As Much Bandwidth as You Need, Not "Want," is Key

In many cases, a fascination with broadband “speed,” however valuable, does not really measure total value as perceived by the user of the Internet access service. Mobile connections, for example, are slower than fixed connections. But mobility adds so much value that the slower speeds are outweighed by the virtue of “anywhere” access.

And it is hard to dismiss the value of low-speed text messaging or even dial-up access services in many parts of the developing world. Likewise, evaluating the importance or use of broadband is more complicated than simply measuring speed or even price per megabyte consumed.

These days, a majority of all broadband access now uses a mobile connection, and broadband increasingly is becoming something a “person” uses, not a “place.” And that’s important. One might argue that, despite the growing importance of video features and applications, much of the value of mobile broadband comes from use of lower-speed services and applications. 

Even though there is an order of magnitude, or perhaps even two orders of magnitude difference between Google Fiber, running at 1 Gbps, and a mobile broadband connection, the actual end user experience might be all that different.

In fact, mobile broadband seems to have surpassed fixed broadband in 2008. By the end of 2010, there were over twice as many mobile broadband as wireline broadband subscriptions, according to the Broadband Strategies handbook.

The point is that a narrow concentration on access speed probably does not capture the magnitude of value of such connections.

Wireless broadband is already more prevalent than wireline broadband, virtually everywhere. The number of wireless broadband subscriptions in Africa, for example, is more than four times that of wireline.

Europe’s wireless broadband penetration is nearly double the wireline penetration rate at 26 percent and 54 percent, respectively.

This suggests the potential for wireless broadband in areas where traditional wireline infrastructure may be absent, as well as in areas with substantial wireline build-out.

"Fiber to where you can make money" is one humorous way of analyzing how close to the home a fiber access network should be built. In a similar way, consumers will evaluate access speed in relationship to what it is they have to do, where they are, what apps and devices they are using, which networks they can use, and what use of those networks costs, incrementally. 

Is "Carrier of Last Resort" History? Give it A Few Years

Is it is possible AT&T and Verizon might be allowed by the Federal Communications Commission to stop serving customers in some rural areas, essentially abandoning their role as “carriers of last resort?”

The thought isn’t crazy. “Over the next five years, AT&T and Verizon will abandon some areas,” says Kent Larsen, CHR Solutions SVP. The reason is simply that executives no longer see a path to providing service that can earn a profit in some of their rural serving areas.

Neither do many investment analysts who study telco, cable or mobile industries. “The smart money left in 2006,” analysts say, according to Larsen.

It is likely AT&T and Verizon would only be allowed to do so if Long Term Evolution mobile service is available, and both firms could sell a fixed version of that service to customers in areas where landline service is terminated.

Still, the notion that the original bargain--”we give you a monopoly and in return you provide universal voice service”--no longer makes sense in a world of IP networks has merit. 

In most areas, even rural areas, there are two to five potential providers of broadband (A telco, a cable company, one or two satellite providers and often a fixed broadband provider.
And these days, if you can get broadband, you have voice.

Under those conditions, some will make the argument that a “carrier of last resort” obligation, particularly an obligation that applies only to one of the multiple providers, is just silly.

For clues as to what might happen, we all have to follow what the FCC is doing and saying about a transition to an all-IP network, with a shutdown of the legacy time division multiplex network. And there is a good reason the FCC is looking at such a change.

The IP transition for the whole U.S. communications business is getting new attention as the Federal Communications Commission launches a new effort to plan for an end to the time division multiplex “public switched telephone network.”

"The Technology Transitions Policy Task Force will play a critical role in answering the fundamental policy question for communications in the 21st century: In a broadband world, how can we best ensure that our nation's communications policies continue to drive a virtuous cycle of innovation and investment, promote competition, and protect consumers?" said FCC Chairman Julius Genachowski.

Dwindling use of the PSTN is driving the new attention.

