Messaging Monetization Remains an Issue for App Providers and ISPs

Monetization long has been a key business challenge for most Internet applications, features and services. 

That is true for new over the top messaging platforms and has started to be a problem for mobile service providers who find text messaging usage and revenues dwindling. 

That remains true for mobile applications such as messaging, with the salient exception of text messaging, among the few messaging services with a clear direct revenue model.

Messaging is viewed by some as mobile's killer app. The problem for access providers is that it might prove a killer app for third party app providers, not Internet service providers. 

Text messaging, though a key source of mobile value in the past, will be so important a direct revenue generator for mobile service providers in the future, either. 

In fact, text messaging is becoming more a key feature than a major revenue source for many mobile service providers. 

In  many ways, that would fit the pattern of email, which drove adoption of dial-up Internet access. Email the feature drove adoption of Internet access the service.

That seems still to be the pattern. More than 50 percent of total commercial email opens occurred on mobile devices in the first quarter of 2013, according to Experian Marketing Services. That is another example of an indirect revenue model. 

U.S. Government Has been Gathering Data from Internet, Telco, Media Firms

Verizon Wireless has been forced to hand over daily call detail records to the U.S National Security Agency. The order, a copy of which has been obtained by the Guardian, requires Verizon on an “ongoing, daily basis” to give the NSA information on all telephone calls in its systems, both within the US and between the US and other countries.

The U.S. Justice Department also secretly obtained Associated Press call records.

Google is fighting efforts by the Federal Bureau of Investigation requesting information about Google users. The secretive and warrantless electronic data gathering also has been declared unconstitutional in a federal court.

Is it all just a coincidence? You don't have to be a "conspiracy" theorist to see a pattern of overreach. What all three efforts seem to have in common is a broad search for information without a specific and clear relationship to an on-going criminal or clear national security investigation. 

Millions of U.S. residents therefore are having their records collected indiscriminately by agencies of the federal government, even when they are not suspected in any way of doing anything remotely criminal or dangerous to national security. 

Civil libertarians are right to be outraged and concerned. 

What France Telecom Interest in Cross Selling Cable Tells You About the Market

France Telecom thinks it has to sell triple-play bundles, but wants to avoid making acquisitions to do so. Why it wants to do so explains much about the strategic context of European communications. 

Basically, the existing market for most fixed network voice, fixed network video entertainment and mobile services is shrinking slowly. When that happens, service providers are faced with higher overhead costs and stranded assets, every year, as fewer customers generate revenue on a fixed base of assets.

While it might make sense in some cases to make acquisitions, either to create more scale, enter a new geography or acquire a needed capability, in some cases an acquirer might not want to deploy capital in that way. 

In other cases, regulators might bar such acquisitions. 

So France Telecom (Orange) is considering cross licensing between itself and cable TV providers, for example. That would allow each party to sell triple-play bundles, a proven way to attract and retain consumer customers, at lower costs than outright acquisitions. 

That approach also arguably avoids significant capital investment (both in network facilities and licensing agreements). 

The point is that rational actors will invest differently in growing businesses than in static or declining businesses. And it is hard to avoid the conclusion that in Western Europe, both mobile and fixed network businesses are not growing. Whether they are static or declining is the relevant issue. 

Must Regulators Choose Between "Competition" and "Investment?"

Though the assertion is contested, European service providers say a fragmented market prevents European Union service providers from achieving economies of scale that would allow them to invest faster, and invest more, in Long Term Evolution and other advanced network platforms.

In other words, regulators have to make a choice. They can continue to regulate in ways that promote competition by setting low wholesale rates, or they can regulate to promote investment by allowing widespread industry consolidation.

Addressing the argument that the markets require robust competition to promote lower prices and better services, the GSM Association argues “there is no statistically significant relationship between market concentration and prices.”

In other words, there is no direct relationship between the number of competitors in markets and the consumer benefits (lower prices, better and more varied services), the GSM Association argues.

At least in European Union countries, that might be explained by scale economics. The typical EU service provider is much smaller than an AT&T or Verizon Wireless, for example, denying EU service providers the ability to scale their operations in ways that enhance revenue and lower costs.

In fact, argues GSMA, the relationship between market concentration and consumer prices is inversely related. In other words, more-concentrated markets tend to have lower retail prices.

That is an argument also made by economists at Phoenix Center for Advanced Legal & Economic Public Policy Studies.

Also, GSMA argues, qualitative improvements (more features, same price; more bandwidth, same price) might also be said to more prevalent where contestants have the ability to invest more, because they earn more.

“Policies that sacrifice long-term dynamic efficiency for short-term gains in static efficiency (setting prices at or near short-term marginal costs) risk being pennywise and pound foolish,” GSMA argues.

In other words, in seeking the lowest-possible wholesale costs, to promote price competition, arguably also sacrifices service provider investment over the long term. That is why, GSMA argues, service provider investment in the EU tends to lag investment levels seen in the United States.

In markets characterized by network effects, such as communications, regulatory policies that limit firms’ ability to capture economies of scale and scope “may be particularly

pernicious,” GSMA says.

The reason is that limiting economies of scale (subscriber mass) and scope (ability to sell more products to the existing customer base) can mean service providers never can justify investing in capabilities to provide new services and features.

There also is no consistent relationship between market concentration and innovation, the GSM Association argues.

In dynamic markets such as mobile wireless, market concentration and performance are not inversely related, the association argues.

Enterprise Hardware and Software Supplier Revenue Drops 11%

Aggressive price competition in enterprise hardware and software markets has shrunk supplier revenue as much as 11 percent over the past year, Synergy Research Group says.

