Sprint Rules Out Use of Huawei

Sprint Nextel CEO Dan Hesse says Sprint Nextel would avoid using network equipment made by Huawei, in deference to concerns expressed by some in the U.S. Congress about potential security issues. 

"Sprint is a big supplier to the U.S. government and that aside, I wouldn't put in any equipment that would raise any security concerns," Hesse said. 

As the Sprint/Softbank deal moves forward in the regulatory approval process, some might suggest that Softbank's use of Huawei as an equipment supplier could draw objections. Sprint obviously will want to avoid that potential issue. 

Are Price Controls Good for Broadband?

The Federal Communications Commission recently has started looking at re-regulating special access tariffs, possibly leading to new price controls for those products. To be sure, buyers of special access might like that. Sellers will not. To be sure, special access is a business-to-business product. But some would say pressures have been mounting in the consumer services arena as well.

Objections to usage caps and metered consumption provide examples of what some call . “inherently anti-consumer” or “anticompetitive” practices.

Actually,  “by aligning costs more closely with use, usage-based pricing may effectively shift more network costs onto those consumers who use the network the most,” argues Daniel A. Lyons in  “The Impact of Data Caps and Other Forms of Usage-Based Pricing for Broadband Access,” Lyons, an assistant professor of law at Boston College Law School, argues that a return to price controls for communications would be monumentally misguided.

Data caps and usage-based pricing are forms of what economists refer to as “price discrimination, that term being used in an objective sense of “difference, not invidious difference.”

Price discrimination is a mainstay of the travel industry, where airlines and hotels know some potential customers will pay more, while some can be enticed to spend only if prices are lower. Price discrimination is the process of charging different prices to different customers.

At first blush, it  sounds wrong. But it is really a concept at the heart of value-based pricing. For example, travellers who won’t endure an overnight Saturday stay are presumed to be travelling on business, charging the ticket to someone else, and therefore are less price-sensitive. So itineraries with Saturday stays are often much cheaper than those without.

Although viewed with suspicion by some policymakers and regulatory-minded academics and activists, price discrimination is widely recognized to improve consumer welfare by calibrating supply and demand, Lyons says.

Price-differentiated and prioritized services also are seen in prioritized shipping services, amusement park passes, and fuel and energy pricing. Economists agree that price discrimination represents a sensible way to calibrate supply and demand while ensuring the fixed costs of doing business get covered.

The Mercatus-published study argues that consumers benefit from such pricing because they have more options.

But service providers also gain more certainty about investment and service decisions. When such pricing practices become annoying to some consumers and they show a clear desire for alternatives, it sends a signal to rivals to offer a differentiated service.

With a high fixed cost problem to deal with, it is unsurprising that broadband providers have started experimenting with new pricing methods to balance the exploding demand for Internet services with the need to cover ongoing network investment.

“If we want to reap the benefits of new and innovative tech products, we must be prepared to accept price discrimination at least some of the time,” says researcher Eli Dourado of the Mercatus Center.

“There are products that are viable with price discrimination that are not viable without it—and if we ban price discrimination like some people thoughtlessly advocate, we won’t get them,” says Dourado.

This is precisely why experimentation with different pricing methods and business models must be allowed to continue if we hope to ensure ongoing investment in new networks and better services, under circumstances where the government simply cannot finance the networks.

Christopher Yoo argues that “private corporations cannot be expected to undertake such investments unless they have a reasonable prospect of recovering their upfront costs from consumers who are using the increased bandwidth and other enhancements to the existing network.”

Yoo points out that price discrimination can help solve this problem, primarily by ensuring that heavier users cover the costs they impose on networks.

Sandvine estimated last year that the heaviest one percent of downstream users account for 15.2 percent of total North American fixed downstream broadband traffic, while the heaviest one percent  of upstream users account for almost 43 percent of total upstream use. By comparison, the lightest 60 percent of consumers account for only 10% of total North American fixed broadband traffic.

About one percent of mobile data users consume 26.8 percent of upstream usage, while consuming 21.3 percent of downstream mobile traffic. By comparison, the bottom 80 percent of users account for only 10 percent of total traffic combined.

By pricing those users differently than others, costs can be more fairly covered and demand balanced over time. In turn, says Lyons, “usage-based pricing may also make entry-level broadband access more affordable” since providers can offer lower rates to light or low-income users.

Global Mobile Subs are 6.8 Billion, 5.9 Billion or 3.2 Billion, Depending on How You Count

In the fourth quarter of 2012, total mobile connections globally stood at  6.8 billion, including machine-to machine (M2M) accounts, or 5.9 billion excluding M2M and inactive SIM cards, according to GSMA Wireless Intelligence.

The role of users with multiple subscriber identification modules (SIMs) cannot be overestimated. Wireless Intelligence estimates that consumers use an average of 1.85 SIM cards each.

That suggests the actual number of mobile users (not "accounts”) actually is about 3.2 billion, not 6.8 billion or 5.9 billion, other methods of counting might suggest.

Global penetration based on total connections is set to exceed 100 per cent in 2013, with mobile subscriber penetration standing at only 45 per cent by the end of 2012, Wireless Intelligence says.

The study found that future mobile subscriber growth will be driven by demand among currently “unconnected” populations in developing countries, particularly those in rural areas, which the research estimates to be 1.8 billion people throughout the next five years.