The Federal Communications Commission Technology Advisory Council thinks U.S. time division multiplex fixed consumer access lines could dip to perhaps 20 million units by about 2018. At one time there were about 175 million access lines in service.

Others, such as Larsen, think lines overall could dip to about 50 million over the next five years, then to about 40 million on a long term and somewhat stable basis.

The TAC forecast might be tempered by its omission of business lines or perhaps voice lines provided over broadband connections. But the general direction, if not magnitude, are hard to argue with.

Access lines in use are declining. A peak seems to have occurred sometime between 1999 and 2001, in the U.S. market. Mobile lines leapt into leadership shortly thereafter.

Lots of potential changes could come with the IP transition. An end to traditional thinking about “carriers of last resort” and universal service obligations are just two of those changes.

Why Service Providers "Love" International Mobile Roaming

If there is anything constant in the communications business, it is that very-high prices will create incentives for new entrants to offer lower prices, and for regulators to act to lower prices. 

That is happening in the international roaming area, with respect both to voice calls and use of data networks, and for good reason: prices really are quite high. In Europe, wholesale rates for data roaming are dropping by regulatory action. 

Xigo illustrates the issue. 

Eurotariff maximum roaming charge per minute in Euros (without VAT)

Eurotariff maximum price while abroad	Making a call	Receiving a call	Sending an SMS	Receiving an SMS	Mobile Internet
Summer 2009	43 cents	19 cents	11 cents	free	-
Summer 2010	39 cents	15 cents	11 cents	free	-
Summer 2011	35 cents	11 cents	11 cents	free	-
Summer 2012	29 cents	8 cents	9 cents	free	70 cents/MB*

by NowSourcing. Check out our data visualization blog.

Sprint Buys Clearwire

Sprint Nextel Corp. has acquired the remainder of Clearwire Corp. it did not currently own for $2.97 a share.

Clearwire's board of directors has approved the deal, and Sprint has gotten commitments from Comcast, Intel Corp. and Bright House Networks in support of the deal, as well.

The $2.2 billion purchase values Clearwire at $10 billion, including net debt and spectrum lease obligations of $5.5 billion.

The deal removes one national mobile service provider from the U.S. market, and gives Sprint the full management control of Clearwire it will need if, as expected, Sprint launches some sort of new attack on industry pricing and packaging, something Softbank has indicated it will do in the U.S. market, as it has done in the Japanese market.

Data services are likely to be the focal point for any such effort, for obvious reasons. Voice and messaging services are a declining source of revenue for most providers, and Softbank attacked the Japanese market by disrupting data service plans. Softbank Japan already earns perhaps 66 percent of its revenue from data services.

Softbank does not view the U.S. market as saturated, in that respect. Aside from rapidly growing data service revenues, there is the possibility of enticing consumers to buy subscriptions for tablets and other devices.

That is the thinking behind claims that mobile data penetration of three hundred to five hundred percent is conceivable, a claim Verizon Wireless itself made years ago, referring to machine-to-machine services as an example.

In 2006, when Softbank decided to buy Vodafone KK assets, it likewise was criticized in some quarters for undertaking a risky gambit.

Some will argue Softbank is taking another huge risk by entering a country where iit has no previous operating experience, and by assuming a huge new debt load, after only recently shedding a similar debt load.

Softbank argues it is a reasonable risk, and that its prior experience taking on NTT Docomo and KDDI show it can compete in a market dominated by larger service providers.

Softbank, many believe, will use the same strategy it used in Japan, which some would describe as providing a large number of complementary features or services to create a “sticky” relationship with the end user.

Others will point to the pricing strategy. In Japan, Softbank’s 2006 acquisition of the Vodafone unit was not universally considered wise.

But in just one year, Softbank managed to boost its subscriber base from 700,000 in fiscal 2006 to 2.7 million. By the beginning of 2008, Softbank had grabbed 44 percent of Japan’s new mobile subscribers, well ahead of KDDI’s 35 percent and NTT-DoCoMo’s 11 percent.

