Mobile Broadband Grows 18% in OECD Region

Mobile broadband subscriptions have reached nearly 700 million in OECD countries, the Organization for Economic Cooperation and Development reports.

Mobile broadband has grown at about an 18 percent rate from June 2011 to June 2012, largely driven by continuing strong demand for tablets and smart phones.

The average broadband penetration in the OECD area is 56.6 subscriptions per 100 inhabitants, OECD says.

Korea (104.2) and Sweden (101.8) are the only two countries with more mobile broadband subscriptions than inhabitants.
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Fixed wired broadband subscriptions reached 321 million in the OECD area in June 2012, for an average penetration of 26 subscriptions per 100 inhabitants, a 1.7 percent increase over the previous six months. Keep in mind that penetration per home depends on your assumptions about housing density in each country.

As a rough assumption, you might assume average households of two people each, so fixed broadband penetration might be 52 percent of homes.

Digital subscriber line  subscriptions are being replaced by fiber connections, though slowly.  The share of fiber subscriptions in fixed broadband has increased to 14.2 percent, while DSL represented 54.7 percent of the total fixed wired broadband subscription.

Since DSL and fiber represent 69 percent of connections, That could mean roughly 30 percent of connections.

Will LTE Be Complementary to Fixed Broadband, or a Substitute?

Will Long Term Evolution remain a complementary form of broadband access, or will it become a functional substitute? And, if so, for which sets of consumers will this be a logical choice?

AT&T and Verizon Wireless certainly believe there are some significant percentage of customers for whom broadband access supplied by mobile networks, though in a “fixed” basis, will be a viable substitute for fixed network broadband access.

Up to this point, the amount of such mobile substitution for broadband access has been fairly limited, and nothing like the substitution of mobile voice for fixed voice. But fourth generation networks, offering high speeds, which some liken to “digital subscriber line” speeds, should provide greater potential for substitution.

Still, some do not believe mobile broadband is a substitute for fixed broadband. Some of us doubt that. There might be many ways to infer meaning from the fact that fixed network broadband adoption has not changed much since 2009.

Some might say that is because later users value broadband access less, or because tough economic conditions are forcing consumers to make choices, or simply that people who use the Internet mostly already buy broadband access. It is hard to disagree with the logic.

But some of us would argue that there is a growing trend for some users to substitute mobile broadband for fixed broadband because most of what those users do can be done on a smart phone.

Some might argue, with reason, that such preferences remain a single digits kind of development, and that probably is quite true. On the other hand, a couple of important market drivers are operating, and should grow in importance.

As tablets have shown, most people, most of the time, consume content, instead of creating it. This is what is contributing to the “post-PC” era we seem to be entering.

But that very fact means a greater number of users might conclude that they can get by with smart phone broadband, and really do not need a fixed broadband connection. That might be more true for single person households and households of younger and unrelated persons.

On the other hand, the other angle is that a fixed connection might increasingly have the most value as a way of offloading traffic from smart phones and tablets, not so much to enable use of PCs. That might account for the finding that 83 percent of smart phone users also have access to fixed broadband at home.

In other words, despite growing “smart phone only” access, the vast majority of smart phone users also have fixed access services. But the market can change. If fixed broadband tariffs start to rise, and if LTE 4G tariffs start to fall, many more users could opt for a different mix of spending than they have shown in the past.

Up to this point, 4G prices have been higher than 3G . But that could already be changing.

Comparing retail prices between the second quarter of 2012 and the fourth quarter of 2012, service providers in 73 percent of countries have reduced the “effective cost” of their 4G tariffs  to a significant degree, according to ABI Research.

LTE Prices Dropping, Globally

Up to this point, 4G prices have been higher than 3G . But that could already be changing.

Comparing retail prices between the second quarter of 2012 and the fourth quarter of 2012, service providers in 73 percent of countries have reduced the “effective cost” of their 4G tariffs  to a significant degree, according to ABI Research.

The effective cost in terms of “dollars per gigabyte” has dropped by 30 percent, overall.  In United States, service providers kept fees the same but offered larger data quotas.

In Australia, Sweden, Japan, Singapore and Saudi Arabia the operators lowered the monthly fee but have data quotas unchanged.

​India currently offers the lowest priced plan, ABI Research says. India’s lowest priced mobile data plans decreased 29.4 percent year-over-year in the fourth quarter of 2012.

