In Wholesale Business, Customer Satisfaction Follows Revenue and Profit

Analysys Mason Global Revenue Growth Forecast

One would expect service providers to focus their sales and customer efforts in market segments where telecom industry revenue growth is highest, or where profit margins are highest, in both retail and wholesale portions of the business.

In the wholesale telecom business, that should mean attention to buyers of IP data capacity rather than voice, mobile buyers instead of fixed network buyers, large buyers rather than smaller buyers and content providers and “new customer verticals” more than some traditional customers, for example.

Findings of a survey conducted by Atlantic-ACM of global wholesale buyers suggests that principle is at work in the wholesale telecom business.

Though overall buyer satisfaction has remained stable since 2010, it appears smaller wholesale customers are less satisfied than they once were, while large customers are more satisfied than they used to be.

Early in 2014, satisfaction among large customers virtually leaped five percent among large customers. On the other hand, satisfaction among smaller customers declined 0.5 percent early in 2014.

Customers in fixed network verticals reported satisfaction levels 1.1 percent lower, while satisfaction among customers with operations in mobile service grew 5.3 percent.

Customers in “emerging markets” (cable/content/ISP verticals, resellers/systems integrators and data center/hosting/cloud providers) reported satisfaction levels 2.1 percent higher.

It would be reasonable to assume further changes in satisfaction will occur over the next decade, since the volume of sales, and the attendant profit margins from some products, are expected to decline.

For example, U.S. local wholesale voice revenues will decline from $6.1 billion in 2013 to $5.4 billion in 2014, according to Atlantic-ACM, while U.S. long distance wholesale voice revenues will decline from $2 billion in 2013 to $1.6 billion in 2014.

In a market with total U.S. telecom revenue in the $400 billion range  (including video entertainment revenues), that level of wholesale voice revenue is almost nothing.

Elsewhere, wholesale revenue likewise is dropping, propelled in some cases by mandatory price reductions imposed by regulatory authorities. In addition to lower retail prices, lower demand also is an issue. Not only are retail voice prices dropping, people are consuming less fixed network and in many cases also mobile voice.

In the United Kingdom, there is some evidence that aggregate wholesale revenues began to decline, as a percentage of total service provider revenues, in 2011.

Total European wholesale revenue declined by 6.2 percent in 2012 to $45.1 billion, Ovum estimates, while service provider retail revenues fell by 10 percent in the same period. As you might guess, voice revenue declines were key drivers of the change.

In 2012 the European wholesale fixed voice sector accounted for less than a third of total wholesale revenues in the region, while revenues were 13 percent lower than in 2011, part of a downward trend in place for more than a decade.

Under those conditions, one would expect suppliers to focus on growth segments (new customers, apps or geographies) while deemphasizing declining and small segments.

One of the shifts is regional. Already, retail revenue is declining in three regions--Central and Eastern Europe, Western Europe and developed Asia--while growing in the “emerging” parts of Asia, Latin America, Africa and North America.

And where retail revenue grows, wholesale revenue is likely to follow.

Analysys Mason predicts that retail revenue worldwide will grow at a 1.7 percent compound annual growth rate between 2012 and 2017, with growth in mobile (3.2 percent) more than offsetting a decline in fixed (–0.6 percent).

Globally, LTE is Faster than Wi-Fi, Study Finds

With the caveat that Long Term Evolution speeds are directly related to the amount of bandwidth to support the network (it makes a big difference whether 10 MHz or 20 MHz or bigger channels are available), Long Term Evolution now offers faster speeds, on an average global basis, than fixed connections using Wi-Fi for local distribution, according to an analysis by OpenSignal.  

If speed is a key driver of usage, then users are going to rely more on LTE than Wi-Fi, much as they traditionally have used Wi-Fi instead of the mobile network because Wi-Fi offered a better experience.

There is some evidence of that. A study by Mobidia in 2012 suggested that South Korean users actually were reducing their Wi-Fi usage in favor of the LTE network.

But a Devicescape analysis suggests that Wi-Fi Wi-Fi usage doubles for consumers on 4G networks at a similar rate to how their mobile data usage increases. In other words, consumers increase mobile and offload consumption in proportion to their current behaviors.

In contrast, a recent survey by EE of its UK subscribers that found a significant proportion of its LTE customers are using fewer or no public Wi-Fi hotspots, defaulting instead to the LTE connection most of the time.

The EE survey found 43 percent of LTE network customers were using fewer or no public Wi-Fi hotspots since moving to 4G. In addition, almost 50 percent indicated their mobile browsing time had increased since getting the faster connection.

So it is not yet clear how a faster LTE network affects use of Wi-Fi.

source: OpenSignal

AT&T Adds "No Incremental Cost" International Text Messaging

Starting February 28, 2014, AT&T's Mobile Share and Mobile Share Value plans will include unlimited text messaging from the United States to more than 190 countries worldwide and unlimited picture and video messaging to more than 120 countries around the globe. Both new features come at no extra cost.

