How Big a Market Will Internet of Things Be, for Mobile Service Providers?

Some 1.9 billion devices already are connected to the Internet, and nine billion will be connected by 2018, making the “Internet of Things” a bigger market, in terms of devices, than smartphones, smart TVs, tablets, wearable computers, and PCs combined.

Whether the revenue implications will be so large, despite the billions of connections, remains the issue. Some think $1.2 trillion will be earned, collectively, by about 2022, by all participants in the Internet of Things ecosystem.

Such forecasts are not granular enough to be of practical help to most participants, but it might be reasonable to assume that perhaps 10 percent of that total revenue might represent access fees.

Even by that measure, mobile service providers might earn $100 billion in 2022, a large enough number to warrant serious effort.

EU Broadband Policy Not Working, Strand Consult Argues

The EU’s broadband and telecom policy is not working, according to Strand Consult. Disincentives for investment and inability for firms to merge are among the key problems, Strand Consult argues.

On the other hand, one might argue that EU public policy was intentional. By mandating affordable wholesale access to incumbent networks, EU policy has succeeded at promoting competition.

But that very competition reduces network owner incentive to invest in upgraded facilities. The issue is not so much that the EU policies are “wrong,” as that they emphasize competition at the expense of investment.

U.S. regulators faced the same problem in the first decade of the 21st century, but made different choices. Aided by the fact that at least two fixed broadband networks exist in most markets, with two national satellite broadband providers and fixed wireless networks in many rural areas, U.S. regulators decided to create a framework conducive to investment, at the expense of mandated wholesale access.

The existence of Google Fiber, which seems on the cusp of becoming a much more serious force in the U.S. ISP market, was made possible, in large part, by a framework that allows ISPs and service providers to reap the rewards of their investments, principally by not forcing them to give wholesale customers easy access to those facilities.

In that sense, EU policy is not so much “wrong” as intended to produce different outcomes.

With important caveats (it always is possible to discover “gaps” of one sort of another. Whether those “gaps” are permanent or even fundamentally significant is the issue).

Strand Consult argues that the gap between European Union and U.S. investment in next generation networks is growing, as a result of the differing policy frameworks.

“The EU approach of managing competition through open access and price controls has not created incentives for investment in next generation broadband access,” says John Strand, Strand Consult CEO.  3. While the US has certain advantages being a large country with a common language, it made a decision to support the policies that maximize investment and innovation, namely a light-touch regulatory framework that allows broadband providers to get economies of scale, consolidate, earn profits, and invest.

Also, although many U.S. observers continue to insist there is a “broadband access problem” in the United States, Strand notes that the United States is “leading the EU on broadband measures such as the availability of broadband with download speeds of 100 Mbps or higher and availability of cable broadband, LTE, and FTTH.”

“Ten years ago the EU expected to lead the world in mobile with the GSM standard and six European phone manufacturers that accounted for half of the world’s phone,” says Stran. “Today no European handset makers remain, and America has surpassed Europe with 4G/LTE.”

It isn’t fundamentally too difficult to illustrate how policy would have to change to promote more investment. EU officials would have to make investment the policy objective.

That might involve allowing further consolidation of service providers and curbing wholesale obligations for fiber networks. As cable networks have in many markets emerged as the key challenger in the broadband networks space, measures that allow cable operators to invest in new networks also might be helpful.

The foundation of U.S. policy has been “inter-modal” competition between cable, telco and satellite providers, not “intra-modal” competition between incumbent and wholesale-based competitors.

That will be tougher in the EU zone. Still, policymakers fundamentally have to choose between investment or competition as the anchors of policy.

Any measures that create incentives for investment might limit wholesale access. And there would be a danger. Investment incentives for new, not just incumbent operators, would have to part of any change.

Concede or Compete? Messaging and Voice Pose Same Strategic Challenge

Many mobile service providers continue to believe there is financial value to be had in creating and supporting branded over the top messaging apps. One might argue that seems extremely unlikely, given the network effects other over the top messaging providers have achieved. 

Of course, many argue that the basic voice product can be enhanced in ways that allow prices to be raised, and can reverse the trend of declining usage in many markets where alternative communication modes make more sense. Some might say that is a questionable long-term strategy as well.

Ovum estimates mobile SMS plans accounted for $120 billion in revenue during 2013, down from $145 billion in FY 2012. That decrease of $25 billion, or 17 percent, is largely attributed to the move away from SMS toward data-driven communication applications.

Telcos have been down this road before. For years, when AT&T was an independent provier of long distance service, it struggled to break into the "local access" business in the United States. 

Ultimately, AT&T failed. In fact, the actual strategy, for years, involved harvesting declining international calling revenues as long as possible, at the highest possible rates, while the transition to a new revenue model could be achieved. 

One might likewise have argued that AT&T could change the product by creating more valuable calling services and adding features. In retrospect, that has proven incapable of halting the revenue erosion.

One might argue that mobile and fixed network calling, and mobile text messaging, face precisely the same problem, and ultimately will find the same results. 


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Lower EU Roaming Charges Will Boost Demand: What is Net Revenue Impact?

Lower prices for a product consumers want should, and does, increase usage. That should occur within the European Union as roaming tariffs are sliced in 2014, as they have been for each of the past seven straight years, as part of mandatory wholesale price reductions mandated by the European Commision.

The issue is whether higher usage will compensate for lower revenue per unit of use.

