Apple TV: Content, Sales Volume, Uniqueness are Key Challenges

Some observers argue Apple needs to launch a TV device (a display) to spur growth. Others might argue that is a mistake. 

Some might argue that the "device" isn't so important as the content. 

To be sure, "Apple TV" already offers a way to watch Internet content on a standard TV display. 

Whether the next "breakthrough" product is an actual television, a watch or something else, it is clear enough that Apple certainly will have to create another major product category beyond the iPad. 


But some would argue that Apple TV (a display) cannot be that product. 

For starters, the average TV replacement cycle is seven years to eight years, where mobile device replacement cycles are two to three years.

Would Apple be willing to be the next category on replacement rates that long? Beyond that, some would argue the display itself is not the opportunity, but the content offer. 

Up to this point, though, nobody has been able to convince the leading content suppliers to license their content in ways that would allow Apple to create uniqueness and value by unbundling content availability.


In other words, what would make Apple TV immediately different is ability to buy content show by show, a single series or a single channel. But Apple would be unlikely to get such exclusive rights. 


For such reasons, some observers do not think an Apple TV (a display) will be the next Apple breakthrough product. Nor, in all likelihood, will the "Apple TV" decoder be such a product, until the device enables unique or at least radically different ways to buy content. 

To be sure, Apple for some time has used content to drive hardware sales. In some ways, a ne product category built on displays would have to invert the process. 

For any Apple TV display, or even the current "Apple TV" decoder, to massively create a new market, the hardware would have to enable radically-different ways to buy content. 

Some Prepaid Service Providers Face Cost Reduction Challenges

Should prepaid mobile service providers, in markets where manual airtime top-ups are the norm, move first to electronic top-up? The economics might seem straightforward. The market share and marketing implications are anything but simple, one might argue. 

There is not much doubt that electronic top-ups cost less than manual systems. 

The cost to a mobile service provider of refreshing mobile phone airtime using traditional prepaid scratch cards costs between 18 percent and 27 percent of revenue.

Refreshing airtime using electronic methods costs between three percent and 12 percent. 

The cheapest type of electronic top-ups uses bank cards, credit cards and automated teller machines.  The most expensive form of electronic top-up is operations conducted at convenience stores, supermarkets and other retail channels.

Strand Consult argues operators switching to electronic top-ups can boost earnings by three percent to five percent within three to six months.

But there are strategy implications as well, for the service provider that moves first in a market from scratch cards to electronic top-up, even if doing so reduces costs.

It is conceivable that such an operator could lose some customer share, especially when many or most consumers do not have ability to use credit cards, bank cards or ATMs.

So despite some operator concern about the end user impact of shifting to electronic top-ups, Strand Reports estimates a prepaid mobile service provider could improve earnings by shifting.

Telecom prepaid scratch cards are used to load prepaid mobile phone accounts, and use a personal identification number (PIN) covered by a scratch-off patch that the prepaid subscriber scratches off after buying the card.

The prepaid account is activated by calling an activation number and entering the PIN number.

Strand notes that at least some mobile service providers think they would suffer if they were the first, or only operator to switch to electronic top-ups, if a market where scratch cards are the norm.

Obviously, if many end users do not have the ability to use bank cards, credit cards and ATMs, an operator shifting to electronic top-ups stands to lose some market share. But there is little doubt increased pressure on revenue creates an incentive for prepaid service providers to contain costs.

Aside from lower per-minute revenue pressure and competition from voice and messaging products from Internet alternatives, service providers also face challenging churn conditions and fraud in the distribution system.

In principle, everyone likely agrees that it would be beneficial if prepaid service providers reduce top-up costs and churn while increasing average revenue per user.

The easiest solution, Strand Consult argues, is reducing top-up costs. Service provider executives might consider becoming a first mover in that regard risky, since the business value hinges on what other competitors decide to do.