In doing so, AT&T joins T-Mobile US and Verizon Wireless, both of which had added “no incremental cost” international text messaging on some popular plans. Verizon More Everything plans and T-Mobile US Simple Choice plans feature no incremental cost global text messaging.

T-Mobile US also features no incremental cost Internet access when roaming, on it Simple Choice plans.

The new capabilities illustrate the trend of declining revenue opportunities for mobile and fixed network service providers in the voice and messaging application areas, as well as the growing use of substitute products such as WhatsApp.

As recently as 2005, voice revenues represented 73 percent of total revenues. By 2013, voice had dropped to just 43 percent of total revenues.

The average length of a local call has fallen more than 50 percent over the last decade to 1.8 minutes, according CTIA-The Wireless Association.

And consumer email traffic fell nearly 10 percent between 2010 and 2012, according to Radicati Group.

Over the top messaging, meanwhile, is growing at triple-digit rates. WhatsApp recorded an all-time high of 10 billion outgoing messages in a single day in June 2013, which equated to an average of more than 30 messages per user per day, according to Stephen Sale, Analysys Mason principal analyst.

“We estimate that the total volume of messages sent from mobile devices via IP services exceeded the volume of SMS messages for the first time in 2013, at more than 10.3 trillion compared with 6.5 trillion worldwide,” said Sale. “Messaging volumes associated with OTT services are expected to almost double in 2014 and will reach 37.8 trillion messages sent in 2018.”

That is having an impact on voice revenues and usage as well, at least in many markets.

To be sure, Insight Research projects that U.S. telecommunications service revenues will continue to grow from 2013 to 2018. But that growth will not come from voice services.

Instead, voice revenue will continue to decline at -4.81 percent compound annual growth rate from $163 billion in 2013 to $127 billion in 2018, Insight Research predicts.

Mobile voice—which peaked at $118 billion in 2008—will decline at -3.82 percent CAGR to $84 billion in 2018. Fixed network voice will drop even faster, at a negative 6.56 percent CAGR from $61 billion in 2013 to $44 billion in 2018.

Voice lines in service obviously will mirror those declines. The U.S. fixed network voice installed base peaked at 192 million access lines in 2000. In the following decade, despite nominal population growth, close to 80 million  access lines or more than 40 percent of wireline network lines were disconnected, replaced largely by mobile phones, Internet-based phone services or a shift to other communication apps, Insight Research says.

Globally, by 2002, the global telecommunications industry reached a crossover point at which the number of mobile service subscribers surpassed those of fixed telephone networks. At the close of 2002, there were 1.2 billion mobile customers around the world, compared with

1.1 billion fixed telephone lines.

Those are daunting challenges for observers who argue that service providers actually can do very much to protect and then grow voice revenues. Some might argue that, no matter what service providers do, voice revenues will drop.

Millennials Watch Lots of "TV," Just Not So Much on TVs

Though some studies indicate that Millennials watch less linear TV than older consumers, some research suggests they consume more video, just not on linear TV services, a study sponsored by YuMe suggests.

Over a recent three-year period, Millennial women watched about 10 percent less linear TV since 2010, while Millennial males who dropped TV usage seven percent since 2010. The YuMe survey used an 18-24-year-old group (born in 1989-2000) as the “Millennial” definition, a narrower definition of Millennials than others would use.

Millennials also use their smartphone and tablets more than any other demographic, for the purpose of watching video. Also, Millennials did not use digital video recorder features at all, YuMe suggests.

Millennials do report watching a lot of TV shows and user-generated content. What they don't watch, is news, with only 13 percent saying they watch it.

About 49 percent of Millennials reported watching web videos on smartphones, 44 percent said they watched web videos on PCs and 44 percent said they watched web videos on tablets.

4.3 Billion People Do Not Have Internet Access

Of the world’s seven billion people, 2.7 billion have access to the Internet, while 4.3 billion do not. 

Most of them live in developing countries.

Though it still is possible to argue about whether the high adoption of Internet access and higher degree of economic development are causal or correlated, even those who might tend to think high Internet access and higher economic development are correlated, not causal, might support fastest possible adoption of Internet access everywhere, for the same reasons it was deemed important to provide voice communications to everyone.

If developing countries were to catch up with levels of internet access in developed economies today, they would reach a penetration level of around 75 percent, more than tripling the number of present “global south” Internet users from 800 million to three billion.

Of the new global south Internet users, some 700 million would be in Africa, 200 million in Latin America and 1.3 billion in Asia.

Public policy makers can help through initiatives that focus on reducing costs and administrative barriers for operators, strengthening competitive incentives for operators to expand coverage and the services they offer, and ensuring that consumers face affordable prices, the study suggests.

Expanded Internet access in developing countries to levels seen today in developed economies could increase productivity by as much as 25 percent in developed economies,  generating $2.2 trillion in gross domestic product,  and more than 140 million new jobs, lifting 160 million people out of poverty, according to a new study by Deloitte, and sponsored by Facebook.