The latest round of EU-mandated wholesale roaming price cuts will cut wholesale data roaming to 28 percent of 2012 levels. International outbound wholesale voice roaming will fall to about 66 percent of 2012 levels. International text messaging will decline to about 67 percent of 2012 levels.

And there have been proposals to set rates to zero.

European Union mobile service providers have been pointing to the mandatory price cuts as responsible, in part, for declining revenue over the past couple of years.

For example, combined revenues from voice, messaging and data services in the EU5 economies (UK, France, Germany, Spain and Italy) will drop by nearly 20 billion Euros, or four percent per year, between 2012 and 2017, according to STL Partners, and by 30 billion Euros by 2020.

Roaming charges account for between five percent and 12 percent of European mobile service provider revenue, according to brokerage Oddo Securities. If the EU succeeds in scrapping roaming completely, carrier revenue for voice, text and data could fall by over 20 percent in 2016, consultancy Juniper Research forecasts.

Whether EU roaming users now will boost consumption is not much of a question: they will, in aggregate. The issue is whether revenue gained from the higher usage will offset the lower tariffs.

                                          EU Mobile Revenue Forecast

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Potential New Room for Maneuver by Municipalities Looking to Promote Broadband Investment?

The extent of local authority over broadband policy seems to be emerging in a new way in 2014. The recent District of Columbia decision overturning network neutrality rules contains some interesting potential new strategic elements.

The decision concludes that the Federal Communications Commission has authority to overrule state-level laws that prohibit municipalities from building and operating their own broadband access networks, under its interpretation of Section 706 of the Telecommunications Act of 1996.

But some also argue there is another possibility as well, namely that states might be able, under the same provisions, to impose “regulatory methods that remove barriers to infrastructure investment” under the same legal theory.

Those of you who remember the regulatory wars over Voice over IP will recall that the FCC eventually decided it had authority to preempt state regulation of VoIP, as VoIP was an interstate service.

In the latest twist, some might argue that states have co-equal authority with the FCC to remove barriers to broadband investment locally.

In that respect, words will matter. Most assume federal preemption over “telecommunications services.” But broadband access is not a telecommunications service.

Some think federal preemption of state laws prohibiting municipal broadband might eventually result from subsequent FCC action. But a more interesting possibility also is what municipal authorities might try, in terms of policies to promote broadband investment in their communities.

T-Mobile US Attack Will Fail, Analysts Say

Will T-Mobile US or Sprint be able to make a dent in U.S. mobile market share? It might be a significant question U.S. regulators and antitrust authorities might have to ponder, if Sprint decides to make an acquisition move on T-Mobile US.

In the span of three recent quarters, for example, T-Mobile US gained two million new accounts, which suggests to some observers that T-Mobile US can attack U.S. market structure, and that Sprint might have a chance to do the same.

In that regard, at least one communications analyst firm believes that T-Mobile US will not change industry market share in 2014, no matter what it does. That does not address the issue of whether T-Mobile US can significantly change U.S. mobile market share over the longer term.

But neither does the prediction suggest T-Mobile US or Sprint can prevail, over the longer term, in a protracted price war against Verizon Wireless and AT&T Mobility.

"Despite the price war, we do not anticipate any major shifts in market positioning among the top four carriers in 2014, says Susan Welsh de Grimaldo, Strategy Analytics research director.

But Strategy Analytics is not more optimistic over the medium term, either. T-Mobile US will struggle to stay near 11 percent of the retail market, while Sprint will gain a percent to
reach 15.5 percent by 2018 and the two leaders remain on top with Verizon Wireless at 33 percent and AT&T Mobility just under 25 percent.

The implications for policymakers might be clear enough: if Strategy Analytics is right, neither Sprint nor T-Mobile US will be able, on their own, to change U.S. market structure.

That might not matter, in terms of competitive dynamics, if Sprint and T-Mobile US can exert pressure on the two market leaders with 58 percent share.

But some might argue that 58 percent will be more significant than might at first appear, since the two leading service providers are likely to have the lion’s share of the most lucrative accounts (multi-line, postpaid, smartphone-using shared accounts).

T-Mobile US will take nearly 16 percent of retail gross adds in 2014, about the same as Sprint will achieve. But T-Mobile US also will experience levels of customer churn that result in net gains of about nine percent, compared to Verizon Wireless net gains of 47 percent, on 22 percent gross adds.

The Strategy Analytics prediction suggests there is almost no chance the T-Mobile US attack will succeed, leaving the U.S. mobile market in a situation where a functional duopoly, which most believe will not be good for innovation and competition, will prevail.

Almost No "Poor" Countries Left by 2035: Positive for Internet Apps, Access

“By 2035 no nation will be as poor as any of the 35 that the World Bank now classifies as low-income, even adjusting for inflation,” predicts Bill Gates, Bill & Melinda Gates Foundation chairman. “Most countries will have higher per-person income by 2035 than China does now.”

That has strategic implications for providers of Internet access and providers of Internet applications, as it suggests there is no fundamental barrier to connecting virtually everyone on the planet, based on sustainable revenue models.

Nor is there any serious reason to doubt that access speed and user experience will remain as limited as often is the case at present.

Almost all countries will be what are now called lower-middle income or richer by 2035, Gates said.

Gates also argued against “three myths” that block progress for the poor: poor countries are doomed to stay poor; foreign aid is a big waste; and saving lives leads to overpopulation.

“The belief that the world is getting worse, that we can’t solve extreme poverty and disease, isn’t just mistaken. It is harmful,” Gates said. “By almost any measure, the world is better than it has ever been. In two decades it will be better still.”