Some think Softbank will be willing to launch a price war, as well.

In Japan, Softbank was willing to sacrifice voice average revenue per unit to make market share gains.Back in the 2006 to 2008 period, Softbank was willing to accept a $13 a month ARPU decline to build market share.

Spectrum will among the assets Softbank will be able to leverage. Hence the presumed need for full control of Clearwire.

It already is clear that Softbank has vaulted into the top ranks of global mobile service providers,measured either by subscribers or revenue.

There are growing signs that the U.S. mobile service provider market is unstable, in terms of market structure, though it remains unclear precisely which segments might fare the worst.

Some would point to the whole prepaid segment as one example, while others would say the smaller regional providers are most at risk. Some might argue it is the other national carriers most at risk, should Sprint succeed in attacking market pricing.

"What is clear for now, in our view, is that the current strategy, indeed the entire current business, isn't working," said Craig Moffett, an analyst at Sanford C. Bernstein. Moffett seems to be referring to the regional U.S. wireless carriers.

Others might argue that the financial stresses resemble the earlier transition from dial-up Internet access to broadband access. In this case, the transition is from feature phone to smart phone business models.

In that earlier transition from dial-up to broadband access, many suppliers found they no longer could compete in the broadband business. The reason was that dial-up Internet access was an “app” using the subscriber’s existing phone line. That meant suppliers did not have to pay to use the line.

With the advent of broadband, customers had to buy the new access service, and dial-up economics ceased to be viable, as would-be broadband suppliers had to lease wholesale lines, or build their own networks,  to provide the retail service.

Now, in mobile, it appears that the cost of supporting handset subsidies is pinching operating revenue, while the cost of building fourth generation networks likewise will hit earnings.

The immediate stress is heavy for the regional mobile providers, often using prepaid models, since the cost of handset subsidies now becomes a major operating expense.

Regional or prepaid service providers clearly have had a tougher 2012 than had been the case in the mid-2000s, for example. Leap hasn't been profitable since 2005, for example. MetroPCS profits dropped 63 percent during the first quarter of 2012.

A study undertaken by Tellabs suggests that mobile service provider profitability could become extremely challenging for some mobile operators within three years, with costs surpass revenues for many operators.

In North America that could happen by the fourth quarter of 2013 or as early as Q1 2013. Developed Asia Pacific service providers could see problems by the third quarter of 2014. In some cases this could happen as early as Q3 2013, Tellabs said.

Service providers in Western Europe could run into trouble by the first quarter of 2015. In some cases this could happen as early as the first quarter of 2014.

On the other hand, new supply is poised to come to market, including Dish Network’s proposed new Long Term Evolution network, and possible new networks from Globalstar or LightSquared, which could provide more support for mobile virtual network operators.

The point is that the U.S. mobile market is entering a period of greater instability and potential disruption.

What If They Hold a 4G Auction and Nobody Bids?

Australia's minimum prices for new spectrum to be auctioned are too high, and some bidders already are saying they won't be bidding bidding.

The Australian Communications and Media Authority has set the reserve price for 700 MHz spectrum at $1.36 per megahertz (MHz) per population. 

Vodafone and Telstra say they won't bid at those prices. Optus says the minimum price is too high.
3G
Auctions held recently in the Netherlands saw prices higher than anticipated, which as service providers worried a ruinous bidding war could result. That was a near-disaster when the same thing happened during 3G auctions.  

European mobile phone companies spent $129 billion six years ago to buy 3G licenses  that were expected to trigger new revenue-generating services. As recently as 2006, though, that had not proven to be the case. 

Service providers cannot afford to make that mistake again. 

The 3% Rule for Pricing Broadband Access Services, Anywhere

Why are broadband access prices so different, around the world? There's a simple answer, actually: retail prices are directly related to cost of construction in each market, and also substantially directly related to median household income.