Deloitte estimates that if developing regions achieved internet access levels seen today in

developed regions, their long run productivity could increase by about 25%. This effect is most pronounced in regions currently characterised by lower current levels of productivity or lower penetration rates.

In India, long run productivity could increase by 31 percent, while Africa productivity could grow 29 percent.

In South and East Asia, productivity increases of about 26 percent is possible. Productivity in Latin America could increase by 13 percent.

Mobile and internet connectivity in the agricultural sector would improve productivity by providing farmers with information on weather conditions, disease control and new methods of maximizing crop yield, as well as provide livestock tracking.

Access to market and pricing information through the internet and mobile phones enables small-scale farmers to access markets directly instead of through costly intermediaries. That could increase profits for farmers by up to 33 percent, the report suggests.

In the Kerala region of India, the use of mobile phones to track weather conditions and compare

wholesale prices led to an eight percent increase in profits for fishermen, along with a four percent drop in prices for consumers, Deloitte says.

These gains in productivity might benefit up to 360 million individuals, many of them small-scale subsistence farmers.

By reducing transaction costs, the internet reduces barriers to market entry and allows small and medium-sized businesses to reach a broader market, as well.

Smaller businesses with Internet access in countries such as Vietnam, Mexico, Malaysia, Argentina, Turkey, Taiwan, Hungary and Morocco all experienced on average an

11 percent productivity gain due to Internet-accessed applications, the study suggests.

A World Bank study suggests developing economies with a 10 percent increase in

broadband penetration can increase growth in per capita gross domestic product by 1.3 percent.

Deloitte estimates that an expansion in internet access is worth between $450 and $630 per year to individuals in the developing world, an average increase in per capita incomes of

about 15 percent.

In Africa, Internet access could grow per capita income by 21 percent. In India, Internet access could increase per capita income by 29 percent.

Deloitte estimates that increasing internet access to levels experienced in developed countries can increase GDP by up to $2.2 trillion (an increase of 15 percent), with South and East Asia and India each gaining about $0.6 trillion in additional economic activity.

Output in Africa could increase by over $0.5 trillion. Across the developing world, the GDP growth rate would be boosted over 72 percent. In India GDP growth rates have the potential to double, in Africa to grow by 92 percent and in South and East Asia to rise by 75 percent.

Is There Demand for Gigabit Access? Yes and No

There are two different ways to characterize the present level of demand for gigabit Internet access service; both correct. Some, especially Google Fiber, argue there is high demand now, at $70 a month.

Even many competitors might agree, while also maintaining, paradoxically, that consumers might not “need” a gigabit service, in terms of applications they want to use right now.

The fundamental issue is value compared to price, not simply value, expressed as raw speed. A gigabit service sold at $500 a month would attract relatively few consumers. The same service at $70 a month seems to have reasonable demand.

The issue, as always, is consumer estimation of value, related to price. If Google Fiber sold a 500-Mbps access service for $35 a month, would that be its most-popular offer? Many would answer in the affirmative.

Others might continue to argue that most consumers do not need, or perhaps even want, a gigabit service at $500 a month. They might even prefer a 500-Mbps service for $35 a month, which is probably why Google Fiber does not offer such an option.

So part of the “demand” equation is value, as related to price. The supply issue is easier to characterize. Most incumbent cable companies and telcos would rather not invest more than required to meet current levels of demand, if they fundamentally believe they cannot sell enough gigabit access product, at low prices, to earn a return on the investment.

Without question, a gigabit for $70 a month destroys all existing value-price relationships for access services now  offered by most ISPs.

If you assume the typical monthly price for a 20 Mbps service is about $50 a month, you can understand the impact of Google Fiber’s price umbrella.

The Google Fiber $70 a month price implies that the cost of 1 Mbps of access speed “costs” about seven cents. So a 100-Mbps service would logically “cost” about $7 a month.

But the issue of demand for gigabit service is more complicated than often supposed. Are there lots of consumers who would buy a gigabit service for $70 a month. Certainly. But would most choose to buy 500 Mbps for $35 a month? Probably, at least for the moment.

So do people “need” or “want” a gigabit service? Yes and no. Yes, they do want faster speeds, but just how fast might hinge on the price. More people might prefer 500 Mbps for $35 a month, compared to a gigabit for $70 a month, or even 20 Mbps for $7 a month.

But few ISPs would really want to find out which offers people really want. Google Fiber can show there is demand for gigabit speeds priced at $70 a month. The issue even Google Fiber probably does not want to test is whether there actually is overwhelming demand for 500 Mbps at $35 a month.

$35 Smartphone Suggests Telecom Costs Still Way Too High

In any competitive business, the provider with the lowest cost tends to win. And that is a problem that has not yet been solved by most tier-one service providers in developed markets. 

One example is a $35 smartphone. WhatsApp offering voice and messaging provides another example. 

The rise to prominence of firms such as Huawei, network function virtualization, software optimized networks and software defined networks provide additional examples. 

On a global basis, the telecom industry continues to have operating and capital costs that are too high.