Asia-Pacific Middle Class Growth Will Drive Communications Revenue Growth

Between 2009 and 2020, the amount of consumer spending in the Asia-Pacific region will nearly have doubled, and will represent the largest single regional volume of spending, outstripping Europe, North America, Central and South America and the Middle East and Africa. 

That will have important ramifications for providers of communication apps and services, creating much larger markets than ever have been seen in those regions. 

36% of U.S. Households Might be "Wireless Only"

Some 35.8 percent of U.S. homes did not use or buy fixed network telephone service during the first half of 2012, an increase of 1.8 percent since the second half of 2011, according to the latest survey and report by the Centers for Disease Control. 

In addition, 15.9 percent of U.S. adults received all or almost all calls on wireless phones despite also having a fixed network telephone service.

The only thing that would have been surprising about the latest survey is if the wireless substitution trend had stopped or reversed. CDC does not that the rate of substitution has slowed to 1.8 percent over the first six months of 2012.

CDC says that is the slowest rate of increase since 2008. 

At current rates of change, in about a decade, about 70 percent of U.S. adults would be "wireless only."

As has been the case in earlier CDC studies, four demographic groups primarily account for the "wireless only" preferences. Younger adults aged 25 to 34, adults living only with unrelated adult roommates, adults renting their home, and adults living in poverty are those groups. 

Among households with both landline and wireless telephones, 29.9 percent received all or almost all calls on the wireless telephones between January 2012 and June 2012. These wireless-mostly households make up 15.9 percent of all households, CDC says. 

The shift to mobile forms of voice service also corresponds with a shift of household spending on voice, Internet access and video services. Since 2001, spending priorities have shifted to mobile, Internet and video, as fixed voice spending has dropped, according to Chetan Sharma. 

Researchers at the International Telecommunications Union and Pyramid Research likewise believe the same basic trends will  occur. 

Over the 2000 to 2014 period, fixed voice subscriptions will decline by 50 percent, while mobile subscriptions will grow by 100  percent. 

"Broadband Access" is More Nuanced, These Days

Evaluating use of the Internet and broadband is getting more complicated by the day. For starters, mobile now represents a majority of Internet access activities. And it sometimes is hard to comprehend just how fast that has happened.

Consider that, in the G-20 countries, mobile broadband went from negligible to a majority of all access connections in just five years, between 2005 and 2010, according to Business Insider.

In five more years, in 2015, mobile G-20 Internet connections will be about 80 percent of all connections, Business Insider estimates. That has some clear implications for the way we evaluate “broadband” penetration. For starters, “mobile” access might be more important, more of the time, than fixed modes.

Traditionally, the reason for buying broadband access services was for fast Internet access for some sort of PC, at a fixed location. These days, there are other reasons beyond “PC access,” and many more situations where “mobile broadband” is preferred.

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.

Notably, a 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.

There are other implications, such as our notions about “digital divides.” Approximately nine out of ten Hispanics have access to the Internet, when  extended family, work, school, and other
public places are included, according to Nielsen.

But Hispanics are less likely to have Internet access at home  compared to the U.S. average (62 percent  and 76 percent, respectively).  So is that a problem? Yes, but a problem that is solving itself, it appears. Over the past year (2011 to 2012), Hispanics increased home broadband use by 14 percent, which is more than double the six percent growth  of broadband use in the general market.

But there are other important “demand” angles. Hispanics are three times more likely to
have Internet access using a mobile device, but not have Internet at home (nine percent
compared to three percent, respectively). In other words Hispanices, as blacks and Asians, “overindex” for mobile broadband.

Overall, Hispanics are 28 percent more likely to  own a smart phone than non-Hispanic
whites.  

In other words, many segments of the U.S. population, for example, prefer to buy mobile broadband than fixed broadband.

When Cutting Price Won’t Help

It is a truism of economics that price and sales are directly and inversely related . In other words, lower the price of a product and consumers tend to buy more; raise the price and consumers buy less. In fact, the whole point of some public policy policies (taxes, rebates, subsidies, penalties, credits, tolls, fees) is to dampen demand for some products or encourage demand for some products.


Communications markets are not exempt. Raise prices and people can be expected to consume less; drop prices and people theoretically buy more. But that only works up to a point.

Demand for the product, and ability to supply it, has to exist. And that is getting to be a problem for some communications or entertainment products.

Demand for streamed versions of items in the Netflix catalog is growing; demand for disc rentals is shrinking. Presumably Netflix could drop prices for “DVD only” versions of the product. But consumer preferences are shifting, and it is not clear whether even significant price drops would reverse the streaming versus DVD by mail volume changes.

You might argue something similar is happening with mobile voice and fixed network voice, or video entertainment subscriptions.

To be sure, there’s a relatively simple reason people globally prefer to use mobile for voice. In many markets, mobile is the only way to make a call. In 2010, about 90 percent of total call volumes in Brazil, Russia and China occurred on a mobile device. That is a market where there is no functional substitute product, so fixed network voice pricing isn’t relevant.

In other markets where both mobile voice and fixed voice are available, mobile is cheaper than using fixed services. In these markets, retail pricing and packaging, not just user preferences, drive usage.

Classical economics would suggest the suppliers could increase buying and use of fixed network voice services by dropping the price. Some would argue that is precisely what Skype and cable digital voice services have done.

In the video entertainment business, the price and volume consumed trends are not so pronounced, yet. But some surveys suggest not only that the problem of actual cord cutting is growing, but that demand is the issue.

The implication is that even a price cut for video subscriptions might not work to stimulate demand, on the part of some growing percentage of consumers.

About 33 percent of people who have “cut the cord” on their video entertainment subscriptions would not buy again, even if prices were cut in half, a study by TechBargains.com has  found.

