Up to This Point, "New Services Revenue" Has Come from Legacy Sources

Despite the emphasis on creation of “new services” to drive the next waves of revenue growth in the local access business, the actual revenue gains so far have been driven mostly by market share shifts among mobile, fixed network telco, cable TV and satellite TV firms.

That is not to discount share shifts to independent providers of all sorts, including competitive local exchange carriers, independent ISPs and resellers. But most of the measurable volume of U.S. market share change occurs in just two segments: fixed network telco and cable TV.

You know the story: telcos are taking video market share, and ceding voice market share to cable TV. Cable TV companies are losing video share, but have gained voice services share.

Most would say cable companies retain an edge in high-speed Internet access.

In the business customer segment, fixed network telcos have been slowly losing share to cable TV operators, but also blunting inroads of the independent and competitive providers. The exception is a few independent fixed network telcos that have moved agressively into the small business services segment (Windstream and Frontier Communications being the salient examples).

Insight Research Corporation predicts U.S. cable companies in 2013 will reach $8.8 billion in annual revenues providing telecommunications services to small and medium-size businesses.

U.S. fixed network telcos probably have about $6 billion iin video subscription revenues, based on an attribution of video at $50 a month, on a base of about 10.4 million subscribers.

Next to mobility, business services are the second largest segment in the $500 billion U.S. telecommunications business.

According to Insight Research, cable companies already have about 10 percent of the business market for voice and data services. At $8.8 billion, the addressable market is $89 billion annually.

There is huge logic to the cable push. Most tier-one telcos consider small businessto be part of the “mass markets” operation. Given the historic consumer orientation of cable TV companies, selling voice and Internet to small businesses is not a huge shift.

Of course, cable operators also sell to enterprises, especially for high-capacity private networks and mobile backhaul connections.

In the future, cable operators probably also will get a share of the backhaul market for small cells.

The point is that, so far, the "new" revenue streams for cable TV operators and fixed network telcos have come from legacy services, albeit legacy revenues taken from existing providers.

At some point, that trend will run its course and "truly new" services (sensor connections for machine-to-machine or Internet of Things applications), automobile communications, home automation and other revenue sources will have to be created.

For some time to come, market share shifts will continue to drive the significant portion of service provider "new services" growth.

Cable, Telco, ISPs Generally Score Very Low on Customer Service: Why?

Many would not agree that it is simply a huge volume of customer interactions that causes most cable TV companies, fixed network telcos or ISPs to get very-low scores for customer service.

Comcast CEO Brian Roberts does.  "What unfortunately happens is we have about … 350 million interactions with consumers a year, between phone calls and truck calls. It may be over 400 million and that doesn't count any online interactions which I think is over a billion. You get one-tenth of one-percent bad experience, that's a lot of people."

Others might think there are other impediments. Installs require that someone be home. That often means a person has to take time off from work to activate service. That is a real cost, bound to increase irritation.

To be sure, most service providers work at getting better, and most arguably have done so over the past decade. But the need to take time off work to initiate service is bound to be an irritant. 

Install windows also have gotten measurably better, in some cases. Comcast now promises install windows of only two hours duration, where it once was standard for windows to be essentially four hours long (morning, 8 am to noon, or afternoon, noon to 4 pm). 

Recurring service bills can be horrendous, hard to understand and complex. That probably doesn't help, as it causes customer service representative interactions, with the chance that a consumer will be kept waiting "on hold." Online chat helps. Email queries arguably do not help very much, as the latency of a response is too high.

Communications and entertainment monthly bills also are likely an issue. Consumers are reminded every month just how much their service costs, and many likely are irritated by the many above the line or below the line taxes, fees, assessments that are part of most bills in the communications and video entertainment business.

It is hard to measure, but consumers might express frustration with customer service because they already are dissatisfied with the value and price relationship of the underlying service. 

ISPs get terrible reviews, for example, but the reasons might lie more with unhappiness about the service than the customer service. 

However, the 2013 Information Sector report from the American Customer Satisfaction Index shows that customers are happier with telecommunication services and technologies than they were a year ago.

The Information sector benchmark—the combined aggregate score for wireless telephone service, Internet service providers, subscription television service, cellular telephones, fixed-line telephone service and computer software—climbed 0.6 percent to 72.3 on a 0 to 100 scale.

“High monthly bills combined with problems across a broad spectrum of customer experience benchmarks—such as service reliability, data transfer speed and video-streaming quality—leaves customers less than satisfied with their ISP service,” the ACSI indicates.

Subscription television service ended a three-year run of stagnating customer satisfaction with a three percent gain to an ACSI benchmark of 68. While the boost is good news for cable, satellite and fiber-optic television providers, the industry remains the third worst of the 43 industries covered in the ACSI.

Among TV service providers, those offering service via fiber optics or satellite earn the best marks for customer satisfaction.

