What is Impact of Early Device Upgrade Plans?

The competitive impact of new device upgrade plans launched by T-Mobile USA, AT&T and Verizon Wireless is hard to determine at the moment. T-Mobile USA might have hoped its plan would not soon be copied by the other leading national service providers, but with the exception of Sprint, the competitive response came quickly.

Also, there are signs that consumers are upgrading their devices more slowly than they had been doing in the past several years.

According to analysts at UBS, replacement rates actually turned negative in 2012, when device upgrades dropped about nine percent, year over year.

UBS predicts upgrades will fall again in 2013. So it is unclear how much demand exists for more-rapid upgrade cycles on smart phones. In principle, the new plans allow for upgrades as often as every six months to a year, depending on the service provider and the payment plans subscribers choose.

Nor is it entirely clear whether handset subsidies are “good” or “bad” for consumers who choose to buy service plans featuring bundled devices. 

A study by the Organization for Economic Cooperation and Development suggests the advantages of unbundled device plans are somewhat nuanced and subtle.

For those countries where both bundled and “bring your own device” options exist, such as in France or the United States, the report concludes that the bundled option (with discounted smartphone) was, on average, between $10 and $20 a month more expensive than the BYOD option.

“This is not unexpected,”  a new OECD report shows. When service providers bundle or subsidize a device over time, they essentially are loaning the customer money. The difference in cost over three years essentially represents the cost of credit.

There are other consumer advantages, but they are a bit subtle. Unbundled phone sales can have a positive impact on both consumers and the ecosystem that exists around smartphones, the report suggests, in the area of price transparency, for example.

But the report also concludes that, in broad terms, service pricing is only slightly affected by the presence of bundled discounts for popular smart phones.

On the other hand, in many cases, consumers possibly pay higher costs over three years, when purchasing a device that is bundled with a service plan.

But bundled devices are beneficial for consumers by removing high upfront payments that are a deterrent to use of high-end smart phones.

In some cases, there also are service provider effects. The report notes that there is some evidence that when one mobile service provider provides subsidized devices, and others do not, the non-bundling carriers suffer marketplace damage.

In Spain, Telefonica and Vodafone, the two operators with the largest market share, decided to remove handset subsidies in February 2012 (Cinco Dias, 2012).This action was not followed by Orange (Spain) which gained market share from Telefonica and Vodafone during the first half of that year.

Possibly as a result of this experience Vodafone reintroduced what it described as a short term special offer, which included the price of a handset, at the end of July 2012.

The point is that benefits and costs for early device upgrade plans, or bundled or unbundled device sales, are quite subtle.

European Service Providers Continue to Face More Market Troubles than North American Providers

New financial results from service providers in North America and Europe continue to show the disparate fortunes of tier-one service providers in those regions.

Verizon Communications reported second-quarter 2013 results that stand in high contrast to results many Europe-based service providers are likely to post in 2013, across both Verizon’s fixed network and mobile lines of business.

Service revenues in the quarter totaled $17.1 billion, up 8.3 percent year over year. Retail service revenues grew 7.8 percent year over year, to $16.4 billion.

Verizon Wireless generated $20 billion in second-quarter revenues, up 7.5 percent year over year. Postpaid average revenue per account rose 6.4 percent to $152.50. Wireless operating margin came in at 32.4 percent, up from 30.8 percent for the same quarter of 2012.

In the wireline business, revenues increased 4.7 percent to $3.6 billion in the second quarter, with most of the growth coming from Verizon’s FiOS service. Verizon added 161,000 net new customers to its FiOS Internet service and 140,000 to its FiOS video service. FiOS Internet service is up 12.2 percent compared with the second quarter of 2012, and FiOS video service is up 12.6 percent.

Vodafonel Group service revenue including joint ventures declined 3.5 percent; or 1.3 percent excluding joint ventures. Though revenue grew strongly in Turkey at 15.5 percent and India at 13.8 percent, revenues in Germany declined 5.1 percent and 4.5 percent in the United Kingdom.

Revenue in Italy dropped 17.6 percent, while in Spain revenue dropped 10.6 percent.

Telefonica, Europe's biggest telecom operator (ranked by revenue), in May 2013 reported a 11.7 percent revenue drop to 6.7 billion euros ($8.8 billion) for its European operations in the first quarter, with total revenue down 9 percent at 14.1 billion.

Deutsche Telekom said revenue in Europe shrank 6.9 percent to 3.33 billion euros, while overall revenue fell 4.5 percent to 13.8 billion.

But there are perhaps signs that Verizon is being forced to spend a bit more to propel those earnings. Verizon operating expenses were up 1.4 percent year over year.

Sales, general and administrative expenses were up 2.2 percent in the quarter to more than $8 billion.

Verizon also is slightly increasing its capital spending guidance from $16.2 billion in 2013 to a new range of $16.4 billion to $16.6 billion, with the capital slated for deploying new wireless data and services spectrum in the second half of 2013.

