Will Spectrum Auctions Enhance Competition?

Making new spectrum available is one of the traditional ways regulators can introduce more competition into a market. 

Perhaps rarely is the business environment so turbulent as in the U.S. mobile market, where a pricing war has broken out after years of stability, major blocks of new spectrum are going to be made available, and regulators face a new round of industry consolidation.

And regulators face a very tricky challenge. They must weigh the impact on competition and investment if four national mobile providers consolidate into three. 

They have to design spectrum auction rules that presumably encourage competition at the same time the auctions raise revenue and make additional capacity available. 

And they have to do so in a dynamic environment where the long-term outcomes are unclear, no matter which way policy is set. Some might argue it is self evident that four contestants are better than three.

Others argue the market will not support four contestants over the long term, and that three strong competitors will provide better consumer outcomes, and promote investment as well. 

Looking only at earnings, it is clear the market is unstable. Where 2013 mobile earnings for Verizon were about $34 billion, and where AT&T earned about $26 billion, Sprint earned about $5 billion while T-Mobile US earned $5 billion as well.

The contestants are far from evenly matched, in other words. And some would say the long-term market structure cannot support four competitors so unevenly arrayed. 

What policies might be created to affect the outcome is the issue. The smaller mobile carriers argue for spectrum set-asides, especially in the important upcoming 600-MHz auctions. 

But that holds risks. Doing so would reduce the revenue the auctions would generate. That might not be so big a problem, except for the fact that the FCC is holding a two-stage auction, and has to induce TV broadcasters to give up their spectrum first, before mobile service providers can bid to acquire the spectrum.

Spectrum prices, in other words, will have a direct bearing on whether the auctions even are possible. Complicating matters is the desire expressed by Sprint to buy T-Mobile US, and the impact such a deal would have on Sprint willingness and ability to bid for new 600-MHz spectrum.

Already burdened by debt, Sprint might not be able to afford both a T-Mobile US acquisition and significant new 600-MHz spectrum, no matter what the bidding rules. And in that case, will there really be any more than two bidders, namely AT&T and Verizon, something the FCC might well want to avoid.

Nor is it clear Sprint will bid in the next auction of AWS 3 spectrum. That 65 MHz of new mobile spectrum in the 1695-1710 MHz, 1755-1780 MHz, and 2155-2180 MHz bands is in some ways going to be unappetizing for all the four major carriers.

The incremental spectrum gains are likely to be fairly minor (10 MHz gained by any single carrier is a likely result). And the big 600-MHz auction lies ahead.

Also, there is a novelty. The 2155-2180 MHz portion of the AWS 3 band already is licensed for use by Federal users.

So that spectrum will be available only on a shared basis with the new commercial users. That is a first for formerly-exclusive license issuance. But shared spectrum is likely to be considered less valuable than exclusive-use spectrum, and will therefore likely lead to lower market prices than other similar exclusive-use spectrum.

Also, in the case of AWS 3, there are indications that Sprint is not too interested in bidding.

Dish Network, on the other hand, is viewed as the likely bidder for unpaired spectrum Dish can pair with its existing AWS 4 spectrum.

The point is that it is not clear the AWS 3 auction will have as much impact on the fortunes of the leading mobile providers as other coming developments.

More importantly, it is not absolutely clear what the FCC can, or should do, with respect to enhancing competition in the U.S. mobile market. A reasonable observer might well argue that Sprint and T-Mobile US simply are too small to compete against AT&T and Verizon, long term.

Source: BTIG Research

Sprint Will Pay ETDs for New Framily Customers

Sprint has launched a limited-time offer for new customers who switch to a Sprint Framily plan from another service provider. 



Sprint will pay early termination fees such new customers might incur when switching, as well as buying the old phone, up to $300. Sprint will pay up to $350 worth of ETFs for each new line switched. 



The offer is available at Sprint stores and online at Sprint.com from April 4 through May 8, 2014. 



The limited time promotion likely is a reflection of the potential costs of such a program. 



The Sprint offer illustrates the growing mobile price war in the U.S. market, and also the way the leading service providers often attack, launching limited-time promotions that limit financial exposure and also create a sense of urgency about switching. 

When Will Telco Fixed Network Access Lines Stop Falling?

source: Larribeau Associates

When will U.S. fixed access lines stop falling? And what stable level of lines should be expected?

Will lines stabilize at a third of their peak, half, or even more?

Right now, it is hard to say.

In 2000, there were more than 180 million access lines in service, and telcos supplied nearly all of them, either on a retail or wholesale basis.

And matters are not made easier by terminological confusion. Some count "access lines" as "voice lines."

Others might include high speed access in the total. Some count only telco-supplied lines, while others include cable-provided lines.

Others might count a "voice service" as a line, even if delivered over a high speed access circuit.

The point is that the telco line erosion will halt, some day. The issue is when, and at what level that will occur. The other issue is total market size, including lines sold by competitors. In principle, telco lines could drop even if the market does not contract.

