Mobile Adoption: A Prime Example of Why "Investment" Beats "Aid"

One of the arguable delusions the "aid community" and probably most people have had over the past few decades is that government-to-government actually works. The issue here is not "feeling virtuous," but being virtuous. 

And there is growing evidence that most government-to-government foreign aid actually retards economic development. It is, in other words, a case of "feeling good" instead of "doing good."

Some would argue such foreign aid does not work, or actually has made things worse. 

Some might argue the whole point is doing good, not "feeling good." Most might agree that results are problematic, at best, and harmful at worst. 

On the other hand, there is an argument that some forms of assistance do work, namely the small, non-governmental organization types of aid that have more chance of being put to work by the people the aid is supposed to reach. 

Beyond that, investment, not aid, is what is needed. There's a big difference. Those of you in the communications business might note the huge "development" impact of making it possible for people everywhere to communicate using mobile phones. Since about 2003 or so, the industry has witnessed an unprecedented adoption of communications by people everywhere. 

All that was done with investment, not aid. 

Spectrum Auction Outcomes Might Hinge on Bidding Rules

The Federal Communications Commission in 2014 is scheduled to conduct an auction to re-allocate as much as 120 MHz of radio spectrum from television broadcasters to mobile service providers.

As much as 102 MHz  worth of new usable spectrum is possible, after accounting for guard bands and spectrum adjustments.

But spectrum auctions always entail some degree of friction between rival bidders, and equally contentious thinking about the best policies to govern such auctions.

The U.S. Department of Justice, for example, thinks there are strategic and marketplace advantages to lower-frequency spectrum (below 1 GHz), and that the two weaker U.S. carriers are at a disadvantage in that regard.

The solution DoJ has proposed is preference for Sprint and T-Mobile USA in bidding for those lower-frequency airwaves. But some economists argue that the greatest efficiency and consumer benefit will arise if no restrictions are placed on the bidding.

The upcoming auction will be different than most prior mobile spectrum auctions, though. The most important difference is that current licensees will have to be induced to sell their spectrum. Obviously, the more money they are offered, the greater the odds they will agree to sell.

The FCC will first take bids in a reverse auction in which television broadcasters will set the prices at which they are prepared to sell their spectrum licenses. The Commission then will conduct a forward auction to allocate that reclaimed spectrum to mobile service providers.

For that reason, any rules that limit the amount of money the FCC can raise will decrease the likelihood that the spectrum actually gets sold, and then redeployed to support mobile communications.

And some argue reserving spectrum for firms such as Sprint and T-Mobile USA will have the effect of reducing the amount of money buyers are willing to pay, thereby reducing the amount of spectrum that actually gets reallocated, a new analysis suggests.

That analysis by Robert J. Shapiro, Douglas Holtz‐Eakin and Coleman Bazelon, published by the Georgetown University Center on Business and Public Policy, argues that the best way to deploy the new spectrum is not to bar AT&T and Verizon Wireless, or any other bidders, from the auctions.

Others argue that the spectrum will be most usefully deployed if the entities best positioned to use it are the entities that win the new spectrum, and also barring some bidders will reduce auction revenues, in turn reducing the amount of spectrum that can be shifted to support new mobile service.

It is counter intuitive, but fiddling with auction rules to bar leading providers, or to favor other contestants, might result in worse outcomes than simply letting all bidders compete. In part, that is because market concentration and consumer welfare are not necessarily and always opposites, as Phoenix Center has argued.

It is understandable that either T-Mobile USA or Sprint might prefer rules that favor them, just as AT&T and Verizon Wireless would prefer not to be limited or barred from participating. 

Those obvious economic interests aside, the matter of what policy is "best," in terms of getting the most new spectrum allocated, sometimes requires analysis. As often is the case, different policies will produce different outcomes.

And the desired outcomes might vary. Some might want "more competition." Others will want "maximum new spectrum," or "greatest efficiency" or "fastest investment." Bid rules can affect and shape desired outcomes.

EE Launches Price War in U.K. Fixed Network Internet Access Market

EE (Everything Everywhere) has launched an attack on BT prices for Internet access services, dropping all usage caps on its six home broadband packages, and setting an entry level plan price of £5 per month plus line rental.

Access speed packages start at 14 Mbps and feature additional tiers of 38 Mbps, up to 76 Mbps on fiber to cabinet lines. Calling prices also have been reduced.

The original 38 Mbps fiber-to-cabinet service with a 40 GB usage allowance has been upgraded to offer unlimited usage while remaining at £15 per month for new customers.

BT’s  unlimited-usage price is £23/month, while Sky sells unlimited usage at £20/month, while TalkTalk’s price is £16.50/month.

Clearly, EE is hoping to disrupt the market by offering dramatically lower prices.

Mexico Communications, TV Markets to See Market Share Shifts

Mexico now has become a focal point for potential market change after Mexican President Enrique Peña Nieto signed into law a new framework for competition in the telecommunications and TV broadcast industries that has the express aim of limiting market power and shifting market share  in Mexico’s communications and media businesses.

