50% LTE Coverage in Africa by 2018

Though 2G and 3G likely will continue to represent the mobile networks most consumers connect to, by end-2018, half the African population will be covered by Long Term Evolution networks, according to ABI Research.

African LTE mobile subscriptions will grow at a 128 percent compound annual growth rate to surpass 50 million subscribers at the end of 2018, ABI Research forecasts.

“LTE handset shipments will increase by 75 percent annually on average in the next five years,” said Jake Saunders, ABI Research VP and practice director. “Given the poor fixed-line infrastructure, people will depend on the wireless network for Internet access.”

LTE base stations will grow at a compound annual growth rate of 40 percent over the next five years, ABI Research forecasts.

However, LTE network population coverage will be far from homogenous across the region, with a few countries such as Angola and Namibia nearing the halfway point already while wealthier nations like Botswana and Gabon have yet to deploy the advanced technology.

“Part of the underlying reason for this digital divide is the different types of initiatives driving LTE roll-out,” said Ying Kang Tan, ABI Research research associate. “We expect wholesale or shared networks such as the joint venture between the Rwandan government and Korea Telecom and the public-private partnership proposed by the Kenyan government to spur LTE deployment.

 Projected 2018 Network Subscriptions by Type of Network

source: Ericsson

We Should Know in a Few Weeks if Sprint Really is Going to Launch a Takeover Bid for T-Mobile US

SoftBank and Sprint reportedly will have to decide over the next few weeks whether to launch a bid to acquire T-Mobile US.

The argument essentially has to be that the U.S. market is becoming a duopoly, a condition that historically has resulted in high prices and low innovation in the U.S. mobile market, and that only a stronger number three provider (Sprint fortified by T-Mobile US) can check the growing market power of Verizon Wireless and AT&T Mobility.

U.S. regulators and antitrust officials likely already have signaled to Sprint a continuing belief that the U.S. mobile market already is too concentrated. Indeed, Sprint itself argued against the AT&T acquisition of T-Mobile US, on the grounds that competition would be harmed if the number of national providers dropped from four to three, the step it now might propose.

“Removing T-Mobile from the market would substantially reduce the likelihood of market disruption by a maverick,” Sprint said in a 2011 filing asking the FCC to block AT&T’s proposed purchase of T-Mobile. “T-Mobile, as one of only four national carriers, provides a critical constraint on AT&T’s consumer retail prices.”

Son and Hesse argued a combined entity will be a “super maverick” in the mold of T-Mobile US. On the other hand, regulators also might view a resurgent T-Mobile US as evidence that competition is increasing.

T-Mobile US has reversed a nearly decade-long slide in subscribers, and in 2013 had the second-highest net subscriber gains in the U.S industry, adding 2.1 net new customers over the last three quarters, compared to net additions of 4.1 million at Verizon Wireless and 1.8 million at AT&T Mobility, Bloomberg notes.

Arguments can be made, either way, that competition will be most effectively promoted if four carriers remain in the market, or if Sprint and T-Mobile US combine. The former argument will rely on empirical evidence of what T-Mobile US is doing; the latter on economies of scale that might be needed if a larger Sprint plus T-Mobile US wants to disrupt industry prices and packaging more than at present.

Where to Share Spectrum Might be the Issue, Not Sharing as Such

To say communications spectrum policy is contentious is an understatement, and contention exists over the concept of “shared spectrum” as well.

The notion is that instead of the traditional method of reallocating spectrum, namely compensating licensed users to clear blocks of spectrum for supplemental auction, it might be less costly and get new communications spectrum to market faster if licensed users and commercial users share spectrum.

Put simply, incumbent mobile service providers probably have good reasons to oppose the concept, while challengers likely have good reasons to support the concept.

“The burden of proof should be on those who argue for spectrum exclusivity over sharing,” argues Kevin Werbach, Wharton School, University of Pennsylvania associate professor of Legal Studies and Business Ethics, and founder of the Supernova Group, a technology consulting firm.

“Both licensed and unlicensed spectrum provides significant value to consumers,” argues Dr. George Ford, Phoenix Center for Advanced Legal & Economic Public Policy Studies chief economist. That said, Ford is skeptical about the economics of shared spectrum, as an exclusive method of allocating a scarce resource.

“The allocation decision should be made based on which licensing approach is expected to generate the greatest value for the spectrum being allocated,” Ford argues.

