Maybe Video Won't Crash the Mobile Internet

Bandwidth growth shows it is so difficult to accurately and consistently forecast the volume of change, even when the direction of change is clear enough. Everybody expects bandwidth consumption to keep growing. But we rarely get the magnitudes right.

Nor do we necessarily and normally hit the limits linear extrapolation suggests will be encountered, because actors behave rationally. Faced with higher prices for a product, they substitute other products, especially when suppliers encourage such substitution.

One might argue the potential explosion of video bandwidth will not happen in precisely the way observers and forecasters now predict, because users and suppliers will change their behavior. In other words, when there is no financial penalty for using bandwidth to watch video, people will watch. 

When there are incremental costs, behavior will change. And that is why, in the end, even mobile video will not crash the networks, though one could make a decent argument for that eventuality, extrapolating in a linear way from today's trends.

One might explain the Internet bubble demand forecasting failures. There were false signals being sent, in part because of fraudulent activity on the part of bandwidth sellers. But even when that is not the case, we tend to overestimate the degree of bandwidth demand growth.

At least one reason is that people and service providers have learned to act in ways that alter behavior. In other words, given service provider and end user self interest, mobile bandwidth growth has slowed because both suppliers and consumers benefit financially by doing so.

By 2017, almost 21 exabytes of mobile data traffic will be offloaded to the fixed network by means of Wi-Fi devices and femtocells each month, Cisco estimates. 4G Americas says Wi-Fi offload of mobile traffic is at 35 percent today in the United States and is estimated to be 68 percent by 2016.

Without Wi-Fi and femtocell offload, total mobile data traffic would grow at a compound annual growth rate of 74 percent between 2012 and 2017 (16-fold growth), instead of the projected 66 percent CAGR (13-fold growth), 4G Americas says.

Cisco notes that tthe global average for daily data consumption over Wi-Fi is four times that of cellular, averaging 55 MBytes per day for Wi-Fi, and 13 MBytes for cellular.

 Average Daily Wi-Fi and Mobile Data Consumption

Some think the same sort of trend ultimately will characterize mobile broadband bandwidth growth rates as well, In fact, there is little reason to doubt that future trend, given historical precedents.

In March 2011, for example, AT&T projected that data bandwidth growth would be on the order of eight to 10 times over then-current levels between the end of 2010 and the end of 2015.

That forecast appears to be based on an expectation that volumes would roughly double in 2011 and then increase by a further 65 percent in 2012.

Instead, AT&T seems to be seeing something like 40 percent annual growth. To be sure, 40 percent annual growth is significant. It means bandwidth consumption doubles about every two to three years.

Cisco estimates mobile broadband grew about 70 percent in 2012, and will grow at a compound annual growth rate of 66 percent from 2012 to 2017.

Some believe Wi-Fi offload will slow the rate of mobile broadband growth. On the other hand, even such offloading, at high rates of perhaps 80 percent, would slow the rate of growth by about 50 percent.

Two Ways Predictions Go Wrong

It's hard to forecast the future. Not only do we tend to view the future through the lens of the present, we more frequently get the timing wrong. Perhaps the more common forecasting error is of timing, not direction. 

Many developments which occur, generally as expected, take a decade or more to arrive in any significant way. That might not be a crucial fact for most people and companies, but it is decisively determinant for investors in technology start ups. 

Being right about the trend doesn't help if one is wrong about the timing. 

Mobile Broadband Already Emerging as Key in India Market

India’s mobile services market will reach Rs.1.2 trillion in 2013, up eight percent from 2012 revenue of Rs. 1.1 trillion, according to Gartner analysts. As you might expect in a market where retail is quite important, the growth could prove challenging.

“The mobile market in India will continue to face challenges if average revenue per unit does not grow significantly,” said Shalini Verma, principal research analyst at Gartner. And there is no doubt competition and over the top apps are key challenges. Both are putting pressure on profit margins. 

Ironically, mobile broadband revenue already appears to be more important than voice revenue, as a driver of future growth. 

“As mobile voice services continue to get commoditized in the country with the increased use of voice over IP (VoIP) and the probable termination of national roaming charges, mobile broadband is the area of opportunity for operators,” said Ms. Verma. 

“If the prevailing conditions do not change in the Indian telecom market, India will account for 12 percent worldwide mobile connections, but just two percent of worldwide mobile services revenue (in constant USD) in 2013.”

Mobile connections will grow to 770 million in 2013, an 11 percent increase from 712 million connections in 2012. 

49% of South Africans Would Change Their Mobile Operator if They Could

A recent study commissioned by Comptel suggests that, among South African consumers, up to 49 percent would consider switching service providers. 