Retail postpaid average revenue per account increased 6.4 percent over the second quarter 2012, to $152.50 per month.

The number of retail postpaid customers grew by 941,000 in the quarter, bringing Verizon’s total number of retail connections to 100.1 million, up 6.3% compared with the second quarter of 2012.

Mobile  operating income margin was 32.4 percent, compared with 30.8 percent in second quarter of 2012. EBITDA margin on service revenues was 49.8 percent.

Fixed network consumer revenues were $3.6 billion, an increase of 4.7 percent compared with second-quarter 2012. Consumer ARPU for wireline services increased to $109.67 in second-quarter 2013, up 9.4 percent compared with second-quarter 2012.

FiOS revenues grew 14.7 percent, to $2.7 billion in second-quarter 2013, compared with $2.4 billion in second-quarter 2012. ARPU for FiOS customers continued to be more than $150 in second-quarter 2013.

Sales of strategic services to global enterprise customers increased 4.8 percent compared with second-quarter 2012 and represented 57 percent of total enterprise revenues, compared with 52 percent in second-quarter 2012. Strategic services include cloud and data center services, security and IT solutions, advanced communications, strategic networking and telematics services.

Gigabit Speed Prompts Kansas City Library to Lend Productivity Apps

One of the claimed advantages for enabling faster Internet access is that doing so encourages developers to create new applications that take advantage of those higher bandwidths. One might point to the precedent of the World Wide Web, real-time applications of all sorts and video-heavy apps as examples of what happens when faster Internet access is available.

It appears one example is a new plan by the Kansas City Public Library to provide access to high-end productivity software such as Microsoft Office, Adobe Photoshop and Adobe Premier, to library patrons.

With the help of the Mozilla Ignite Challenge, intended to foster applications that take advantage of gigabit-per-second Internet speeds, the Kansas City Public Library is developing a high-speed Software Lending Library that will allow users to “check out” applications hosted by the library.

According to the proposal, the library can do so because of gigabit speeds provided by Google Fiber, which will enable library patrons to access brand-name business software from gigabit-wired locations even using low-performing or older computers and devices.

So far, that is one concrete example of a new app enabled by gigabit speeds. By extension, the same should be true of any other cloud-based service.

$157 Billion Telecom API Revenue Opportunity?

Telephony application program interfaces can generate as much as $157 billion in global revenues by 2018, growing at a CAGR of 38 percent between 2013 and 2018, according to Mind Commerce. 

The Asia Pacific, North America and Western Europe region will remain to be the largest market segments by the end of 2018, while the Latin America and Central America and Middle East and Africa regions will see the healthiest growth rates over the next five years.

The subscriber data management category will witness the fastest growth rate and will eventually account for $29 billion in global revenue by the end of 2018. 

The average volume of API transactions for a tier one wireless carrier will eventually reach 167 billion transactions a month on average.

Telecom APIs allow carriers to generate revenue by exposing network features to third-party service or application providers. 

Examples include network quality of service for video services, subscriber data management for advertising and profiling. 

Today nearly 24 percent of all Web and 15 percent of all mobile applications utilize APIs, the report suggests. This figure is expected to increase to over 80 percent by the end of 2018. 

Small Alberta Town to Get Gigabit Speeds

Residents of a 8,500-resident Canadian town north of Calgary will get gigabit service for the same price they now pay for 100 Mbps, as part of a network upgrade by the town's non-profit ISP. 

The non-profit Olds Institute for Community and Regional Development in Olds, Alberta, Canada will pay $57 a month for a gigabit connection if they also subscribe to television or phone services, or pay $90 a month a la carte, at least as part of a promotion the ISP is running. 

O-Net already provides 100 Mbps service in town, and O-Net also got a $6 million loan from the town of Olds to support construction of the network. 

Tablet Mobile Connections Grow 48%

Mobile service providers are having success convincing subscribers to buy access for their tablets, according to NPD Connected Intelligence. 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.

Tablet connections tend to use 850 MB of mobile data per month, compared to 1 GB on smart phones, according to NPD.

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.

Source: The NPD Group/Connected Intelligence Mobile Data Consumption Report

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.

source: Forrester Research  

Bill Proposes Auctioning 1755 MHz to 1780 MHz Spectrum for Mobile Use

Legislation that would require the spectrum between 1755 MHz and 1780 MHz be reallocated and auctioned for commercial mobile broadband use has been introduced in the U.S. House of Representatives. The bill first was introduced in 2012.

The additional spectrum is intended to be paired with the 2155 MHz to 2180 MHz spectrum band and then auctioned.

The “Efficient Use of Government Spectrum Act of 2013” was introduced by Representatives Doris Matsui (D-CA), Brett Guthrie (R-KY), Duncan Hunter (R-CA) and Adam Smith (D-WA).

The National Telecommunications and Information Administration has concluded that 95 megahertz of spectrum, the 1755 MHz to 1850 MHz band can be repositioned for wireless broadband use.  

NTIA has proposed a combination of relocated federal users and spectrum shared between federal agencies and commercial users.