One key contextual issue is where additional spectrum will be needed, what applications will need to be supported and whether spectrum sharing is suited to new uses and business models, compared to the traditional mobile business model.

“Shared spectrum is largely for low-power uses only,” Ford argues. “Sharing spectrum that covers greater distances per unit of power—like the TV broadcasting spectrum—is counterproductive and economically senseless.”

But some might also note the biggest potential use of new spectrum and networks is for high bandwidth but low power applications, precisely the places that a shared spectrum approach would make most sense.

The legacy use of Wi-Fi provides a useful model. Where traditional mobile networks logically have been optimized for mobility over wide areas, making low-power licensed spectrum a logical choice, tomorrow’s networks might well be built around low power, local access. And that is precisely the area where shared spectrum might make lots of sense.

There might be less disagreement than first appears.

Even if Gigabit Connections are Available, Will Most Consumers Buy 100 Mbps?

Whether the typical consumer will buy a gigabit service, by about 2020, is not so clear. What is more clear is that such speeds will be generally available to most U.S. consumers, by about that point.

Perhaps the bigger question is what gigabit services will cost in 2020. Generally speaking, the trend in the U.S market has been for average speeds to grow, at about a 50 percent a year clip, while absolute prices remain roughly stable, while premium services have been priced higher.

The issue is whether a gigabit service will remain the premium offering in 2020. Some predict that half of U.S. households will be buying 100 Mbps in 2020, for example.

The other complication is that broadband speeds keep changing, so the product a consumer bought in 1998 is different from 2008 and will be different from what is purchased in 2018.

In 2002, only about 10 percent of U.S. households were buying broadband service. Back then, where a dial-up connection might have cost about $20 a month, a then-current broadband connection would have cost much more. Some of us were buying 756 kbps connections for $100 a month, back then, for example.

So one might argue either that monthly prices will remain roughly constant, while speeds grow, or that prices will grow as speeds increase. The “natural limit” would seem to be Google Fiber’s gigabit for $70 a month price point. It is hard to see triple-digit broadband prices for gigabit services in 2020, if $70 or $80 a month is the current price of a gigabit connection.

Back when modems operated at 56 kbps, Netflix took a look at Moore’s Law and plotted what that would mean for bandwidth, over time.

“We took out our spreadsheets and we figured we’d get 14 megabits per second to the home by 2012, which turns out is about what we will get,” says Reed Hastings, Netflix CEO.“If you drag it out to 2021, we will all have a gigabit to the home.”

                           

source: ITU

source: ITU

source: stopthecap

Remember Economics of Dial-Up ISP Business? Get Ready. You Might See it Again

For those of you who actually remember the economics of the dial-up Internet access business, you will recall that a profitable smallish business became unsustainable with the advent of broadband access. Profit margin was the key issue.

When Internet access was an app that rode on top of a standard unlimited use local voice connection, small ISPs could make a business case for service because they were not leasing access connections.

With broadband, independent ISPs suddenly found themselves required to lease wholesale capacity from facilities-based providers in order to provide service, which wiped out profit margins.

One wonders whether, eventually, that is a problem similar to what independent ISPs will face in the future, on the assumption that the market-standard Internet access offer is 1 Gbps, in urban and suburban markets.

Cable companies and telcos will have to spend more, but can adjust.

Whether that will also be true for wireless ISPs is not so clear. To be sure, there traditionally is a gap between price-performance of urban Internet access and rural Internet access. That will allow rural and independent providers a shot at survival, if they can offer 100 Mbps or more, even if 1 Gbps proves prohibitive.

But nothing is certain, and the precedent of the dial-up to broadband transition might provide a warning. As broadband initially meant a transition from kilobits per second to megabits per second, or an order of magnitude increase, so might a jump of two orders of magnitude likewise pose a calamitous challenge for wireless providers, who might not have access to enough bandwidth to compete.

At least for the moment, what many service providers (cable and telco) will have to do, when faced with the reality of a 1-Gbps competitor, is drop prices. Sooner or later, though, even that is going to be a tough proposition, since the immediate steps have tended to be creation of offers something like “100 Mbps for $70,” when Google Fiber offers 1 Gbps for $70.

At an implied price of seven cents per Mbps (1,000 Mbps at $70), a 100 Mbps service “should” cost $7 a month. That is why Google Fiber prices 5 Mbps at the level of “free.” Using the same metric, 5 Mbps would cost 35 cents a month.

