ESPN Considers Subsidizing Mobile Data Plans

ESPN is at least considering a scenario where it would pay for bandwidth consumed by mobile users of its content and apps, removing a barrier to usage, as ESPN content consumption would not count against a user's data cap. 

In principle, that is similar to the business arrangement Amazon has with AT&T to deliver Kindle content to tablet users. Amazon downloads are paid for by Amazon, so the end user does not incur usage that counts against a consumption cap. 

Such a move by ESPN would be quite significant, as it would effectively create a new revenue stream for mobile ISPs while removing a barrier to end user consumption of highly-valued content. 

Under one scenario, the company would pay a carrier to guarantee that people viewing ESPN mobile content wouldn't have that usage counted toward their monthly data caps.

Some will object to such business deals between ISPs and app providers. The logic is that it potentially creates an uneven playing field for ESPN and other providers of similar content. Others will argue such deals are not dissimilar from app provider use of content delivery networks to enhance end user experience. 

App providers using CDNs do have an experience advantage over other firms that do not use CDNs. 

But such a plan would have clear consumer benefits, would create another revenue stream for mobile ISPs clamoring for such new revenue sources and would remove a key barrier to use of ESPN content on a mobile device, principally the usage implications. 

Some might say the possible new approach is a reasonable application of the notion that innovations within the ecosystem should occur as parties see mutual benefit, and not from rules imposed from the outside. 

Still, many app providers would resist such a precedent, and some think the Federal Communications Commission would almost certainly conclude it has to evaluate such deals as possibly requiring application of "network neutrality" rules to mobile networks, even though mobile networks presently are exempt from the "best effort only" approach applied to fixed network providers. 

Opinions of course will vary. Some believe network neutrality should not apply to any ISPs, since it prohibits creation of features end users might themselves want, such as quality of service guarantees, preference for voice, videoconferencing or video entertainment streams, when those are used. 

Others believe network neutrality rules are fairer to small app providers and will help prevent marketplace abuses, such as ISPs favoring their own content over similar content provided by unaffiliated parties.

Others would argue that if online content providers are to garner advertising revenues commensurate with viewership and engagement, then impediments to viewership need to be overcome. And there is no question but that data caps discourage usage. 

Large Internet service providers have in the past pointedly suggested that application providers pay them for access to their networks and customers. The argument, in part, rests on the fact that some apps, especially video entertainment apps, represent unusually large demands on the network. 

The wider context is that shares of revenue within the Internet ecosystem are viewed as disproportionate, at least by ISPs. But the possible ESPN approach simultaneously provides end user benefit, value for ESPN and mobile ISPs. 

It's a big deal.

Top Line Revenue is Today's Telco Problem; Will Tomorrow's Problem be Bankruptcy?

It would not be unfair to note that most European fixed line telcos now are facing a revenue decline of significant proportions. BT Group’s revenue fell five percent, year over year, for the period ending March 31, 2013. 

Underlying revenue excluding transit, was down three percent . 

Deutsche Telekom revenue declined 4.5 percent, year over year, its most-recent earnings report showed.

Telefónica had similar issues in the first quarter. Revenues were down 8.8 percent, or down 1.6 percent on an organic basis, not including currency effects. The bright spot was Telefónica Latinoamérica, which accounted for 51 percent of consolidated revenues and grew nearly three percent, year over year.

To be sure, European telcos are dealing with unhelpful changes in wholesale tariffs and roaming revenue, plus sluggish economic conditions. The longer term issue is what will constitute a “turnaround” in fortunes, and whether such a turnaround is possible.

Executives remain optimistic: they have to. Telcos can point to tough economic conditions, which is true enough. They will rightly note the impact of mandatory price reductions in the wholesale part of their businesses. 

But consumers are behaving differently: they are talking less, texting less, dropping landline service. 

European telco executives argue that consolidation is needed to help shore up business cases. That's likely true enough. Also, operating costs are simply too high, and it isn't so clear how much control the carriers might have in that regard. Most tier one service providers have huge pension obligations and many face pressure from governments not to cut jobs. 

But the bigger problem is the erosion of customers and the gap between new revenue sources and legacy sources. No major telco has gone bankrupt yet. But that is not an impossibility. 

McCain Introduces Bill for 'a la Carte' Cable TV

Bills get introduced in Congress all the time, for lots of reasons. Not all, in fact, quite few, have any chance of passage. A new bill to force unbundling is probably not going to result in new legislation. Broadcasters, programming networks and cable operators all will oppose it.

