4G Nets Will Carry 66% of All Mobile Traffic by 2018

Users of Long Term Evolution 4G networks consume more data than users of 3G networks. 

In fact, 4G mobile users buy bigger data allowances than 3G users, a study by Mobidia has found. Users on 4G LTE networks also consume 36 percent more data than users on 3G networks, Mobidia says.

source: Mobidia

Even though 4G’s share of mobilke subscriptions was less than three percent at the end of the second quarter of 2013, it is expected to account for slightly more than 20 percent of the total data consumed on mobile networks worldwide in 2013. 

After surpassing 3G networks in 2016, 4G networks will go on to capture 66 percent of data traffic by 2018, according to ABI Research.

In fact, 4G data traffic will grow at a compound annual growth rate of 82.2 percent between 2013 and 2018, ABI Research says.

Fourth Revenue Wave Will be the Toughest

If one accepts the notion that the mobile business was built on customer revenues generated by voice, then messaging, then Internet access, one might also agree that, at some point, as voice and messaging decline, so will the ability of Internet access to sustain the revenue growth model.

If so, then a fourth wave of industry growth is necessary. Precisely what that wave will entail is the question. Most observers think third party apps will play a key role, as mobile service providers move to supply third party business partners with network-based services and features.

Many observers would argue a full flowering of that strategy is impossible so long as “best effort only” access services are lawful, since the most obvious value an access provider can provide to a business partner is assured delivery and quality of service.

There are some obvious implications. Unlike revenue sources in the first three waves, it is highly likely that the discrete revenue opportunities in a fourth wave, if based on revenue earned largely from over the top app providers partnering in some way with access providers, will be highly fragmented.

Unlike the largely undifferentiated voice, text messaging and mobile Internet access revenue streams, the fourth wave might feature lots of discrete markets, none of them remotely as large as the voice, text messaging or Internet access markets.

That will put new pressure on mobile service providers to control or reduce overhead costs, and create many sophisticated new forms of value to sell to potential business partners. The over-used phrase “agile” comes to mind, but the appellation is not far from the mark. Access providers will have to be much more nimble than in the past to support the many new types of business partners.

The danger, of course, is that other providers could enter the market. Some obvious names typically bandied about include Google, Apple, Amazon, Twitter, Microsoft, Facebook, Visa or PayPal.

What Drives Mobile Revenue Growth After M2M or Internet of Things?

One common facet of new technology adoption is that change often comes with a specific pattern, namely a longish period of low adoption, followed by an inflection point leading to rapid adoption.

That leads supporters to overestimate early adoption and vastly underestimate later adoption. Mobile phone adoption, and smart phone adoption, illustrate the process. You might think adoption is a linear process. In fact, it tends to be non-linear.

In developing regions, mobile phone adoption hit an inflection point about 2003, for example. What will happen, relatively shortly, is market saturation. That's also part of the adoption process.

In developed markets, saturation of mobile phone usage has shifted growth to mobile data. Inevitably, growth will saturate even for data, and service providers will make a transition to yet another growth mode.

In large part, that explains high interest in machine to machine or Internet of Things investments by mobile service providers. It is possible that the next wave of revenue growth will have to come from mobile devices not directly used by people.

It also is possible the following wave, after M2M, will involve some sort of shift to third party or over the top apps.

Granted, adoption rates for digital technologies have accelerated. It took 39 years for fixed line telephone adoption to grow from 10 percent to 40 percent. Electricity required 15 years to grow from 10 percent to 40 percent penetration.

In the past, 10 percent adoption of any new technology is an important milestone, as it tends to represent the inflection point, when adoption of some new innovation accelerates. Observers of technology adoption might say that happens because people adopt new technologies when somebody they know has done so.

But it also often is the case that it takes time for people to learn how to use a technology. Some would say a disjuncture between spending on new technology and measurable productivity gains can happen because the value of important new technologies often requires a redesign of business processes, not the automation of older practices.

One might also argue that technology sometimes leads to a change in consumer behavior only when a reasonable substitute product is available, and people have learned how to use the product or process.

Adopting a new technology is similar to  any other kind of investment, economists might argue. As in the case of the investment decision, the adoption of new technology entails uncertainty over future profit streams, irreversibility that creates at least some sunk costs and the opportunity to delay.

In other words, people can make a rational decision to delay adoption until it is clear of the value, and value outweighs the costs of acquiring and using the new technology.

In some ways, that is characteristic of consumer use of online video delivery, and the substitution of online video for traditional subscription TV.

In many ways, we are in a pre-adoption phase, in part because content owners will not support full online delivery of all content currently available as part of a video subscription. But what is happening is that people are learning to use the Internet, their PCs, smart phones and other devices as familiar ways to get and view entertainment video.

Percentage of Portential Video Cord Cutters Less Important than Widespread Adoption of the Behavior

In the past, 10 percent adoption of any new technology is an important milestone, as it tends to represent the inflection point, when adoption of some new innovation accelerates. Observers of technology adoption might say that happens because people adopt new technologies when somebody they know has done so.

But it also often is the case that it takes time for people to learn how to use a technology. Some would say a disjuncture between spending on new technology and measurable productivity gains can happen because the value of important new technologies often requires a redesign of business processes, not the automation of older practices.

One might also argue that technology sometimes leads to a change in consumer behavior only when a reasonable substitute product is available, and people have learned how to use the product or process.

Adopting a new technology is similar to  any other kind of investment, economists might argue. As in the case of the investment decision, the adoption of new technology entails uncertainty over future profit streams, irreversibility that creates at least some sunk costs and the opportunity to delay.

In other words, people can make a rational decision to delay adoption until it is clear of the value, and value outweighs the costs of acquiring and using the new technology.