And some mobile service providers are pricing 4G at a discount to 3G. “In Norway, Telenor has introduced 4G tariffs that are cheaper than 3G,” ABI Research says.

Mobile broadband services using Long Term Evolution will experience a substantial 60-percent price drop  in retail prices between 201 1and 2016, according to Tariff Consultancy, on the way to gaining 250 million users worldwide by the end of 2016.


Average monthly user data allowances for LTE mobile broadband services in 2011 were about 22 GBytes per month, in some cases ranging as high as 80 GB per month in the case of Tele2 Sweden.

The average mobile broadband price globally for a top of the range LTE mobile broadband service was 50 Euros per month, for two-year postpaid contract service.

The study showed that average LTE broadband prices ranged from 0.5 Euro (Tele2 Sweden) up to 9.9 Euro (Omnitel Lithuania) per GByte of data mobile usage.

But retail prices started dropping at least by 2011. . Telstra (Australia) “BigPond” offered an 8 GByte monthly data user allowance for the equivalent of 30 Euro per month,

BigPond had launched offering 4 Gbytes for 38 Euro. In Singapore M1 (Mobile One) was offering customers a 40 percent discount off the monthly list price.

The price trends might not be so obvious in all markets. U.S. service providers, so far, have generally tried to price at a premium for LTE services.

Vodafone Earnings Woes Spur Talk of Sale of Verizon Wireless Assets

Vodafone’s latest quarterly financial report illustrates the reasons why some analysts, and executives at Verizon, might be weighing some action to change the current ownership status of Verizon Wireless, majority owned by Verizon, but with a big minority intBut erest held by Vodafone.

To be sure, Verizon says no such talks are underway. Well, to be specific, Verizon says no talks about a full purchase of the 45 percent Vodafone stake in Verizon are underway. That would still leave some room for less complicate measures, such as a gradual purchase by Verizon of Vodafone shares.

In fact, most observers have noted for a decade that Verizon would prefer to own all of Verizon Wireless. But talk about a Verizon purchase of Vodafone has heated (again) recently. Earnings weakness at Vodafone could be a factor.

Vodafone posted a worse than expected drop in group revenue for the last three months of 2012. The biggest declines came from Europe operations.

Vodafone service revenue dropped by 2.6 percent to £10.37 billion in the fourth quarter of 2012.

Southern Europe services were hit the hardest, dropping nearly 12 percent to £2.3 billion.

In Italy service revenue tumbled 13.8 percent, partly caused by lower mobile termination rates.

Spain revenue was down 11.3 percent. Significantly, that hit was caused at least in part by the ending of handset subsidies.

Africa, Middle East and Asia Pacific service revenue grew 2.7 percent to £3.14 billion.

Verizon Wireless service revenue grew 8.7 percent. Verizon Wireless also paid Vodafone £2.4 billion in dividends,

So the issue for Vodafone is whether the value of the dividend stream is more important than the monetization of Verizon Wireless equity value.

How Much Does Fiber to Customer Really Help Service Providers?

Though there are not too many developed nation markets where a new national fiber to the cabinet network will change the market, Italy might be the exception to the general rule.

In January 2012, the penetration rate of fixed broadband in Italy was 22.2 percent of the population, up by 0.5 percentage points year-over-year but 5.5 percentage points below the EU average of 27.7 percent.

Italy, in other words, might be said to represent an “under-penetrated” market, in terms of fixed network broadband.

Italy also lags behind in the penetration growth rate with a 0.5 percent increase, compared to the EU average of 1.2 percent annually.

Fastweb is the only provider in Italy to offer “fiber to the cabinet” fixed-line broadband, to around two million households in Italy’s urban areas.

Fastweb generally says its network supports 100 Mbps right now, with the ability to increase speeds to 300 Mbps to 400 Mbps over the next several years.

Fastweb plans to invest some EUR 130 million in fiber expansion by the end of 2013.

And Fastweb obviously thinks its fiber network will have resonance with Italian consumers. Italy has 8.2 percent of fixed lines providing speeds of 10 Mbps and above.

There are no subscriptions with speeds greater than 30 Mbps, according to an EU analysis of broadband in Italy  Around 90 percent of broadband lines in Italy are in the range of 2 Mbps and below 10Mbps,

Mobile broadband penetration of all kinds of devices (both handheld devices and computers) is 31.3 percent, up by 3.1 percent, year-on-year, but still 11.8 percent below the EU average penetration level.

