SoftBank, Bell Mobility Join Global M2M Association

Selling mobile services to operators of sensor networks, services and applications widely is seen as among the best prospects for the next wave of revenue growth in the mobile business.

That is one reason why some have argued that mobile penetration eventually will reach 400 percent: “subscriptions” will be purchased for people to use, as well as by enterprises supplying services and apps that use mobile networks for communications.

Often seen as underpinning the “Internet of Things,” machine-to-machine services are viewed as an opportunity that will support users in multiple verticals and industries, ranging from health care, transportation and utilities to connected cars.

One sign of interest is that SoftBank Mobile and Bell Mobility have joined the Global M2M Association (GMA), which counts Deutsche Telekom, Orange, Telecom Italia and TeliaSonera among its initial members.

The collaboration of six leading operators in Europe, Asia and North America within the framework of the GMA enables the seamless delivery of advanced M2M services, allowing customers to deploy and effectively manage M2M solutions and innovations across the globe, the Global M2M Association says.

Established in February 2011, the Global M2M Association is based on a service cooperation agreement between Deutsche Telekom, Orange, Telecom Italia and TeliaSonera, “to deliver best-in-class, enhanced and seamless M2M services globally and to maximize the business benefits of customers,” the association says.

The participating parties expect the participating carriers will be able to offer customers enhanced quality of service, M2M roaming services and interoperability across a global footprint.  

"No Killer App" is a Key Service Provider Challenge for the Next Decade

The notion that "there is no killer app" has become a commonplace observation in much of the Internet access business, though some might argue that streamed video entertainment, in driving the bulk of data consumption, arguably has become the driver of access service revenue. 

But that lack of a killer app, in terms of revenue generation, is a problem for access providers facing the likelihood that the next wave of revenue will move way past voice, messaging and simple Internet access, to applications and value added services of various types.

Some would say that prospects are brightest in the mobile realm, in part because application use is migrating to mobile or at least untethered modes.

To put matters in the simplest terms, assume the global industry has to replace about half its current legacy revenue in a decade. That implies something on the order of $500 billion worth of new revenues must be created. 

Consider the connected car market, which might represent something like Eur5 billion in global access revenue in about five years. That's useful, but doesn't make much of a dent in a need of $500 billion. 

That implies access providers will have to either acquire a more significant role in the "services other than access" parts of the business, or will have to rely on many other sources to reach the grand total of $500 billion. 

Will Fourth Wave Telco Services Be Big Enough to Offset Legacy Revenue Decline?

Sometimes market share can change for "not so good" reasons, such as the collapse of a former robust revenue model. That is the case for the U.S, newspaper and magazine industry, which has seen its revenue collapse from perhaps $70 billion in 2004 to about $40 billion in 2013.

Google has grown, to be sure, but its market share has grown principally because the other suppliers have shrunk so much. 

U.S. fixed network telcos faced revenue problems at least that great over the same period. The difference was that new revenue sources  (mobile services, broadband access, video entertainment) were available. 

All of that points out the crucial need for telcos to find the next waves of revenue, beyond mobile subscriptions (developing markets) and mobile broadband, the current growth driver in developed markets. 

And those new markets and services will have to be very big, on the collective order of hundreds of billions of dollars, on a global business, to offset what some expect will be a decline of about 50 percent in legacy telecom revenue over a decade.


Already, for example, Orange revenue growth is lead by Internet and business customer sources.

The issue is the degree to which the next wave of services can compensate for the core revenue sources at present. The industry has done so before, particularly as mobile revenues more than compensated for the loss of long distance and then access line revenues. 

But that points to the magnitude of the challenge. Something as big as mobile telephony is needed. 

Orange 2011 Revenue Growth Contributors

U.S. Telcos Have Lost 62% of Voice Lines

From 2000 to year-end 2013, telcos will have lost nearly 62 percent of all traditional phone lines and 70 percent of traditional residential voice lines, USTelecom says.

For the twelve-month period from mid-2011 through mid-2012, residential and business consumers dropped 10.1 million ILEC switched voice lines, a twelve-month decline of 10.7 percent, according to Federal Communications Commission data..