If adoption of a technology requires complex new skills, and if it is time-consuming or costly to acquire the required level of competence, then adoption might be slow, in other words. 

In the case of online video, one might note that the investment in terminals (smart phones, tablets, PCs) already has happened, or is happening. So is the level of user familiarity with the process of finding and consuming online video.

In some ways, that is characteristic of consumer use of online video delivery, and the substitution of online video for traditional subscription TV.

In many ways, we are in a pre-adoption phase, in part because content owners will not support full online delivery of all content currently available as part of a video subscription. But what is happening is that people are learning to use the Internet, their PCs, smart phones and other devices as familiar ways to get and view entertainment video.

The point is that the habits necessary to underpin a massive change in business model are being created, little by little.

That is why the current, slow shift of some consumers to abandon traditional subscriptions is not the most important trend. What is more important is users gradual habituation to consumption of online video.

To be sure, willingness to consider video “cord cutting” is increasing, according to an analysis by Frank Magid Associates.

Magid says 2.7 percent of subscription TV customers say they are “thinking” about cutting the cord in the next year. That’s up from 2.2 percent a year ago, and 1.9 percent in 2011.

Skeptics will not those are relatively small percentages, and that more people “thinking” about cord cutting is nearly always less than the number of people who will actually do so.

That arguably is less important than the fact that people widely are becoming accustomed to finding and viewing entertainment video on smart phones, tablets and PCs.

More than half of the might-be-cutters say they would do consider video cord cutting because they get enough video to keep them happy via outlets like Netflix, Hulu and Apple’s iTunes, Magid says.

More than half also say they would do so for economic reasons. That further suggests there is latent demand for other ways to consume more-affordable video entertainment.

Either way, there is a growing sense that the value-price relationship is growing unattractive, for more people.

As you might guess, the study suggests 4.4 percent of 18-to-34-year-olds are thinking about cutting the cord, a higher than average finding.

Sports enthusiasts, as you also might guess, are less likely to say they’ would consider abandoning their video subscription.

Other studies also suggest who might guess is the case, namely that users who now have learned to rely on Internet video are more likely to say they would consider cord cutting.

According to a Diffusion Group study, 8.8 percent of adult broadband users with an Internet-connected TV and traditional video service report being highly inclined to cut the cord in the next six months. That compares to 3.5 percent of adult broadband users with video service who don’t use a connected TV.

AT&T "Open" to European Acquisitions

Major bouts of communications industry consolidation tend to occur in waves, often when regulatory and financial conditions are favorable, and when major competitors make major moves that realign market share. 

Some would say European regulators are signaling receptivity to more mergers, financial markets are signaling that money is available, and Verizon and Vodafone have made the first big move.

In the U.S. market, Sprint and T-Mobile US have made significant moves, though AT&T has been denied the chance to make a move of its own in the domestic market. That only makes European or other acquisitions more attractive, as expansion on a major scale among the four leading national mobile suppliers seems unfavorable, on the regulatory front. 

AT&T CEO Randall Stephenson also notes that Verizon's recent ability to sell $49 billion in bonds, to help fund its purchase of the balance of Vodafone's stake in Verizon Wireless that Verizon did not already own, shows there is capital available to fuel acquisitions. 

The bond offering was "eye opening," Stephenson said. "It allows you to think differently about things, different than you might have thought three weeks ago."

Some might look at revenue trends in the European mobile market and see weakness, as revenue seems to decline every year. But AT&T believes it could reverse that trend by investing more in Long Term Evolution 4G networks and thereby raise revenue, as it has seen is possible in the U.S. market. 

Major acquisition windows that rearrange markets do not open very often. When they do open, contestants need to move before the windows close again, as they will.

Separately, Telefonica will boost its stake in Telco, the holding company that controls Telecom Italia, to an initial 65 percent with an option to bring the stake to around 70 percent, according to Reuters.

Telefonica already own 46 percent of Telco, representing in turn about 10 percent of Telecom Italia shares. Telefonica says It will boost its stake in the Telecom Italia to nearly 16 percent.

Telefonica is set to acquire its additional shares from the other Telco shareholders, including Italian banks Mediobanca, Intesa Sanpaolo,  and insurer Generali.

That move might well be viewed as part of a coming merger wave in the European telecom market.

T-Mobile CFO Says Merger with Sprint Could Happen

T-Mobile US Chief Financial Officer Braxton Carter he expects  more consolidation in the U.S. mobile market, and some would say any significant further consolidtion could only mean a merger between T-Mobile US and Sprint.

Many observers would say that is not an immediate or even medium-term prospect, as U.S. antitrust officials believe the U.S. market already is too concentrated, and requires four competitors. 

Since 1991, most countries already have seen consolidation of suppliers in their mobile markets. 

AT&T Believes Economics of Gigabit Access Networks Increasingly "Look Good"

AT&T has said it will build 1-Gbps access networks in Austin, Texas, though some would say the specifics are lacking. That will  not surprise too many observers who follow the ISP business closely. 

No incumbent with a decent business selling access at about $3 to $5 per Mbps would be foollish to prematurely risk dropping those prices in a major way. 

And though many will criticize the language as not serious, AT&T CEO Randall Stephenson now says about gigabit access networks, at least in some cases, that "the cost dynamics look good, the revenue implications look good, the market implications look good, so you're going to see more of this over time and I fully expect you'll see us doing markets like this over the next few years."

Skeptics will say AT&T simply isn't serious. Optimists might be encouraged that revenue and cost implications are being looked at it a serious way, and that AT&T recognizes it has to look seriously at whether upgrades of more networks to gigabit speeds are feasible.