Those figures probably overstate churn potential. 

As always, one should take a consumer's responses to any survey with a bit of skepticism.

Consumers often say they will do something, when they really do not; or say they will not do something; and then do that. 

The conventional wisdom for most people, including executives at mobile service provider companies, is that there is a relatively direct relationship between "customer satisfaction" and customer churn. In other words, "happy customers" don't leave.

It doesn't appear that is the case. Perhaps perversely, even happy customers will churn (leave a supplier for another), and at surprisingly high rates.

Two out of three (66 percent) wireless and cable TV consumers switched companies in 2011, even as their satisfaction with the services provided by those companies rose, according to Accenture.

The paradox is that “customer satisfaction” does not lead to “loyalty.” Also, there are new precursors to churn, especially the growing pattern of consumers adding a second provider of a service, without dropping the original provider. That of course puts a potential full replacement provider into a relationship with a consumer.

The Accenture Global Consumer Survey asked consumers in 27 countries to evaluate 10 industries on issues ranging from service expectations and purchasing intentions to loyalty, satisfaction and switching.

Among the 10,000 consumers who responded, the proportion of those who switched companies for any reason between 2010 and 2011 rose in eight of the 10 industries included in the survey.

Wireless phone, cable and gas/electric utilities providers each experienced the greatest increase in consumer switching, moving higher by five percentage points.

According to the survey, customer switching also increased by four percent in 2011 in the wireline phone and Internet service sectors.

There is a new and apparently growing indicator of churn potential as well. In a growing percentage of cases, consumers are adding new providers, instead of switching entirely. That can disguise the danger of churn, as the original provider does not realize a new potential replacement provider also has established a relationship with a particular consumer.

“Companies are improving many of the most frustrating parts of the customer service experience, but they are facing a customer who is increasingly willing to engage multiple providers for a service and is apt to switch quickly,” said Robert Wollan, global managing director, Accenture Customer Relationship Management. “

Note the contradiction here: consumers were “more satisfied” and also “not loyal” because of that satisfaction.

Consumers reported increased satisfaction across each of 10 service characteristics evaluated. In fact, satisfaction rates on three customer service characteristics jumped by more than five percentage points from 2010.

However, only one in four consumers feels “very loyal” to his or her providers across industries, and just as many profess no loyalty at all. Furthermore, two-thirds of consumers switched providers in at least one industry in the past year due to poor customer service.

Spanish Mobile Market Shrinks

Some 245,000 Spaniards appear to have abandoned use of mobile phones in February 2013. 

In other words, the Spanish mobile market not only has stopped growing; it is shrinking. 

In February, 575,138 people switched suppliers, an 18 percent increase compared to the same month the year before, and only slightly lower than the record 633,616 changes recorded in January 2013.

Telefonica lost 85,161 customers to rivals, while 95,115 customers left Vodafone for other operators, the Spanish regulator reports 

Orange lost 5,757 customers to other companies. Low-cost Yoigo, the smallest facilities-based operator gained 32,424 mobile customers. 

But mobile virtual network operators gained 153,609 new customers, primarily taking them from the facilities-based suppliers.

EU Single Market Plan Accelerated

European regulators are planning to aggressively accelerate plans to create a single telecom market, releasing its plan in June 2013 instead of its original fall time table, in the hopes the plans can be put into place before the end of 2013. 

The European Commission still is working on a blueprint for a single telecoms market in the EC states, a move some tier one service providers want, but which national regulators and smaller service providers might fear.

The issue is how to create one market from 27 distinct national frameworks, as well as how to harmonize investment and operating rules across the different countries. It is not clear that such a move, if successful, actually would create a single regulator across all 27 countries. 

For a few tier one service providers, common rules and a single market would allow a more efficient and profitable approach to providing communications services across Europe. Many smaller providers would find they do not have scale to continue competing successfully, though. 

In fact, the plan might initially entail easier competitor access to tower sites, ducts and other forms of infrastructure. The objective would be to enable some European service providers to achieve greater scale. 

Android Notebooks Coming

Lenovo, Hewlett-Packard, Toshiba, Acer and Asustek Computer reportedly are launching Android notebooks, at least in part because Windows 8 machines have disappointing sales. 

Given the displacement of PC sales by tablets, one almost wonders why. 

By 2017, total tablet shipments will hit nearly 353 million,  compared to 382 million PCs. Still, volumes will continue to shift in the direction of tablets and smart phones. Given Android's huge installed base and the likelihood that Android and Chrome sooner or later will be unified, the PC vendors are hedging their bets.