Across some of the largest enterprise market segments prices have plunged by an average 17 percent since the end of 2011, despite volume growth in enterprise voice, Ethernet switching and telepresence.

But Synergy Research Group analysts also say a shift to cloud computing is having an effect as well.

But it would be safe to predict additional pressure as software defined networking starts to take hold. Basically, the idea behind SDN is that network element control functions are centralized, allowing lower-cost “in the network” elements to be used, frequently also allowing a multi-vendor approach to the simpler network elements.

That means widespread SDN should lead to enterprises and other organizations being able to buy and use lower-cost devices and network elements such as routers and switches.

Mobile Broadband Access Revenues Will Surpass Fixed Revenues in 2013

Sometime this year, In 2013, mobile Internet access revenues, at US$259 billion, will account for over half of total end user Internet access spending, overtaking revenues from fixed broadband services, in the United States and South Korea, PwC now forecasts. 

By 2015, mobile broadband spending will exceed fixed broadband spending in the United Kingdom. 

By 2017, nearly 286.7 million U.S. users, or 87 percent of the population, will use mobile Internet devices, while about 85 percent of homes will have broadband access using fixed networks.

Mobile Internet access spending will top $54 billion in the United States in 2013, compared with $49.6 billion in fixed network Internet access spending.

In 2012, fixed broadband access represented $46.5 billion in revenue, slightly outpacing mobile revenues at $44.5 billion.

The only real question has been when the crossover would happen, much as the crossover in use of fixed network voice and mobile voice occurred. Ovum has predicted a 2014 crossover, for example, the point at which service providers would make more revenue from mobile than from fixed broadband services. 

There are some nuances. In virtually all markets, use of smart phones could explain the growth of revenue for access services. But access revenue is not necessarily directly related to the amount of usage. 

In addition to smart phones, more consumers are adding mobile connections for their tablets. 

Mobile connections for tablets grew 48 percent in the first quarter of 2013 compared to the first quarter of 2012, and are used on 12 percent of U.S. tablets, according to NPD Connected Intelligence.

Tablet connections tend to use 850 MB of mobile data per month, compared to 1 GB on smart phones, according to NPD. That shows the variance between access revenue and the actual amount of data consumed on phones as compared to tablets.

But most data consumption, in terms of volume, still happens on the fixed network. Tablet Wi-Fi data use averages around 10 GB of data per month, or more than 2.5 times the amount of Wi-Fi data being used on smart phones.

“The difference in consumption on the Wi-Fi side comes from much higher video consumption on tablets (4GB per tablet per month), which accounts for 40 percent of all tablet data traffic, compared to less than 10 percent of data consumption on smart phones.” said Eddie Hold, NPD Connected Intelligence VP.

The connected tablet market is currently dominated by and AT&T and Verizon Wireless, in large part because most consumers purchase the tablet connection from their smart phone service provider.

It is highly likely that AT&T and Verizon Wireless are benefiting from their shared data plans, which make it relatively easy to add another device to a data plan. About a third of Verizon Wireless customers now are on “Share Everything” plans that make adding a tablet relatively affordable, at about $10 per tablet per month.

Still, given the fact that most tablets get used inside the home, where Wi-Fi typically is available, demand for mobile broadband likely will remain fairly muted. “Most consumers haven’t found that key application convincing them to add a cellular connection,” says Eddie Hold, vice president, Connected Intelligence.

To be sure, use of tablets when on the go and at work will increase as more people get them, and more discover they can dispense with use of a PC.

According to a Google survey from March 2011, people were generally using their tablets at home. 82 percent said they primarily used their tablet device at home, followed by 11 percent on the move, and seven percent at work.

A survey by Forrester Research in 2013 suggested that work-issued tablets get used 48 percent of the time at a desk during a typical work week, while 68 percent of the time in a work week,  tablets get used at home.

Trends might be different in emerging markets, though, in large part because Internet access primarily will be a function of mobile access, at least in the near term. Longer term, fixed wireless should be a bigger factor.

The Asia Pacific region will add nearly half of all new connections between 2013 and 2017 (1.4 billion) and will remain at just under 50 percent of global subscribers. Almost by definition, a growing percentage of those connections will generate Internet access revenue.

Latin America and Africa combined will add the next 20 percent of subscribers, representing 595 million new connections, according to the GSM Association.  

The growth in data traffic is supported by an increasing number of mobile broadband connections, which have grown seven fold since 2008, from just over 0.2 billion to 1.6 billion, and is expected to grow at 26 percent annually.

The average mobile Internet connection speed has more than doubled between 2010

and 2012 and it is forecast to increase seven fold by 2017, reaching almost 4 Mbps

on average.

Smart Phones Will be Majority of Phones Sold in 2013, Globally

2013 will mark the first year that smart phone shipments surpass those of feature phones, with smart phones expected to account for 52.2 percent of all mobile phone shipments worldwide, IDC now predicts. 

Emerging markets will account for 65 percent of all smart phones shipped during 2013, up from 43 percent in 2010. 

Smart phone shipments are expected to grow 33 percent year over year in 2013 reaching 958.8 million units, up from 722.5 million units last year. 

As you might suspect, a growing volume of sales in emerging markets will mean lower average device selling prices. 

In fact, smart phone average selling prices (ASPs) have declined to $372 in 2013, down from $407 in 2012 and $443 in 2011. 

Smart phone ASPs are expected to drop as low as $309 by 2017 with emerging market demand the main catalyst for the change. Average smart phone selling prices are expected to decline by about nine percent in 2013, IDC predicts.

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Mature Markets includes: USA, Canada, Western Europe, Japan, Australia, and New Zealand.