Internet access.

The longer term issue is how much more spending can grow, as a percentage of total household spending. The question assumed more importance recently during the Great Recession of 2008, but is an on-going question in light of robust consumer adoption of smart phones and tablets, for example. In principle, widespread use of those devices could change spending on communications.

Though surveys taken in 2009 and 2010 seem to indicate that consumers were cutting back on communications and multi-channel video entertainment spending, other data from the Bureau of Economic Analysis suggests that did not happen; in fact, such spending increased between the start of 2008 and the middle of 2010, for example.

Since the recession started in the fourth quarter of 2007, U.S. consumers have apparently been cutting back on their spending. But Bureau of Economic Analysis data suggests that consumers have been cutting more in some areas than others, and actually have increased spending on many communications services.

BEA show aggregate personal consumption expenditures were up 2.9 percent, or $285 billion, between the fourth quarter of 2007 and the end of the second quarter of 2010, for example.

Mobile device spending was up almost 17 percent since the fourth quarter of 2007. And spending on communications and multi-channel video services was up by five percent.

Verizon Mobility-as-a-Service Shows Evolution of Channel

Verizon's cloud-based enterprise "Mobility-as-a-Service" now aims to offer mid-market and enterprise information technology managers a new way of adapting to the "consumerization of information technology" trend that has large numbers of people bringing their own devices and apps to work. 

Verizon's Mobility-as-a-Service also illustrates another change in the business information technology business, namely a shift of value within the channel partner space. In past decades, IT channel partners mostly made their money selling hardware and then fixing gear that broke. These days, that is a tougher proposition, and future success requires a shift to "value-added" activities. 


In March 2001, for example, Cisco changed its compensation to channel partners in ways that shifted from “volume” of sales to a “value” model. Under the new system, partners were rewarded for identifying opportunities for channel value-add; creating channel programs to enable channel value-ad and tying financial rewards to value-add channel activities.

That focus on "value add" arguably also applies in the traditional telecom channel partner space as well, one might argue. A shift in how technology is purchases also is a new factor. 

Some 90 percent of executives report their employees use their own devices and apps at work. That means there are new needs to protect sensitive data on both corporate-issued and employee-owned devices.

The new Verizon service will mean administrators can lock tablet, smart phone and PC devices, control them remotely, and wipe them of sensitive corporate data.

Additionally, Verizon's Mobility-as-a-Service, licensing on a per-user (rather than per-device basis), will include advanced Wi-Fi offload access so customers will be able to connect to more than 500,000 wireless hotspots around the world, provide corporate Wi-Fi directories across devices and use network data remotely.

Some might argue that services such as "Mobility-as-a-Service" allow Verizon and its channel partners to offer business customers a higher value service, something many believe the future channel will require. 

Cloud Computing Barriers in Europe are Not Just "Technical"

The fear of a US-owned cloud company turning over personal data of a European citizen to U.S. authorities, plus a less positive view of outsourcing in general, are retarding the growth of cloud computing in Europe, according to Christian Echeyne, director of IT infrastructure technologies and engineering for Orange Business Services. 

Of course, some might simply argue that U.S. cloud computing adoption also lags behind Asia-Pacific and Latin America adoption as well. 

AT&T Rural Access Lines Illustrate Problem

It isn't yet clear what AT&T will conclude about its rural network holdings, in particular the issue of whether to invest in faster broadband capabilities, or sell the assets. It's a hard question since there are few, if any, potential buyers at the moment. AT&T is slated to announce its decision about rural assets in November 2012, so we should know fairly soon.

Fitch Ratings notes that AT&T has suggested it is considering various technologies — both wireline and wireless — to increase available broadband speeds in rural markets. But AT&T also has said a sale or restructuring of those assets would be considered.

But buyers do not seem available. Firms such as CenturyLink, Windstream and Frontier Communications still are digesting large earlier acquisitions, and are not viewed as able to bid for such assets at the moment. 

AT&T could essentially "do nothing," and allow market share for high-speed access to gradually shift to cable competitors. That essentially would lead to a dwindling revenue base, and a diminished equity value for those assets, but some might argue sale or harvesting strategies are the most logical, given the minimal revenue upside from a major upgrade cycle in rural fixed networks, compared to investment in mobile networks. 

In essence, that illustrates a broader business problem. It increasingly is difficult to earn a reasonable financial return from rural fixed network assets, in part because of competition from cable TV operators, satellite providers, terrestrial wireless firms and other telcos. 

How Big an Impact Will RCS Have?

“Rich Communications Suite” is one mobile service provider answer to the question of how carriers can compete with “over the top” messaging.

Juniper Research forecasts that RCS will support 83 billion messages each year in five years’ time. That still will be less than one percent of total messaging traffic in 2017, though.

Text messsaging (short message service, or SMS), instant messaging, social messaging and email will represent the vast majority of messages.

Juniper Research points out that it took about 30 years for text messaging to reach its current ubiquity, so RCS should not be expected to displace the older alternatives too quickly.

Mobile messaging traffic will nearly double from 14.7 trillion each year in 2012 to 28.2 trillion by 2017, Juniper Research also predicts. 

For Retailers, Mobile Strategy is Not Easy

"What to do about mobile" is no easy question for most retailers to answer. There is widespread agreement that consumers of business and consumer products and services use their mobile devices to conduct research, and increasingly, to make purchases.

Some 86 percent of Apple iOS device owners research products and services on their mobile phone and 69 percent make purchases, compared with 76 percent  and 53 percent, respectively, for Android users, 57 percent and 35 percent  for BlackBerry users, and 47 percent and 32 percent for Windows users, respectively,  according to a Forrester Research survey of more than 53,400 North American respondents.

But Forrester Research analyst Julie A. Ask points out that the majority of firms have less than $500,000 to spend annually on mobile services, barely enough for a simple app and mobile-optimized website. "A few years from now, it will take millions, if not tens of millions, and years to catch up,  if they even can," says Ask.

76% of U.K. Enterprises Will Adopt Mobile Apps

About 76 percent of polled U.K. information technology managers plan to adopt mobile apps for business within the next year, according to  Integralis, which surveyed 300 U.K. IT decision makers in enterprises.

About 58 percent say they will adopt apps such as email, calendars and contact management tools in the next twelve months. 

Communication apps, such as Webex Skype and iCloud are likely to be adopted by 44 percent of respondents. Some 39 percent  of respondents planning to offer access to Internal apps for functions such as updating leave calendars. 

Collaboration tools such as Dropbox and Sharepoint will be deployed by about 35 percent of surveyed executives.

In the coming 12 months, 30 percent of respondents also expect to purchase core mobile business applications. 

The 25 to 44 age group is much keener than respondents 45 years and older to embrace use of mobile apps. 

Those trends are partly a reflection of growing use of smart phones, growing availability of cloud-hosted and delivered applications and also growing use of personal devices at work. Over time, those changes will affect the fortunes of current and new distributors of business apps and services.

When smart phones are the lead device, when apps can be accessed from any computing device with an Internet connection and when the purchase and installation of such software is about as simple as clicking on an icon, the business of distributing apps will change.