You might think "things cost what they cost," and that is true, but what things cost varies from place to place

Recent studies published by ITU reveal that broadband penetration is directly related to its cost,  relative to an average family income, as well as to the availability of products and services that accommodate the general population’s purchasing ability.

That also explains why high speed access costs vary rather broadly from country to country. Areas where it costs more to create the infrastructure will tend to be more expensive, at the retail level. Areas where it costs less to create networks will correlate with lower retail costs.

For example, as the annual cost of broadband drops below three percent of a family’s annual income, broadband usage begins to increase dramatically.

For developed countries, this relative cost has already been achieved, but for at least 34 countries worldwide, the cost of broadband remains higher than the average annual family income, the ITU says.

But that’s an important bit of retail pricing advice for would-be ISPs in developing regions: set monthly prices no higher than three percent of median household income.

And prices are falling, globally.Between 2008 and 2009, 125 countries saw reductions in access prices, some by as much as 80 percent, the ITU says.  Between 2009 and 2011, for example, prices for fixed broadband have dropped by 52.2 percent on average and mobile broadband prices by 22 percent, globally.

Affordable broadband programs are starting to emerge in countries such as Sri Lanka and India, with service providers offering connectivity solutions starting as low as US$2 per month.

And while it is natural for a seller to want higher prices, for Internet access providers, less is more, in the sense of keeping at or below the “three percent of median household income” rule for retail pricing.

The trade-off is lower average revenue per user, but many more users. So where median high speed access costs in developed regions might run about $30 a month, in the BRIC+TIM areas costs might be $18 a month.

Somewhere between $2 and $9 a month would reach another billion or so households in a number of regions and countries. In the poorest nations, prepaid plans costing less than $2 a month will be needed.

Brazil, Russia, India, China, Turkey, Indonesia, and Mexico (BRIC+TIM countries), for example, could grow their available market by 860 million people by reducing the cost of entry for broadband by about 50 percent..

In 2011, the price of fixed broadband access cost less than two percent of average monthly income in 49 economies in the world, mostly in the industrialized world.

Meanwhile, broadband access cost more than half of average national income in 30 economies.  In 19 of the lesser developed countries, the price of broadband exceeds average monthly income.

By 2011, there were 48 developing economies where entry-level broadband access cost less than five percent of average monthly income, up from just 35 countries the year before.

To take the example of Kenya, family income levels mean that only about seven percent of the population can afford a service that offers uncapped monthly broadband access for US$20 per month. A prepaid broadband access service capped at 200 MB of data for US$5, however, could be within the reach of more than 60 percent of the Kenyan population.

Safaricom, the largest Internet service provider in Kenya, launched a segmented prepaid broadband offer in the end of 2009 targeted at different income levels.


There were 589 million fixed broadband subscriptions by the end of 2011 (most of which were located in the developed world), but nearly twice as many mobile broadband subscriptions at 1.09 billion, the ITU says.

Beyond that, since trenches, ducts and dark fiber represent as much as 70 percent of total cost to build a broadband network, the wisdom of using wireless is obvious. Wireless attacks that part of the effort consuming up to 70 percent of capital investment.

How Many Voice Lines in Use by 2018?

The Federal Communications Commission Technology Advisory Council thinks U.S. time division multiplex fixed consumer access lines could dip to perhaps 20 million units by about 2018.

Others, such as Kent Larsen, CHR Solutions SVP, think lines overall could dip to about 50 million over the next five years, then to about 40 million on a long term and somewhat stable basis.

The TAC forecast might be tempered by its omission of business lines or perhaps voice lines provided over broadband connections. But the general direction, if not magnitude, are hard to argue with.

Access lines in use are declining. A peak seems to have occurred sometime between 1999 and 2001, in the U.S. market. Mobile lines grabbed leadership, in terms of lines in use, shortly thereafter.