By 2017, subscriber penetration in developed countries is set to have passed 80 per cent and growth in these markets is expected to slow. In contrast, subscriber penetration across developing economies is forecast to increase from 39 per cent in 2012 to 47 per cent in 2017, and will be the largest factor spurring the global growth of mobile over the next five years.

Europe has the highest mobile penetration in the world, , with countries such as Denmark, Finland, Germany and the UK already averaging close to 90 per cent subscriber penetration.

Africa currently has the lowest penetration, with only one out of three people in the region subscribing to mobile services in 2012, a figure that is expected to increase to 40 per cent in 2017. In Asia, subscriber penetration stands 40 per cent, and is expected to grow to 49 per cent by 2017.

In China, the world’s largest mobile market, subscriber penetration will grow from 43 per cent to 52 per cent over the next five years.

Wireless Intelligence predicts that the mobile industry will reach the five billion users milestone over the next decade as network expansion continues to progress in developing markets and as people in rural areas, many of whom currently live on less than $2 a day, subscribe to mobile services.

In India, according to figures from the World Bank and Telecom Regulatory Authority of India (TRAI), approximately half a billion people in the country’s rural areas are unconnected to mobile networks, with rural mobile penetration of 39 percent.

"Next-Generation"Pricing Models?

Any number of observers have speculated or argued for "innovative" pricing models for broadband access services, with some arguing for  "value-based" pricing. Some might argue mobile service providers are using Long Term Evolution to shift in that direction. Others might not agree.

Based on a survey of 65 mobile operators offerng LTE services, about half "have used the deployment of LTE as an opportunity to introduce a new form of pricing for mobile broadband services."

The new strategy, which supersedes the earlier unlimited data model, uses download/upload speeds as well as data allowances to differentiate on price, says Wireless Intelligence. 

The speed-based tariffs are most common in Europe, where 90 percent of mobile service providers surveyed offer them. These tariffs are less popular across the Middle East, Asia Pacific and Africa, and least prevalent in North America and Latin America. 

It might be one thing to price access differently, based on speed or size of consumption allowance.   It might be quit another matter to craft plans that are more closely tied to the value of the applications people are using, the value of those activities, the time of day or setting where apps are used.

That service providers have not done more in those areas is partly explained by the challenges of tracking usage and billing based on that usage. But some observers might not think it is quite so "innovative" to bill based on access speed or size of a consumption quota. 

Basically, billing by volume (speed essentially is a volume metric) is not different from the ways electricity or water are billed. Calling that "innovative" is stretching matters, one might argue. 

Bank of America Gets into Deals Business

Some of us would argue that U.S. banks really cannot make incremental revenue from retail mobile payments, for the same reason one could have argued telcos will have a tough time making incremental revenue from VoIP. For starters, banks and telcos already make money from retail payments and voice, so a new way to pay or make calls cannibalizes the older ways of doing things.  

Nor can banks or telcos stop supporting customers using the older tools. They have to add additional channels to support what they already have been doing, without gaining any new revenue. In fact, VoIP typically produces less revenue, and retail payments will follow that same path, over time. 

But there are other angles to mobile commerce, in the marketing services and advertising areas, for example. That, in fact, is precisely the tack Google Wallet and Isis now are taking, focusing on marketing and promotion revenues rather than transaction fees. 

Though it might initially sound far fetched, some of us also have argued that banks will get into advertising and marketing services, because that is a business which could potentially represent incremental revenue, rather than simply another channel to support. 

Now Bank of America proves the point. Bank of America is launching a deals service. The new service, called BankAmeriDeals, will offer discounts awarded in the form of cash payments once a month. 

Customers need not sign up for emailed coupons or check a separate web site, as bargain hunters do with offerings from Groupon Inc and others.


When customers log in to Bank of America's online banking site, they will see discount offers -- a percentage off the amount spent at a retailer -- embedded in their statement and under a separate tab. They can accept the offers they want to use.

When customers make their purchases, they pay full price, but at the beginning of the next month they receive cash back in their accounts. Customers can only use Bank of America debit or credit cards to trigger the savings.

The bank may end up holding money for a period of time in the settlement process, but making money off that float time is not part of the program's "core strategy," Godsman said.
Customers can choose to receive alerts about offers and how much money they have saved. They also can opt out of the service.

BankAmeriDeals differs from coupon services offered by other companies because the discounts are based on past spending habits at specific stores and do not require customers to print out coupons, Godsman said.

The bank is not disclosing participating retailers but said they include large discount department stores, fast food chains and local restaurants.

Sparring Over Softbank, Sprint, Clearwire Begins

AT&T is urging regulators to take a close look at Sprint's recent deals with Softbank and Clearwire, a normal part of business lobbying when a competitor looks to be gaining some advantage in the market. 

AT&T is making a point about a "foreign company" owning a large chunk of the nation's airwaves. Most observers that will not be a factor in regulatory thinking, as Germany's Deutsche Telekom and the United Kingdom's Vodafone already have a large U.S. presence, and therefore "ownership" of U.S. airwaves. 

1/3 of Verizon PostPaid Net Adds Were "Internet" Devices

Among the 1.5 million net adds Verizon Wireless got in the third quarter of 2012, about a third were "Internet devices," including USB modems, jetpacks and postpaid tablets, Verizon says.  Roughly 95 percent of Verizon's postpaid internet device activations were 4G LTE. 

Most observers will attribute that performance to the Verizon "Share Everything" plans, which Verizon says now have been adopted by about 13 percent of its postpaid customer base.