From 2000 to mid-2012, the number of ILEC switched lines fell from 186 million to 84 million, or a decline of 55 percent. Straight-line trends suggest ILECs will have lost approximately 62 percent of these lines by the end of this year, according to the USTelecom.

Telco switched line losses have been greatest in the residential market, where the annual rate of decline from mid-2011 to mid-2012 was 13.6 percent, USTelecom says.

In 2000, some 120 million consumer voice lines were in service. As of mid-2012, there were approximately 45 million consumer telco lines being purchased, a decline of 63 percent.

And though it sometimes escapes attention, U.S. cable TV providers now have about 53 percent share of the video market.

Telcos will have lost around 70 percent of their former customers by the end of 2013, USTelecom notes, when about 25 percent of U.S. households will buy fixed network voice service from telcos.

Total Subscribers Reported (Millions)

Fixed Broadband	90.0
Wireline	38.4
Wireline NonFiber	32.1
Fiber to the Premises	6.3
Cable Modem	49.7
Satellite & Fixed Wireless	1.9
Mobile Broadband	153.4
Total Mobile + Fixed	243.4

Residential Subscribers Reported (Millions)

Fixed Broadband	82.2
Wireline	33.6
Wireline NonFiber	27.7
Fiber to the Premises	5.9
Cable Modem	47.0
Satellite & Fixed Wireless	1.6
Mobile Broadband	114.5
Total Mobile + Fixed	196.7

T-Mobile US to Sell $2 Billion in New Shares to Buy Spectrum

T-Mobile US hopes to sellas many as 72.8 million shares shares of common stock, expected to raise about $2 billion, which T Mobile US then wants to use to acquire additional spectrum.

Sprint has just over 200 MHz of spectrum across the United States. Verizon Wireless has about 128 MHz, AT&T has about 107 MHz and T-Mobile US has about 76 MHz, depending on how one counts.

Not the maximum amount of spectrum owned by each carrier actually is available in every market, for example. That means the actual amount of capacity in a major market can vary. 

Table 2: Population-Weighted Average Spectrum Holdings of National U.S. Mobile Operators, MHz
Licensee	Average Spectrum Holdings, MHz
Verizon Wireless	107.3
AT&T Mobility	128.3
Sprint Nextel	53
T-Mobile	57 (66.2)
Sprint/SoftBank with Clearwire	184.5
Sprint/Dish with Clearwire	224.5

 

Will Fixed Network Revenues Grow as Mobile Revenues Slow?

Over the last decade, mobile revenues have driven global telecom earnings. But could that change?

Some might argue that fixed networks are poised for a period where investments in that segment have less risk, and faster revenue growth, than the mobile segment.

That might not necessarily mean that fixed networks grow faster than mobile, but that fixed network revenues decline less than mobile revenues, in many markets.

Oddly enough, if mobile revenue growth slows enough, improved fixed network revenue growth would at least change the composition of revenues in the direction of fixed networks.

Though some might disagree, at least some service providers might now believe building and operating gigabit networks represents a revenue growth opportunity, beyond Google Fiber and the handful of municipal or other gigabit networks in operations or trying to get off the ground in the United States.

In some Western European markets, there might also be some new thinking that faster revenue growth is possible in the fixed network high speed access market, than in the mobile segment.

In some ways, those prospects are relative. Recent tier one service provider results in Western Europe show faster decline in mobile retail revenue than in fixed.

Researchers at Analysys Mason argue that, at the very least, fixed network revenue will hold up better than mobile revenue, and also that the share of total revenue generated by fixed networks will grow over the coming five years.

That might require a nuanced assessment, as a change in revenue contribution represents, in large part, a deceleration of mobile revenue.

The unanswered question is the relative value users now place on fixed access and mobile access services. It might be assumed that the value of mobility “always” is higher. But churn rates in the recent recession since 2008 show that at least in some countries, such as Spain, users abandoned mobile services and kept fixed services.

And one key change in the market is the relative value of Internet access and voice services. You might argue that the value of mobile voice is marginally challenged by the growing importance of Internet access as the key value for any access network.