On average, fiber-optic/satellite service received an ACSI score of 72 compared with 63 for cable service.

While most cable providers did better in 2013, all remained below the national ACSI average.

ACSI director David VanAmburg noted that “the industry’s pattern of yearly price increases, coupled with sporadic reliability, keeps customer satisfaction low relative to other household services and vulnerable to new technologies that enter the market.”

ISPs earned a customer satisfaction benchmark of 65, the lowest score among 43 ACSI industries.

“High monthly bills combined with problems across a broad spectrum of customer experience benchmarks—such as service reliability, data transfer speed and video-streaming quality—leaves customers less than satisfied with their ISP service,” said Fornell.

Only Verizon’s FiOS and the aggregate of all other smaller ISPs break out of the 60s with identical ACSI scores of 71.

The mobile phone industry reversed a two-year trend of declining customer satisfaction with a 2.9 percent gain to an ACSI benchmark of 72. Despite matching its 10-year high, wireless service remains well below the national ACSI average.

“Barriers to switching, including contracts with cancellation fees, make the wireless industry less competitive,” said VanAmburg. “ACSI research shows that customer satisfaction is almost always lower when consumers have less choice and more headaches when it comes to switching to another seller.”

Fixed network phone service customer satisfaction increased  5.7 percent to 74. The paradox is that since unhappy customers are abandoning fixed network voice service, the remaining customers are those who value the service more, leading to higher scores.

The point is that unhappiness with the product tends to lead to unhappiness with opinions about customer service, even when providers are working to improve that element of the experience.

Oddly Enough, it is Nearly Inpossible to Tell Whether A La Carte Video is "Better" for Consumers and Distributors

Just what will happen to the economics of the video subscription business if Canada moves to complete unbundling of video subscription channels is unclear. It is virtually certain that programming networks will suffer.

In the U.S. market, for example, about 35 channels represent about 66 percent of all programs watched, on all channels. In a universe of hundreds of channels, that suggests most channels would either fail, or be forced to raise end user prices to compensate for lost advertising and affiliate fees (fees paid to distributors based on the number of subscribers).

In the case of advertising potential, lightly-viewed channels would retain a small fraction of their current “viewership potential.” Since advertising is sold on the basis of potential viewers, that would devastate ad revenue streams.

Also, since affiliate payments to networks by distributors also are based on the potential number of viewers, the affiliate revenue stream also would diminish.

What is unclear is the impact on service provider distributors. On one hand, a full a la carte environment would lead some subscribers to downgrade to much-smaller menus. In other words, viewers really wanting only a few channels would be able to pay less, reducing service provider revenues.

On the other hand, distributors face a growing threat of product abandonment, so some downgrading, while generating less revenue per account, would still be better than losing customers outright.

Much would depend on how any unbundling rules were promulgated. If current versions of retail packages still could be allowed, but customers also had the option of buying their channels one at a time, the revenue losses would be contained.

In other words, heavy users, watching a dozen or more channels, would still be better off buying the standard packages, so revenue from a substantial percentage of video subscribers might be largely unaffected.

Users who really only want a few channels would pay less, and distributors would lose some revenue in such cases. In between, some users would find an a la carte menu of channels costs about the same as the standard packages. In such cases, it would still make sense to buy a standard video bundle.

Almost without question, programmer affiliate payments would have to increase substantially, as networks raised prices to offset lower ad revenue. In addition, marketing costs would grow substantially, as networks suddenly would find themselves compelled to market themselves more intensively.

Some have suggested the revenue losses to service providers and networks would be quite substantial.

According to a study of the U.S. market conducted by Needham Insights, half the industry’s revenue—about $70 billion—would disappear if people didn’t have to pay for bundled television.

A bit less than half of that loss would probably be borne by distributions, and more than half by the networks. Needham Insights thinks only 20 U.S. networks would survive, Needham believes.

Whether that would be the case is, of course, unclear. Only after consumers were faced with real choices, and actually figured out what it might cost to go a la carte, would we see how consumer behavior might change.

Some studies suggest most consumers would not save much. It all depends on how many channels an account holder wanted to purchase.

ESPN, for example, costs U.S. cable TV providers about $5.15 per customer each month. In an a la carte regime, ESPN might have to raise its prices to distributors to $13 per month to make the same amount of money, according to Nielsen.

But wholesale costs could be much higher. It is impossible to estimate, at the moment. Some estimate subscribing to the ESPN family of channels alone could cost as much as $30 a month.

The issue is reach. ESPN advertising and affiliate fees rates are set on a base of 100 million U.S. homes. In an a la carte world, if subscribing households dropped to 20 percent of that amount, affiliate fees would rise commensurately, to about $6 times five, or $30.

All of that ignores the other changes that would happen, though. ESPN would look for ways to reduce its costs. And that would ripple back through the value chain, likely reducing the fees ESPN was willing to pay for sports rights.

