What Follows Momentous First Decade of 21st Century?

Without question, the first decade of the 21st century has been momentous, in terms of the broader telecommunications industry, and especially in terms of use of mobile services. Usage in the U.S. market, for example, grew from about 38 percent of the population to 93 percent.

And though consumers had started using text messaging at the beginning of that decade, use of mobile Internet access services was nil. So, on three scores, use of mobility changed drastically.

For starters, mobile usage became virtually ubiquitous. That had obvious impact on demand for alternative ways of making phone calls. 

But text messaging, which almost nobody did in 2000, became a normal method of communications, again displacing a significant amount of voice activity. 

And only quite recently have users begun to use their mobiles as an Internet access method. 

That stunning change in consumer behavior also happened elsewhere around the world. From about 15 percent global penetration, adoption of wireless had surpassed 86 percent by 2011, worldwide. 

But such growth rates come at a "price," namely that once markets become saturate, service providers have to look elsewhere for a second act. And that largely is the main story in telecommunications in the second decade of the 21st century. 

Consider growth rates for fixed network broadband, which had a global growth rate of about 75 percent from 2001 to 2002. Growth began to slow in each succeeding year, dropping to about 10 percent annual growth rates between 2010 and 2011.

Fixed network voice lines, which had been growing at very low, single digit rates, went negative, globally, between 2006 and 2007. 

Use of mobile broadband, which had been negligible through 2006, suddenly exploded in 2007, and currently represent the growth driver for the entire global communications business, with rates of change in the 40 percent range, for 2010 to 2011. 

But you know what comes next. Mobile broadband, in turn, will reach saturation, probably settling into an intermediate growth rate of perhaps 10 percent a year. 

Nobody knows what will come next, which is one reason why service providers are placing lots of bets in a lots of areas. The next big thing after mobile broadband is not yet "discovered."

Oddly enough, because of such huge success in the first decade of the 21st century, the second decade will likely to be a time when global communications revenue growth could slow, dramatically, unless huge new replacement revenue streams are discovered. 

In fact, on a global basis, mobile subscription growth rates seem to have peaked between 2005 and 2007. 

Netflix "Open Connect" CDN is Getting Traction

Netflix Open Connect, the single purpose video content delivery network launched last year, is now delivering the majority of Netflix international traffic and is growing at a rapid pace in the domestic market, Netflix says.

That might come as a surprise for some who had predicted failure for Netflix as a provider of its own direct content delivery network services. Perhaps Open Connect has had only a marginal financial impact on other retail CDNs, but that probably was not the Netflix objective, in any case. 

The objective was, and is, better end user experience, not revenue or Netflix operating costs. 

In early 2012 Netflix began enabling Internet service providers to receive, at no cost to them, Netflix video directly at the interconnection point of the ISP’s choice. 

By connecting directly through Open Connect, ISPs would be able to improve quality of experience. 

Netflix now says Open Connect is "widely deployed around the world, serving the vast majority of Netflix video in Europe, Canada and Latin America, and a growing proportion in the U.S., where Netflix has over 25 million streaming members."

Cablevision, Virgin Media, British Telecom, Telmex, Telus, TDC and GVT are among ISPs using Open Connect. 

Preference for private CDNs, rather than buying service from a retail CDN services provider, is becoming a more popular option for large application providers, such as Comcast, Google, Apple or Facebook. Amazon of course can use its own CDN service, which is available as a retail offering for third parties. 

Amazon "Mobile First" Efforts

Amazon's mobile efforts span a range of initiatives, as illustrated by Business Insider, including e-readers, tablets, the Amazon Appstore, Kindle content and possibly mobile advertising or smart phones. 

Some would note that Amazon already has been successful in moving into the mobile commerce realm. 

Amazon and Apple arguably will compete more directly, in the mobile realm, based on their commerce efforts, while Google and Facebook will compete more directly in advertising and promotion elements of the mobile business, one might argue. 

Lower-Cost iPhone for China is Part of a Clear Trend

New rumors about a more-affordable iPhone, intended for sale in markets such as China, illustrate an important trend in technology products, namely the awareness that billions of consumers around the globe want, can benefit from, and will increasingly be able to afford, communications and communications tools once largely used only in developed nations. 

The desire might be clear enough, though the challenges are equally clear. What economists or business strategists sometimes call "the bottom of the pyramid" refers to the largest, but poorest socio-economic group of human beings, globally.

That has at times meant there are four billion people living on less than $2.50 per day. In the past that might have meant an overwhelming sense of confronting an immovable barrier to economic and social development. That is changing, as a new global middle class emerges. Nevertheless, applying first world technology in a third world context is challenging. 