Technology Futures, which has been a remarkably accurate forecaster in this regard, thinks it is conceivable U.S. telcos ultimately will find a stable base at around 100 million access lines, on the assumption telcos collectively get and keep about half the number of U.S. high speed access lines.

JSI Capital Advisors has estimated there could be just 40 million U.S. telco access lines in service by 2020.

Some might argue that is possible if one counts only narrowband voice lines in service. For example, Technology Futures has estimated U.S. telco narrowband lines could dip to as few as 50 million by 2020.

To some of us, that forecast of remaining narrowband lines seems too high, as it suggests half of all U.S. telco lines will be narrowband in 2020. 

That just seems unlikely in the medium term, and virtually impossible in the long term, as legacy time division multiplex networks are decommissioned in favor of Internet Protocol networks.

Though it will remain possible for a narrowband copper connection to handle 2020 IP services, it will be difficult. Nor, in practice, will telcos struggling to reach lower costs want to maintain two separate networks.

The bottom line is that it is reasonable to argue that U.S. telco fixed network service providers might eventually reach a “stable” base of between 63 million to 100 million homes, each home buying at least one service.

One might note that U.S. cable operators had in 2013 about 57 million video accounts in service. 

Taken together, one might therefore guess that total fixed lines in service could be between 100 million homes and 120 million homes, about 66 percent of the 2000 level.

JSI Capital Advisors has estimated there could be just 40 million U.S. telco access lines in service by 2020.

Some might argue that is possible if one counts only narrowband voice lines in service. For example, Technology Futures has estimated U.S. telco narrowband lines could dip to as few as 50 million by 2020.

To some of us, that forecast of remaining narrowband lines seems too high, as it suggests half of all U.S. telco lines will be narrowband in 2020. That just seems unlikely in the medium term, and virtually impossible in the long term, as legacy time division multiplex networks are decommissioned in favor of Internet Protocol networks.

Though it will remain possible for a narrowband copper connection to handle 2020 IP services, it will be difficult. Nor, in practice, will telcos struggling to reach lower costs want to maintain two separate networks.

The bottom line is that it is reasonable to argue that U.S. telco fixed network service providers might eventually reach a “stable” base of between 63 million to 100 million homes, each home buying at least one service.

Most service providers likely would be quite happy if the market stabilized at that level. And, at some point, it is likely that a fixed access line will be a high speed connection, not a "voice line." That would tend to suggest erosion will be driven as much by market share shifts as actual market contraction.

Demand shrinkage is one issue. Market share lost to other contestants is the other issue affecting incumbent telcos.

Overall demand for fixed voice lines is dropping. The "lines" that will be permanently lost are those lines which formerly would have been used to support home fax machines, "teenager lines," or dial-up access lines, as well as lines that shift to mobile usage.

It might be reasonable to suggest half of former consumer lines could disappear, under those conditions, though business lines might largely remain more stable.

Just as important, though, is lost market share.

For many of us, the notion that communication services have life cycles has proven quite unsettling, even though most people would agree that product life cycles exist for other products.

Ownership of private autos now is projected to fall by 16 percent in North America by 2030, according to ABI Research, driven by a shift of population to urban areas where it is possible or desirable not to own a car.

So the question is when North America might reach peak auto, as many have talked about peak oil production.

And it should be obvious that product life cycle peaks have become uncomfortably common over the last decade.

International calling revenue and long distance calling revenue already have peaked in the U.S. market. By at least 2003, long distance revenues were eclipsed by mobile revenues for the first time, even though long distance had been the industry revenue mainstay for many decades.

Dial-up Internet access also peaked around 2001.

The number of fixed network voice access lines peaked in 2000.

Text messaging is likely to reach its peak, in North America, in a couple of years.

We already, in North America, have passed the time of “peak fixed network access line” sales, for example.  It seems 2000 was the year when fixed network voice lines reached a peak, for example, and have been declining ever since.

We soon will reach peak text messaging, in terms of revenue. The point is that we now should have become accustomed to the idea that legacy revenues have peaked, or will peak shortly, for nearly the full range of legacy products sold by communication and video entertainment service providers.

That, in turn, is driving both tactical and strategic behavior. In the near term, service providers will attempt to prolong the life of declining products, while searching for big replacement revenue sources.

source: SBC

Fixed network fixed access lines used for voice  began in 2000 and has continued unabated since then, driven in part by a shift of voice consumption to mobile networks and market share lost to cable operators and other independent Internet service providers.

Precisely how to measure “lines” is a bit subjective, though. These days, service providers prefer to cite “product units” or “services” rather than “lines” as the appropriate metric, where units of video entertainment, voice or high speed access all are counted as discrete units.

Still, the total number of active connections does matter, as it is difficult to impossible to sell additional units to a household that does not already buy at least one product. Competition from cable operators or independent ISPs such as Google Fiber is one reason. But most primary consumer voice demand also has shifted to mobile networks.

The net result is a market where any single fixed network services provider might well expect to sell at least one service to only about 30 percent to 35 percent of all homes in any market, at best.

In that framework, it is conceivable that U.S. telco homes served could dip as low as 63 million or so, calculated as 35 percent of 180 million homes served in 2000.