If all competitors switch, then every supplier gains a margin advantage, and no single provider suffers. If not, there always is the possibility that one or more competitors could gain an advantage, by emphasizing that customers do not need a bank card, credit card or access to an ATM.

It’s a gamble prepaid providers should take, Strand Consult argues. Prepaid operators might not universally agree.

Mobile Data Demand will Grow an order of Magnitude in 6 Years

It is no secret that mobile broadband features now drive mobile service provider revenue growth in developed economies. 

And even if sheer growth of subscribers continues to drive growth in developing markets, revenue from Internet access is becoming more crucial there as well.

Global mobile broadband subscriptions are predicted to grow 400 percent by 2019, reaching eight billion accounts, up from about two billion in service in 2013, according to Ericsson.

While mobile subscriptions globally grew seven percent, year over year, in the third quarter of 2013, mobile broadband subscriptions grew at a rate of 40 percent year over year. 

That trend is fueled by a changing mix of device sales. About 55 percent of all mobile phones sold in the quarter were smart phones, according to the Ericsson Mobility Report. And that in turn drives demand for mobile Internet access.

As a result, mobile data traffic is expected to grow at a compound annual growth rate of around 45 percent (2013-2019). This will result in an increase of around 10 times by the end of 2019.

The number of mobile subscriptions for mobile PCs, tablets and mobile routers is expected to grow from 300 million in 2013 to around 800 million in 2019, as well.

Between 2013 and 2019, mobile data traffic will grow seven times in North America, 11 times in Latin America, nine times in Western Europe, 11 times in Central Europe and Middle East and Africa, as well as in the Asia Pacific region.

Fixed data traffic will grow about 25 percent between 2013 and 2019, on a compound annual growth rate basis, and will remain the dominant way most data is transferred to end users.

Mobile data traffic represents five percent of total Internet end user traffic in 2013, and will grow to 12 percent in 2019.

That, one might suggest, shows the long term value of fixed network access, which will continue to account for most of the total volume of access traffic.

The largest and fastest growing mobile data traffic segment is video, as you have come to expect, expected to increase by around 55 percent annually up until the end of 2019, by which point it is forecasted to account for more than 50 percent of global mobile traffic.

Use of streaming on-demand and time-shifted content, including YouTube, is ubiquitous.

About 41 percent of people aged between 65 and 69 stream video content over mobile and fixed networks on at least a weekly basis, the Ericsson Mobility Report says.

By the end of 2019, total mobile subscriptions will reach around 9.3 billion.

Total global mobile subscriptions, including subscriber information modules and full prepaid or postpaid accounts, numbered 6.6 billion in the third quarter of 2013.

By 2019, almost all handsets in Western Europe and North America will be smart phones, compared to 50 percent of handset subscriptions in the Middle East and Africa.

Mobile phones account for around 50 percent of total mobile data traffic volume in the measured networks. In many European networks, mobile PCs represent 10 percent to 30 percent of the

subscription base and generate 50 percent to 80 percent of the traffic.

In contrast, North America is typically dominated by smart phone traffic, with mobile

PC subscriptions only representing a small share of traffic. Fixed network access, using routers ranges between usage of 1 GB to 42 GB each month.

Mobile PCs represent usage of  0.5 GB to 8 GB while tablets represent monthly usage between 150 MB and 2,200 MB. The largest average traffic volumes for smart phones were measured on Android devices, using up to an average of 2.2 GB per month.

Without Small Cells, Video Conferencing and Streaming Do Not Work in Office Buildings

Without use of indoor mobile network cells and outdoor small cells, Internet apps such as video conferencing on smart phones might work only two percent of the time, while video streaming does not work at all.

That illustrates the dramatic impact support for Internet access on mobile devices now has on the design of mobile networks. Traditional networks were designed to support adequate voice app coverage. That doesn’t work for mobile Internet access.

Indoor application coverage is a bigger issue than voice coverage. In a high-rise office building, serviced strictly by traditional macrocells, voice service might work about 85 percent of the time, according to the Ericsson Mobility Report.