The point is that new models of doing business are required. The classic form of the challenge, in the global communications business, has been the problem of supplying basic voice communications to the billions of people who had, late in the last century, "never made a phone call."

Mobile communications has been the surprising answer. Similar concerns have been raised about the cost of computing appliances. But many would argue that the smart phone, or the tablet, will solve that problem. All of that largely means the "problem" of getting people Internet access also will be solved. 

Nor does one have to assume excessive altruism on the part of industry suppliers, either. The simple fact is that computing, communications and other Internet products can be effectively sold globally, to the "base of the pyramid," new markets measured in billions of users are possible. 

That's a big deal. The opportunity to sell billions of units to billions of new customers would be attractive under any set of circumstances. But the importance is heightened because of stagnant or saturated markets in many parts of the developed world. 

In fact, the cost of the device might not be so important as the service cost.

On the other hand, lower cost devices could have important repercussions in developed nation markets as well. Consider only the issue of device subsidies. A lower-cost iPhone would lessen the need for such subsidies. less

Wireless Wins, Dish CEO Says

"At some point, the cheapest infrastructure to deliver the highest number of bits to the largest number of people is all going to be wireless," Dish Network CEO Charlie Ergen says. 

That has to be a contested notion, as fiber to the home advocates would say there is just no way wireless can supply as much bandwidth as a waveguide approach. 

But there's a likely contextual element. Most observers without a business stake in the answer would say that wireless is the most-affordable way to deliver the highest number of bits to the largest number of people in a developing or rural area, quickly. 

But that's a business definition, not strictly a scientific or technical answer. And that is the context within which Ergen says that wireless eventually will be the cheapest way to deliver lots of bandwidth. 

Of course, that also would reflect Ergen's history in the satellite TV business, which features many of the same economic advantages as mobile service does, in terms of quickly and cheaply delivering television to harder-to-serve areas. 

FCC Touts New Wi-Fi Band of As Much as 195 MHz

The Federal Communications Commission says it will “soon” move to allow spectrum sharing between Wi-Fi service providers and licensed government users of spectrum in the 5-GHz range.

Such unlicensed spectrum could represent up to 195 megahertz of spectrum, the largest block of unlicensed spectrum to be made available for expansion of Wi-Fi since 2003, the Commission says.

Regulators also are looking at something similar 5-GHz spectrum in Europe. Separately, the FCC also is looking at spectrum sharing for other frequencies as well, such as spectrum in the 3.5-GHz band envisioned for use by operators of “small cell” networks. 

Spectrum sharing is not rare in the frequencies above about 3 GHz, NTIA says.

M2M Forecast Illustrates a Problem for Big Service Providers

Verizon executives have been saying for years that machine-to-machine services (the Internet of things) is one reason why mobile penetration ultimately would reach into the four hundred percent range.

"It's safe to say this is a market potential of billions in the 2020 time frame," Lowell McAdam said. This should translate into a market with "hundreds of millions of dollars in revenue for a company the size of us."  Reuters reports. 

To be sure, with expectations that billions of sensors will be using mobile networks for connectivity, Verizon has reason to be optimistic. 

The longer term issue is precisely how big M2M services will be for individual service providers. Hundreds of millions in revenue is not a bad start, but will not really move the needle much, for firms the size of Verizon, unless revenue reaches into the billions. 

Certainly Verizon Wireless reasons that can happen. Some idea of how big M2M would have to be, to have a serious revenue impact, can be illustrated by noting the change $1 a month in mobile customer account revenues would have, either in a positive or negative direction. 

Verizon Wireless had about 96 million customers at the end of the third quarter of 2012. It probably had something closer to 98 million customers by the end of the fourth quarter of 2012. If Verizon never added another net customer, its business fortunes would be far more significant if it can grow each "phone" account by about $1 a month. 

Such growth per "human" account represents about $1.2 billion in annual revenue, either positive or negative. In other words, by 2020, assuming Verizon did have an M2M business worth hundreds of millions, those business results would be dwarfed by incremental changes in revenue from "human" accounts. 

That illustrates the huge challenge for large service providers: the magnitude of revenue or earnings impact from the legacy business, even for small incremental changes, is much more significant than even big success with many of the newer businesses service providers are growing. 

As pundits often observe, it makes sense for company executives to pay attention to the relative handful of things that really can affect a company's financial performance.

It is essential that service providers continue to look for new revenue sources. But it also is helpful to remember just how big those new revenue sources have to be, to really affect the overall revenue picture.