In essence, the bill allows for something like the 1984 breakup of the AT&T Bell system, though it isn’t clear that is the preferred method for altering market share in the Mexican markets.

At least initially, regulators are likely to try new network unbundling and interconnection rates that will favor competitors. Just how much share could change is the big question. In the U.S. market and in Western Europe, competition has in many cases reduced the former market leader’s share to as little as 30 percent to 35 percent.

But that required asset divestitures. In the absence of such asset disposals, some of the existing competitors might expect to gain perhaps 10 percent to 15 percent share.

What is clear is that the “problem” is seen to be excessive market control by one company, in this case América Móvil, which has 80 percent share of fixed lines and also 70 percent share of mobile accounts as well.

The new law creates a brand new regulatory body, Ifetel, which will have the ability to apply more restrictive regulations on dominant competitors or force them to sell assets.

But Grupo Televisa likewise controls 70 percent of the broadcast TV market, and also is expected to see new competition, ironically from Carlos Slim, who controls América Móvil.

One way or the other, regulators will take actions to reduce the market share held by the leaders of the fixed line, mobile and TV broadcast industries. That, of course, is the whole point of inducing new competition: the leaders lose market share.

Two new national television networks will be authorized, and existing satellite and cable TV companies will be required to carry those signals at no charge to the new networks.

Aside from changes in interconnection rates to favor attackers, foreign businesses will be permitted to own up to 49 percent (up from zero percent) of radio firms, and can increase their stake to 100 percent (up from 49 percent) in other telecommunications operations.

SoftBank Raises Sprint Bid

Though SoftBank had said it would not alter its original bid to buy Sprint Nextel Corporation, SoftBank has raised its offer for Sprint. Essentially, the offer funnels more cash to shareholders, and less to Sprint in the form of additional capital.

Sprint’s Special Committee and Board of Directors have unanimously approved an amended merger agreement and again have unanimously recommended to stockholders to vote for the revised SoftBank transaction.

Under the amended Merger Agreement, SoftBank will pay an additional $4.5 billion of cash to Sprint stockholders at closing, bringing the total cash consideration available to Sprint stockholders to $16.64 billion.

The cash available to stockholders has increased by $1.48 per share, from $4.02 to $5.50, based on the June 7, 2013 share count.

Sprint also says it has ended talks with Dish Network about that firm's rival bid for Sprint. Perhaps significantly, one significant shareholder Paulson, now seems willing to vote for the sale of Sprint to SoftBank. That could tip the votes in favor of the SoftBank bid. 

But expect another, and higher, bid from Dish Network. Though T-Mobile USA offers a fallback position, Dish Network seems to believe Sprint, with its Clearwire spectrum assets, are a better fit.

And Dish is highly motivated. The billions worth of valuation for its Long Term Evolution spectrum will fall dramatically if it cannot be used as part of a viable operating network, with significant market share.

SDN Will Follow "Big Data" Through the Peak of Hype

Software defined networks already have started down the path of “hype” that is a normal part of the adoption process for any new technology.

Big data is the trend that will precede software defined networking along the typical hype cycle, many would argue. The point is that SDN value is going to vastly disappoint many would-be users, for quite some time.

That typically happens with most new technologies that ultimately prove to have value. In the meantime, there will be the normal jockeying for position, with the odd result that some of the touted advantages (multivendor support, lower cost of network elements) will emerge only within specific ecosystems.

Apple Could be a Dangerous Mobile Service Provider

A new global survey conducted by Accenture suggests Apple might be a formidable Internet service or mobile service provider.

The global survey of mobile users by Accenture finds that 31 percent of all respondents surveyed prefer that their device supplier also supply their communication needs, including Internet access service.

In fact, 40 percent of Apple owners prefer all communications needs to be met by Apple.  

A majority of mobile Internet users prefer device makers over their mobile provider as their unified provider of communication needs. Mobile providers actually rank third in preference.

This preference is exceptionally strong in emerging markets, where more than 40 percent of mobile Internet users prefer mobile device or OS makers to fulfill all their communication needs, compared to only 17 percent who prefer the mobile provider.

In emerging markets, fully 42 percent of respondents would prefer that their device supplier also provide communications and Internet access.

About 28 percent of all respondents do not care what entity provides their Internet access, as long as those needs are met. The study indicates how big the opportunity for new ISPs might be.

Only 21 percent of all respondents indicated that their mobile service provider was their “preferred supplier.”

Accenture’s Mobile Web Watch 2013 study surveyed nearly 31,000 consumers in 26 countries.

That means mobile service providers potentially could be disrupted, as Google Fiber now is disrupting consumer expectations of fixed network services.

Fixed network Internet service providers, whether they will admit it or not, are feeling a disruptive challenge from Google Fiber, simply because Google Fiber is resetting consumer expectations about what a state of the art Internet access service looks like.

All prior offers are challenged on both the value and price front, by Google Fiber’s $70 a month 1 Gbps symmetrical service, which provides two to three orders of magnitude more bandwidth in the downstream direction, and three orders of magnitude more bandwidth upstream, than other offers, at prices that are close to what users already pay for vastly slower services.