The point is that one change--the shift to a la carte--would set off a series of other changes, of unknown magnitude. And much would hinge on whether traditional bundles remained available.

At least some service provider executives think distributors could win in an a la carte environment. That could be the case if distributors were able to keep customers they otherwise would lose, by offering more-affordable packages, with rights fees commensurately reduced.

At least some distributor executives might also believe that the only way to halt the spiral of annual price increases is for the government to intervene, by mandating a la carte wholesale offers for distributors, who then could offer a la carte to customers.

That presumably would reduce leverage held by content companies, often able to require that distributors pay to carry lightly-viewed channels in order to gain rights to "must have" networks.

Android, Windows Phone Shipments Grow Based on Price

In the third quarter of 2013, smart phone price mattered.

With a total base of 211.6 million smartphone units shipped during the quarter, Android accounted for 81 percent of all smart phone shipments.

Microsoft's Windows Phone grew 156 percent year over year from a small base of 3.7 million units in the third quarter of 2012, reaching overall market share less than five percent, according to IDC.

"Android and Windows Phone continued to make significant strides in the third quarter. Despite their differences in market share, they both have one important factor behind their success: price," said Ramon Llamas, IDC research manager.

"Both platforms have a selection of devices available at prices low enough to be affordable to the mass market, and it is the mass market that is driving the entire market forward," said Llamas.

Smart phone average selling prices were lower by 12.5 percent in the third quarter of 2013, to an average price of $317.

Top Four Operating Systems, Shipments, and Market Share, Q3 2013 (Units in Millions)

Operating System	3Q13 Shipment Volumes	3Q13 Market Share	3Q12 Shipment Volumes	3Q12 Market Share	Year-Over-Year Change
Android	211.6	81.0%	139.9	74.9%	51.3%
iOS	33.8	12.9%	26.9	14.4%	25.6%
Windows Phone	9.5	3.6%	3.7	2.0%	156.0%
BlackBerry	4.5	1.7%	7.7	4.1%	-41.6%
Others	1.7	0.6%	8.4	4.5%	-80.1%
Total	261.1	100.0%	186.7	100.0%	39.9%

Twitter More Popular than Facebook Among Users 15 to 24?

Though one might expect Twitter underwriters to make the case for investing in Twitter, JP Morgan, which was one of Twitter’s underwriters, does tout the fact that Twitter has higher rates of usage by users 15 to 24, on either desktop PCs or mobile devices.

That has implications for the viability and attractiveness of revenue streams that potentially can be generated by advertising-related or transaction-related revenue streams.

Twitter’s U.S.-based Web audience skews young, JP Morgan suggests.

Another study suggests a dip in teen use of Facebook. In the fall of 2013, a survey by financial firm Piper Jaffray found 23 percent of some 8,650 teens interviewed preferred Facebook.

In contrast, Twitter was the favored social network of some 26 percent of teens. .

 

Meanwhile, Instagram is presently tied with Facebook at 23 percent, but has been rising from 12 percent in Fall 2012 and 17 percent in Spring 2013.

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24% of Thanksgiving, Black Friday Shopping Volume was Mobile Originated

On Nov. 28 and 29, 2013, 24 percent of online retail sales were initiated on mobile devices, some118 percent above the 2012 level.  

The Apple iPad was used to generate $417 million in sales, followed by the iPhone and Android phones at $126 million and $106 million, respectively.

What is M2M Internet of Things Impact on Mobile Networks?

The eventual creation of many large sensor networks will have some impact on network traffic, but the precise nature of the new traffic load is a reasonable question.

One reasonable assumption most might make is that large networks of sensors will increase demand for mobile network connections, which might be the easiest way to activate and use large networks of sensors, many of which are related to logistics, automobiles and health care.

That will place a premium on mobile or untethered access, though not necessarily huge amounts of bandwidth from any single sensor.

Some networks, though, might combine collection and transmission of sensor data including some video and audio feeds, with obvious implications for the amount of new bandwidth load.

Security networks are one obvious example, although auto cameras or digestible cameras for health care provide other use cases.

Still, any predictions about the eventual volume of new data, or its impact on networks, are conditional. Nobody knows yet precisely how the volume, velocity or variety of data will shape networks.

Clearly there is a volume impact, but unless the traffic is video, it will be the multiplication of devices that is key, and the locations where those devices are used, not the actual bandwidth load that is crucial.

It will matter whether most transmitted data consists of web logs, RFID sensor readings,

unstructured social networking data, streamed video or audio.

Sampling frequency (how often the data is generated) will affect transmission load as well.  Real-time data need to be processed real-time, with implications for total traffic demand.

But signaling network activity might have the more notable impact. The sheer number of additional devices, requiring relatively little bandwidth but transmitting at discontinuous times, will likely stress the signaling network more than the bearer traffic network.