That opinion illustrates the level of growing dissatisfaction with video entertainment services sold by cable, satellite and telco TV providers, at least in some consumer segments.

Despite the fact that 83 percent of surveyed cord cutters abandoned their video entertainment services because of the “high cost,” even a price cut in half would not be enough to entice many cord cutters to buy again.

Significantly, the study also suggests that video entertainment services are not even viewed as providing the best quality and variety of programming by 17 percent of people who disconnected their  cable TV or satellite TV services. For an industry that claims to provide the best quality and variety, that is a problem.

Another possibly-significant finding is that consumers who abandoned their fixed network phone service were two times more likely to eliminate their cable TV or satellite TV subscription than those who have not disconnected their home telephone.

Of respondents who have gotten rid of their landline, 36 percent  also discontinued their cable TV or satellite TV service. Of respondents who still have their landlines, 19 percent have cut the cable cord.

The survey found that 60 percent  of respondents no longer have a landline telephone service, either.

Although the survey also found  that 57 percent of people that still have a landline voice service  do not plan to disconnect their landline in the next year, that statistic might be only mildly reassuring, since it suggests that 43 percent might cut the cord on their fixed network voice service within a year or two.  

The Federal Communications Commission Technology Advisory Council has estimated that  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.

Keep in mind that the U.S. market supported about 150 million voice lines  in service around the turn of the century. One might argue, under such circumstances, that even lower prices would not entice many consumers to buy fixed network voice again.

What Does Dish Actually Want from LTE?

Lots of investors operate on the premise that spectrum has value, even if the owner doesn't really want to be in the service provider business. In fact, some would argue, with good reason, that entrepreneurs such as Craig McCaw always have operated on the theory that it always is good to acquire spectrum, as it is good to acquire land, irrespective of the immediate ability to build an operating business using such spectrum.

If fact, much spectrum originally licensed to support non-profit educational purposes (Multichannel Multipoint Distribution Service, for example) has been redeployed to support mobile communications. Leading U.S. cable operators also have invested in mobile spectrum ownership over the past couple of decades, eventually selling that spectrum rather than building operating businesses. 

For that reason, many observers have insisted that Dish Network's actual objective is to sell its now more-valuable spectrum to another service provider, rather than building and operating its own mobile network.

According to that view, Dish Network will do enough to deploy an AWS-4 network, at minimum cost, to meet the FCC’s construction criteria, to persuade a potential buyer such as AT&T to purchase either Dish Network in total or at least the 4G spectrum assets.

Others argue that Dish really is serious about getting into the high-speed access business, and therefore does need to create a 4G network. 

Still, there has been an argument argument for decades that, sooner or later, both Dish Network and DirecTV would be acquired by AT&T and Verizon, both to bolster video entertainment business market share. 

If so, then the mobile spectrum would simply be added value for the buyer. 

Will UK 4G Auction Change Market Structure?

There often is hope that major spectrum auctions will increase the amount of competition in a market, sometimes by enticing and enabling new entrants to enter a market. Regulators often specify that some blocks of spectrum are reserved for such new entrants, for example. 

The upcoming U.K. 4G spectrum auctions are likely to see "new" bidders, but the actual amount of impact on the mobile market is likely to be rather insignificant, some would argue. Already, three new names have surfaced as bidders, including BT, which has been barred from the mobile business by regulator action.

Everything Everywhere; HKT Company, a subsidiary of Hong Kong operator PCCW; Three owner Hutchison 3G; MLL Telecom; Niche Spectrum Ventures (BT Group); O2's parent firm Telefónica UK and Vodafone are the seven bidders that have paid the entry fee for the auction. 


That naturally raises speculation about whether BT might try and get back into the mobile business as a facilities-based provider, where it today operates as a virtual mobile network operator.

That appears to be unlikely, as BT is probably more interested in using spectrum to reach households it cannot get to using its fixed network. 

So some might argue the auctions have little chance of upsetting the current market structure in the United Kingdom. Wireless Intelligence predicts that, by 2014, the same four leaders of the 3G market also will top the 4G market. 

Is Advertising a Violation of Network Neutrality?

Is advertising a violation of network neutrality? It's a rhetorical question, since advertising is not, as such, a network neutrality issue. 

But there are applications of advertising, in an Internet access context, that can appear to be such violations. 

Some object, for example, to ISPs making deals with advertisers or content companies regarding use of bandwidth to show movie trailers or other content. 

In other words, some service provider executives think it is reasonable to allow third party advertisers to "sponsor" use of bandwidth, as advertisers now sponsor and help defray the cost of content consumption by end users.


Service providers use the analogy of "toll free" calling, where the cost of network use or a session is paid for by a third party, not the end user. In principle, two-sided business models, where a service or application provider earns revenue both from subscribers and business partners is an essential part of many content and media business models. 

And advertising is why most users do not pay direct fees to use Google search, Facebook, Twitter or other popular Internet apps and sites.  

That is not to say any such retail charging mechanisms would be easy to implement, or easy for users to understand or embrace. It might be easier to create plans that provide clear incentives to use video only on Wi-Fi networks, such as offering "no-video" plans that are cheaper than other plans that are unrestricted.

Where such proposals are tricky is when they raise the issue of predatory activity on the part of access providers. But it is tricky. On any IP network, it is possible to provide both "Internet access" and "managed services" such as carrier voice or entertainment video and messaging. 

Those tricky issues aside, advertising, sponsorship or other forms of third party revenue are not  violations of network neutrality, which has to do with issues such as blocking of applications or other potential gate keeping functions. 

Advertising, sponsorship and other third party revenue sources are just that, revenue sources. Over time, ISPs contending with ever-higher bandwidth consumption related specifically to video might be compelled to turn to third party sources of revenue, as there are limits to how much consumers will pay for some apps and services.