But video streaming rarely works, and video conferencing might only work about two percent of the time. Outdoor small cells will help. Adding public small cells improves video conferencing app availability to about 41 percent of locations inside a high-rise building.

Ability to use video streaming might improve to perhaps 21 percent. But coverage can, in principle, be increased to 100 percent, for all apps, when indoor pico cells also are added.

While median speeds in cities studied by Ericsson can be 10 Mbps and higher in a given cell, throughput is generally much lower at cell edge (only a few hundred kilobits per second). That is a function of signal strength, network load and device capability.

Of the cities Ericsson studied, only Copenhagen and Oslo have a 90 percent probability of getting a 1 Mbps downlink throughput or higher. In Shanghai, Jakarta, Beijing, Moscow, São Paulo, Cairo and Delhi, the corresponding speed is less than 100 Kbps.

In all of the cities studied, there is a large difference between the 10 percent (peak), 50 percent (median) and 90 percent probability downlink speeds, Ericsson notes.

In all areas of the city, except for in the home, where Wi-Fi access often is available, Internet satisfaction is falling behind voice satisfaction.

In some cities, such as Istanbul, the difference between voice and Internet access satisfaction is extensive, varying by up to 20 percentage points in some places.

For shopping malls and restaurants, satisfaction with Internet connections is at just over

50 percent on average. In these locations there is a difference in satisfaction levels of almost 10 percentage points for voice, compared to Internet use.

In Tokyo, London and New York as many as 50 percent to 60 percent of surveyed users are dissatisfied with voice and internet on the subway, for example.

That illustrates why indoor and urban coverage is so important for mobile service providers. Internet access performance now is a clear “pain point” for consumers.

A clear majority of mobile Internet access occurs indoors. In many countries, as much as 80 percent of total mobile device Internet access occurs indoors.

The other driver of traffic is cities, where most people live and work.

Larger, Curved, More Sensitive Screens for iPhone?

It isn’t necessarily clear whether bigger screens, more sensitive screens or curved screens might emerge as the important innovation for the next generation of Apple iPhones. But it is probably worth noting that Samsung, arguably Apple’s biggest competitor, “leads” Apple in all three of those dimensions, including screen size,m curved screens and sensitivity to pressure applied to the screen.

The Galaxy Note series of phones, which first came out in late 2011, have large screens that are sensitive to different levels of pressure from the stylus. Samsung also is going to produce devices with curved screens as well.

Though some thought the large Galaxy Note screens would not be embraced by consumers, the Norte is one of Samsung’s most successful models.

None of that necessarily settles the issue of whether Apple has lost at least a bit of its innovative edge. But some might be uncomfortable that Apple now is, in some ways, “following” Samsung.

Mobile Broadband Grows Between 27% and 82% Annually

Mobile broadband adoption is the big story in the global Internet access business, representing compound annual growth at rates no lower than 27 percent, and ranging as high as 82 percent, according to the International Telecommunications Union.

Fixed Network Broadband Costs Have Fallen At Least 82% Since 2008

People will disagree about whether fixed network broadband is "too expensive" in developed nations. Part of the reason is that prices often are quoted in absolute terms, rather than as a percentage of average monthly income in any nation. 

The latter arguably is a better way of comparing costs across regions and nations, as that method shows the relative cost of Internet access compared to other goods and services. 

In that regard, one might argue that fixed network Internet access prices are reasonable in virtually every nation. Since 2008, developed nation fixed network broadband access prices have declined from about 2.5 percent of per capita gross national income to about 1.7 percent. 

And though broadband access supplied by fixed networks remains prohibitively expensive in many developing nations, since 2009 prices in developing nations have been falling fast. 

IN 2009 broadband access cost 165 percent of per capita income. By 2012 that had fallen to 30 percent of income. That still is too high for mass adoption, but the declining cost trend remains intact.