Mobile service providers might eventually face the same challenge. If enough people have very high speed connections, and there is even more Wi-Fi available than there is at present, it will make sense for people to buy relatively small mobile data access packages, and default to Wi-Fi most of the time.

One might argue that is what people already do.

To be sure, mobile access likely always will come at a price premium to fixed service. But the premium will shift as the price per megabit per second for a fixed connection climbs towards the gigabit for $70 a month level.

Even if mobile data continues to cost about an order of magnitude more than the equivalent amount of bandwidth delivered by a fixed connection, absolute cost has to adjust. If 50 Mbps on a fixed network costs about $3.50 a month, for the sake of argument, then 50 Mbps on a mobile network might be expected to cost $35 a month.

Bandwidth economics are going to be interesting going forward. Where we normally operate within “scarcity” constraints, we might in the future actually be facing relative abundance. And that is going to have financial implications for ISPs.

Seeing "Throttling" Where it Does Not Exist

It probably was inevitable: some will see content “throttling” in the wake of a U.S. appeals court overturning of Federal Communications Commission “network neutrality” rules.

Verizon Communications was swift to say it was not blocking or impeding packets. Peering congestion is the likely culprit. Verizon is not dumb enough to block or impede lawful packets, a clear violation of still in force FCC rules.

U.S. Mobile Marketing Wars Will be Intense, Since 50% of Customers Will Not Churn

One reason why mobile marketing wars become so intense is that markets often are quite stable. In other words, in mature markets, customers simply do not change service providers all that often.

According to a recent study by Ofcom, the U.K. communications regulator, just eight percent of adults fixed network voice customers in the last 12 months. About nine percent of broadband access customers switched in the last year.

Just six percent of mobile customers switched providers in the last 12 months, while just five percent switched their subscription TV provider over the same time frame.

What that means, for any mobile service provider in a mature market is that only about one half of one percent of current customers will choose another provider in any given month. So all marketing efforts by any service provider, in any month, are aimed at inducing just one half of one percent of customers to switch.

That is by any accounting an expensive proposition.

Likewise, Parks Associates consumer data show that almost 50 percent of U.S. mobile phone service customers did not change providers over the last 10 years. In other words, fully half the customer base virtually never changes providers, meaning that all switching behavior is concentrated on just half the total subscriber base.

According to Parks Associates, about 25 percent of respondents changed service providers only once in 10 years.

Just 13 percent of respondents  switched providers three times or more (about once every three years or so).

Verizon Wireless and AT&T Mobility have the most stable customer bases. About 62 percent of Verizon and 56 percent of AT&T customers have been with their present carrier for more than five years.

Parks Associates estimates that about 35 percent of AT&T customers are worth $5,000 (lifetime value of the account) or more, the highest among the four national carriers. T-Mobile US, by way of comparison, has about 21 percent in that category.

Of course, the lifetime value of an account varies wildly. If half of all accounts churn almost never over a decade, and if those accounts are multi-user accounts, lifetime value could easily reach $48,000 over a 10-year period ($400 a month, for 10 years).

That is why churn management (for the incumbent), or churn encouragement (for the attacker), matters so much. Some acquired accounts could be lucrative far beyond the $1,000 to $3,600 “lifetime” value of a single-user account.

Far more lucrative are shared accounts (“family or framily”), which represent multiple users, devices and lines, and therefore higher account value. Dislodging a single such account, under some circumstances, could literally be a $48,000 win, over 10 years.

And it is even possible that churn rates could decline, longer term, in Europe and the United States, though a reasonable observer would expect a temporary increase in churn rates as marketing wars heat up.

The percentage of mobile subscribers who are planning to switch service providers decreased from 14 percent annually in 2009 to nine percent annually in 2010, for example, Analysys Mason analysts say.

                                Subscriber Churn Intentions

Source: Analysys Mason, 2011 (2009 data not available for Spain and the USA)

The mobile churn rate in some developed markets stood at about 30 percent as recently as 2009, Analysys Mason says.

And though one might not want to make too much of it, a study sponsored by Ofcom, the U.K. communications regulator and conducted by Ipsos Media CT suggests females are less likely to churn, and males more likely to churn.

The U.S. mobile services marketing war will be intense, in part because it is so difficult to dislodge even a single customer, and will be particularly important for multi-user accounts that historically have been resistant to churn.