In other words, the single most crucial service is Internet access, and fixed line services in most markets represent a better value proposition than mobile Internet access. And one might argue the value of mobile voice also changes under such conditions.

According to Analysys Mason analysts, mobile revenue in most Western European countries has decoupled from changes in gross domestic product, and is now performing significantly worse than the economy is, as a whole. That, one might suggest, also indicates that, in some instances, mobility has less value to end users than Internet access.

Also, fixed networks also are less dependent on voice revenue than are mobile networks, exposing the mobile segment to greater potential losses.

Service revenue from services other than IP data accounted for 76 percent of the total for mobile in 2012 in Western Europe.

Mobile retail revenue by type, Western Europe, 2010–2012 [Source: Analysys Mason]

Fixed operators' exposure to voice is substantially lower. About 67 percent of fixed operator revenue (excluding content) in Western Europe comes from data services in 2012.

Fixed retail revenue by type, Western Europe, 2010–2012 [Source: Analysys Mason)

Also, mobile voice appears to be the most discounted service in quadruple-play packages, leading to “a swift erosion of the value of mobile voice in the market as a whole,” Analysys Mason says.

For example, almost all of the revenue and earnings erosion caused by Free Mobile's entry to the French market was attributed to mobile services, whereas revenue attributable to fixed-line services did not shift from its long-term trajectory.

Fixed service revenue arguably might be less exposed to economic downturns than mobile, as well. Again, it is a bit of a nuance, but fixed network revenue might be more stable than mobile revenue, over the next five years, in many markets.

But there is a wild card. As most mobile devices are equipped for Wi-Fi access, and as those devices become content consumption platforms, with most usage at indoor or at least stationary locations, it is more feasible for Wi-Fi access to provide the Internet access.  

And that potentially means fixed-only networks could disrupt much of the “mobile” Internet access value proposition.

Is European Mobile Revenue Slide Near a Turning Point?

Will the European mobile market reach a turning point, and return to growth in 2014, or continue a long downward slide?

Vodafone argues, almost paradoxically, that the full onset of new revenue-reducing roaming rates will soon be fully in place.

Over the last three years, for example, those mandatory rate reductions have accounted for about 75 percent of the revenue decline at Vodafone. At the very least, that means the lower roaming rates will cease to put pressure on overall revenues.

But Vodafone also notes a number of positive trends, ranging from improving economic growth to new retail plans that put a floor on voice and messaging revenue, to growth in new markets, plus investment to drive new revenues, an easier regulatory environment, as well as ability to create economies of scale, all will help Vodafone begin to grow revenue.

Between 2012 and 2018, researchers at Ovum have forecast that mobile connections in Western Europe will grow by a less than one percent compound annual growth rate, while revenues will decline at a 1.48 percent CAGR.

In a switch, Analysys Mason also forecasts that mobile revenues will while fixed revenues climb, a reversal of the pattern that has had mobile services leading overall telecom industry growth.

Also, researchers at STL Partners predict that Western European service providers will lose four percent of their revenue per year, for about five years.

So if Vodafone is correct, and a turnaround is at hand, there might be reason to suggest at least a few other tier one service providers might likewise be able to reverse the current trend of declining revenue, and return to growth. That would be a very big deal.

Vodafone originally had planned to spend about £12 billion in capital investment over a three year period starting in 2014. But Vodafone now says it will spend an additional £7 billion over just two years, in support of its “return to growth” program.

The £12 billion program will increase fourth generation Long Term Evolution sites from 12,000 in 2013 to 89,000 by the end of 2015.

Of £3 billion allocated under Project Spring for Vodafone’s European markets, investment also will be used to add new 2G, 3G, small cell and Wi-Fi sites.

Markets in Africa, Middle East and Asia Pacific will get investment of £1.5 billion, including £1 billion for fixed networks in Europe (Italy, Portugal) and India.

Investment in machine-to-machine services will be extended to 75 markets, while the Vodafone IP-VPN expands to  11 new markets (£500 million worth of investment).

Also, £1 billion is set aside for redesigning 6,500 retail outlets.