Google Project Loon Refines Balloon Control

Since June 2013, when Google's Project Loon became public knowledge, Google has learned to project balloon trajectories twice as far in advance, while also getting 300 percent better performance out of the pump that allows the balloons to change altitudes.



That is important because the pump is what enables the balloon to change altitudes and catch needed air currents. 



Google is experimenting with balloons, as Facebook is testing drones and satellites, as ways to rapidly extend a minimum level of Internet access to billions of people in the Global South who do not, at present, have such access.



The exotic techniques are necessary because all existing methods of providing terrestrial Internet access cost too much, and take too long to deploy, if the assumption is that the intended user really cannot afford to pay enough to support the deployment of such networks.



As it was mobile networks that finally disrupted the older notion that fixed networks were how most people in the developing world would get access to telephone service, now the big application providers are looking for ways to leapfrog even mobile networks in an effort to make a big breakthrough in Internet access.

Will Google Become a Mobile Operator?

Google executives have been mulling the possibility of Google becoming a mobile service provider, according to The Information.

In all likelihood, Google would become a mobile virtual network operator, to do so, so it could offer a triple play mobile-plus gigabit high speed access plus entertainment video package in areas where Google Fiber operates. 

Will EU "Connected Continent" Plan Spur Investment, or Not?

European Union Connected Continent legislation ending all roaming charges within the EU, creating a network neutrality framework and also circumscribing the ways Internet service providers advertise and market their services are part of a package approved by the European Parliament.

The legislation faces another vote in Parliament, and then must be approved by member states, so the final version of the rules could change.

There are questions large and small, though. The specific proposals, which might be further modified, are easiest to explain.

For mobile service providers, the biggest change is the complete ban on roaming charges within EU countries. For application providers, the biggest consequence is anti-blocking rules, referred to as network neutrality, but arguably better described as prohibiting any Internet service provider from blocking lawful apps.

Among other consumer protection provisions, ISPs will have to modify their marketing, refraining from using “up to” clauses when referring to access speed. Instead, ISPs will be required to supply information on the “average speeds” they actually provide to their customers during normal and peak times.

The long-term questions are harder to assess. The legislation is supposed to unlock investment in next generation networks. But some do not believe this will happen, in part because the rules make reliance on wholesale access to new markets even easier.

Strand Consult thinks the EU communications market will face greater business risk as a result, in part from arbitrage of prices between high-cost and low-cost markets.

The vote will need to be approved by Council of Ministers, which is unlikely before the EU Parliamentary elections in May 2014.  

“The package raises more questions than it answers and exacerbates the challenges that the EU and the telecommunications industry have and will have the next four to five years, Strand Consult argues.

“We believe that the telecommunications market in Europe will be somewhat similar to a free fall over the next four to five years,” Strand Consult predicts.

Nor will the new rules spur needed investment in next generation infrastructure, Strand Consult argues.

Consumers will be able to terminate their contracts if there is a significant and non-temporary discrepancy between what they were promised and the service they actually get, in terms of access speed.

That will be a bit of a statistical challenge, since actual speeds experienced by any user, at any time, will depend on what other users sharing access resources are doing. Additionally, access speed will hinge on devices used with the access connection, as well.

The legislation also helps harmonize spectrum allocation across the EU, and simplifies regulations in ways that will make pan-EU services easier to create.

Service providers will have the chance to operate in all countries through a single EU authorization, and the chance to deal with that one authority on other licensing issues, instead of being required to get separate licenses in each member nation.

In other words, service providers would gain pan-EU legal certainty and equal regulatory treatment.

Spectrum policies also will be harmonized, a move that is expected primarily to benefit 4G Long Term Evolution mobile networks. Wholesale access policies likewise will be standardized to a greater extent across borders, and essentially making it easier for competitors to enter new markets using wholesale access mechanisms.

Service providers, as you would guess, are not happy with many of the new rules. Service providers probably are resigned to the end of roaming fees, but the network neutrality rules, which would prevent creation of new quality assured services, likely will get more resistance as the rules are considered by each of the national regulators who must also agree.

When Will "Smartphones" Just be "Phones?"

"New shipments" are not "installed base,"  but sooner or later, new shipments represent the installed base, as older devices are retired. By that metric, "smartphones" relatively soon will simply be "phones," as feature phone shipments continue to decline.

The full process might take a decade or so, but is inevitable, as smartphone prices, at least for some models, continue to fall.

Smartphones expected to account for 73 percent of total handsets sold in 2018.

Emerging markets will be the driving force behind the global smartphone sales growth, with 70 percent of total smartphone sales originating in this part of the world in 2018, according to Pyramid Research.

Global smartphone average selling prices will gradually decline from the current $214 to $166 in 2018, Pyramid Research also believes.

But average selling prices will be below $100 across the poorest countries in the emerging world.

The present conventional wisdom is that getting smartphones into the hands of two billion people in developing regions will require a retail price of about $50.

source: Pyramid Research 



source: Business Insider


source: Business Insider