Many of us would say we prefer unbundling. But the implications are less certain than many think. For many consumers,  prices probably would not change.  Most people watch a dozen channels.

At $10 per channel, most consumers would not see savings (assuming sales are channels, not shows or series).

Choice still would be nice. But some wouldn't expect savings, for every consumer,  with every selection of channels.

Lots of other things would change as well. Smaller networks would go user direct. And the shift to online delivery would accelerate.

http://feedproxy.google.com/~r/Mashable/~3/busXwInONMU/

Telecom P/E Multiples Overextended?

"Bubble" is too strong a word. But multiples are too high.

http://on.barrons.com/10d3aRG

Aio Wireless Differentiates Prepaid from Postpaid

The big deal for a large mobile service provider, when addressing the prepaid segment of the market, is to differentiate, protecting the perceived value of postpaid service while still offering an option for customers who prefer prepaid.

Aio Wireless, the new AT&T prepaid brand, will do so by not offering Long Term Evolution access. Aio expects the service to roll out in multiple markets across the United States during 2013, with an initial launch in Houston, Orlando and Tampa. 

Messaging Apps Do Not Take SMS Share; They Destroy the Market

Text messaging might be worth about $140 billion annually over the next three years for mobile service providers. 

But use of over the top messaging apps is growing. On the other hand, that doesn't mean the revenue earned by messaging app providers is anywhere close to that of text messaging. 

The analogy likely will be the impact of Skype on international long distance revenue. 

Skype displaces some amount of international long distance revenue. But it displaces a huge amount of usage. 



In other words, even as Skype is a substitute for much international long distance, Skype doesn't just take share. Skype essentially destroys the international long distance market, exchanging usage pennies for former usage dollars. 

Usage is not revenue, for voice or messaging. 

BII

Disruption of Access Pricing Will Be Necessary

In a competitive market, the lowest-cost competitor tends to win, all other things being equal. Nobody would question the notion that tier-one telcos tend to be the highest-cost providers in any market.

In the U.S. market, cable operators operate at lower costs than their telco foes can. Many ISPs operate at lower costs than cable operators.

All of that should have some drop dead simple implications. Tier one telcos will have to keep cutting costs. So it is no surprise that the UNI Europa ICTS union now estimates that European carriers will probably cut their workforce by 30 percent by about 2018.

Within a decade, industry employment will be cut in half, the group also says. In large part, that is only an effort to benchmark against more efficient North American carriers.

But that isn’t good enough. That only makes a very-high-cost European carrier as efficient as the high-cost providers in the North American market.

To be sure, access networks always have been expensive. But as cable and mobile networks now have demonstrated, there are ways to significantly trim access network costs. The big challenge now is whether it is possible to disruptively lower access costs.

Google Fiber, it might be argued, is not so much disrupting network cost as it is disrupting user expectations about the value-price relationship for Internet access. But Google Fiber does not appear to have massively disrupted the actual cost of building an access network.

Recent experience with municipal Wi-Fi has been disappointing, but perhaps more for revenue than cost of network reasons. In other cases, as for rural wireless ISPs, middle mile backhaul can be a bigger business model input than the cost of access networks.

But the economics of WISP networks have gotten better in recent years. Improvements in the price-performance of radio gear are largely the reason.

So the issue is whether disruption of high-quality access markets is possible. Right now, it isn’t clear whether it can be done, or how it might be done. But that doesn’t mean it can’t be done.

And the fixed network is the key problem for other reasons, not least of the problems being that mobile networks generate about two thirds of global industry revenue.

So no matter what is spent on the fixed networks, they only generate a third of total revenue. And that assumes the revenue ratios do not tilt in the direction of mobile even more than at present.

U.S wireless revenue in 2012 of about $335 billion represents about 66 percent of communications revenues.  Fixed network voice revenue was about $132 billion, with an additional $38 billion in broadband access revenue and $6 billion in television revenue, for a total of about $176 billion in fixed network revenue.

U.S. mobile revenues as a percentage of total revenues have been climbing for a decade. The only issue has been the precise year of crossover, when wireless surpasses fixed network revenue. That will happen in 2013, some believe.

As those trends continue, it is going to be harder than ever to create a good business case for fixed network access. And yet it must be done. For that reasons, some of us think disruption is going to be necessary.