At the same time, penetration of dedicated data services cards, modems and keys only is 10.2%, which is by 2.6 p.p. higher than the EU average.

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Most other places, optical fiber, though a key means, long term, for boosting access speeds, is a somewhat difficult financial proposition.

The problem is that, in many developed nation markets, optical access revenue basically only cannibalizes cable modem and digital subscriber line revenue, for the most part.

In such markets, broadband access is nearly a zero-sum game. Adding an optical subscriber generally means losing a cable modem, digital subscriber line, satellite broadband or fixed wireless subscriber. There could be market share shifts, but likely little growth in the overall broadband access market.

The other issue is average revenue per user. Globally, broadband average revenue per user has continued to decline across all broadband platforms, says Jake Saunders, ABI Research VP.

But Fastweb might be said to be operating in a favorable market, where adding an optical access subscriber does not necessarily mean taking a DSL subscriber out of service. Nor are cable operators much of a factor in the Italian broadband access market.

Globally, that might not be the biggest part of the story.

Global fixed broadband services generated $188 billion worth of service revenue in 2012, a seven percent increase from 2011, according to ABI Research.

Fixed broadband service revenue will grow to $251 billion by 2018, ABI Research also predicts.

If one assumes 2012 global fixed network revenue as about $1 trillion, then broadband would represent about 19 percent of total fixed network revenue.

Assume video entertainment revenues such as IPTV represent about eight percent of telco revenues, on a global basis. That implies that 70 percent of global telco revenue still is being earned from voice services.

And if you assume global fixed network growth in developed and developing regions will be flat to negative, there is a big revenue problem developing that everybody already recognizes, namely that replacing perhaps half of the voice revenue over perhaps a decade is the main challenge facing executives at many firms.

That might imply replacing about $350 billion. If ABI Research estimates prove accurate, broadband access will grow by about $63 billion between 2011 and 2018. For the sake of argument, assume fixed network broadband continues to grow at that same volume for the next five years, implying a decade-long increase of about $126 billion.

That roughly suggests the revenue shortfall fixed network operators will face is about $224 billion in current voice revenue that will be lost over 10 years.

Except in markets such as Italy, optical fiber services are not going to help most service providers too much, where it comes to replacing lost voice revenues.

Liberty Global Buys Virgin Media

Liberty Global is spending $23.3 billion to buy Virgin Media, the U.K. cable operator, a move that makes Liberty Global a much bigger player in the European cable TV and Internet access markets. 

Liberty Global would serve about 25 million customers, assuming the transaction is approved by regulators.

Liberty Global also owns cable assets in Germany, Belgium, and other countries across the continent.

Among other implications, the deal might suggest that low interest rates and somewhat depressed equity valuations could drive a wave of acquisition activity in the communications and entertainment video space, while such conditions exist. 

Though some of us would not say the deal necessarily changes competitive dynamics in the U.K. market, we might be more inclined to say that the expected wave of acquisitions could have such impact, eventually. 

Low interest rates, limited organic growth opportunities and attractive equity valuations are going to spur more thinking about "growth by acquisition" strategies. The downside, some might also say, is an increase in leverage for the acquiring firms. 

That, in turn, might have unpleasant consequences for some acquirers, several years down the road. depending on the direction and magnitude of interest rate movements. 

Microsoft Initiative Explores White Spaces in Kenya

There there might yet be some confusion about white spaces spectrum as a new way to provide Internet access using unlicensed spectrum, the approach remains of high interest to application providers and device suppliers, if generally opposed by established mobile service providers, for obvious reasons.

The Microsoft 4Afrika Initiative hopes, by 2016, to have placed tens of millions of smart devices in the hands of African youth, put a million small and medium businesses online, and have helped 200 000 Africans develop skills for entrepreneurship and work, says Ali Faramawy, corporate VP, Microsoft Middle East & Africa.

The project plans to train 100,000 members of the existing workforce and 100,000 recent graduates, 75 percent of whom the project intends to help place in jobs.

You can watch a video about the project, which features satellite services provider  
Indigo Telecom, which will be providing the Internet access.

Using solar-powered base stations together with TV white spaces, the project will deliver high-speed Internet access to areas currently lacking even basic electricity.

Microsoft says it will launch similar pilot projects in East and Southern Africa to further explore the commercial feasibility of white space technologies.

These pilots will be used to encourage other African countries to accelerate legislation that would enable white spaces technology.