Amazon Smartphone Shows How Amazon is Changing

That smartphones play a wider role in the connected device, e-commerce also online advertising markets is illustrated by the introduction of a long-rumored smartphone by Amazon.

As has been the case with the other connected devices Amazon has introduced, the issue is how a connected device helps a retailer or application provider sell other products, not necessarily generate direct revenue from providing connectivity services or selling devices.

The Kindle was designed to help Amazon sell video and text content. The Amazon Kindle Fire TV will help Amazon garner information deemed valuable by potential advertisers, and incrementally boost use of Kindle video.

The new smartphone will play a role akin to both of the prior devices, even if it also supports voice communications, general Internet access and text communications.

The smartphone is becoming the most important “sensor” most people have with them all day, providing context and location, as well as information about what people are doing, and where.

But the smartphone also is becoming a retail platform, driving product purchases, as do tablets.

In fact, as one might describe Google as the first technology company whose revenue model actually is advertising, Amazon is becoming, in many ways, a technology company whose revenue model is commerce.

So, one way or the other, all Amazon brand connected devices aim to help Amazon boost product sales volumes.

For that reason, it is likely Amazon will follow it well-trodden path, selling devices a bit above cost, to seed the market with lots of devices that drive commerce revenues.

Strategically, therefore, Amazon is more than “just one more supplier of smartphones.” It is a competitor with different revenue streams, allowing it to package and retail devices in ways that are built on sources other than the actual sales of the devices.

One expects a cable TV company or telco to earn most of its money from Internet access services and a few key applications (voice, text messaging, video entertainment). One expects a consumer electronics manufacturer to earn most of its revenue from selling devices.

But Google and Amazon now are quite unusual, as Amazon is making a transition from “e-tailer” to technology company that earns its revenue by retailing. Just a few firms apparently can become very big by embracing such unusual models.

That might  be the biggest long-term implication of Amazon becoming a smartphone supplier.

Can Sprint and T-Mobile US Ever Catch Verizon and AT&T?

BTIG Research

As the U.S. Federal Communications Commission ponders some potentially market-altering mergers affecting the cable TV, satellite TV and mobile industries, the agency also faces the key issue of how it can best promote continued investment and innovation in the mobile business.

Paradoxically, as in the fixed network business, it is likely that only a few service providers can flourish, long term, even if conventional wisdom suggests more providers is to be desired.

And, one might add, part of the growing instability in the U.S. mobile market has yet to surface, namely the entry of new providers, such as one or more cable TV companies entering the market with widespread Wi-Fi-first access models.

New Street Research apparently estimates that U.S. cable companies could price Wi-Fi-based mobile phone service at a 25 percent discount to existing wireless carriers and still generate profit margins well north of 30 percent by doing so.

In other words, Sprint and T-Mobile US do not face AT&T and Verizon, they also eventually are likely to face Comcast and possibly Google, Apple or some other app provider.

The problem in most fixed network markets is that capital investment barriers are so high regulators essentially have had to rely on wholesale mechanisms to support competition. Ironically, such moves also tend to depress facilities investment.

BTIG Research

Though many would argue it is far from ideal, U.S. facilities-based competition between cable TV and telcos has been reasonably effective in sustaining competition, and the emergence of Google Fiber with a facilities-based approach arguably is starting to be even more influential.

The issue is how to best promote effective long-term competition in the mobile market, a question that can be summarized as "what is the minimum number of providers required to sustain long term investment and innovation?"

And some argue the current structure of four leading providers cannot last, based on disproportionate differences in revenue, profit and ability to continue investing in next generation networks.

The single most important present issue is the structure of the U.S. mobile market, which now has become unstable, paralleling in many ways instability in markets such as those of France, where regulators likewise are facing the challenge of sustaining investment and competition with a possibly smaller number of leading providers.

“We believe Sprint and T-Mobile’s lack of capital investment in network infrastructure and spectrum over the past five years were the primary reasons for AT&T and Verizon’s market share gains during that period,” say analysts at BTIG Research.

Likewise, an analysis by New Street Research makes the same point.

BTIG Research

"Our analysis shows that neither Sprint nor TMUS have enough revenue to cover their fixed costs and it is highly unlikely that both will capture enough new revenue to do so," New Street Research analysts say. “There simply isn't enough revenue in the industry for four carriers to cover their fixed costs unless there is a significant shift in market share."

You can guess that the analysts believe there is scant chance the two smaller U.S. mobile service providers can do so.

The analysts also say it is possible that a reduction in U.S. mobile service providers still could provide consumer benefits. In three markets--Netherlands, Greece, and Austria--the number of nationwide competitors dropped from four to three and average pricing in the markets declined 15 percent to 40 percent after the consolidation.

"If the companies merge now, while they are in relatively good shape, the merger will result in lower costs in the context of an improving business, which our data suggests should lead to investment and lower prices," New Street Research believes. On the other hand, "If the companies are only permitted to merge when one has faltered or failed, the combined company will be less well-positioned to compete against the two well-funded incumbents."

Common sense might lead one to conclude that four providers indeed are better than just three. But long term stable markets might ultimately require contraction to just three providers. And it might matter when such contraction occurs.

T-Mobile "Tablet Freedom" Plan Shows Tablet Impact on Account Growth

T-Mobile US has launched another attack in the U.S. mobile market, aiming this time at connected tablets by allowing T-Mobile US customers to add a mobile-capable tablet to a postpaid voice plan for free. The plan gives customers 1.2 GB of free 4G Long Term Evolution data usage every month in 2014.

Verizon Verizon quickly responded, allowing tablet owners to add a connected tablet, with a gigabyte of free monthly data, on “More Everything” shared access plans.

Operation Tablet Freedom also now is selling mobile-capable tablets for the same price as Wi-Fi-only models, when T-Mobile US consumers also activate a new postpaid mobile Internet plan for a new tablet.

Voice customers adding the 1GB tablet plan for free for the rest of 2014 also fully qualify for these reduced prices, T-Mobile US says.

Also, T-Mobile US also will pay any early termination fees when users switch to T-Mobile US.

The point is that tablets are driving line growth in the U.S. mobile market, especially for T-Mobile US, and likely AT&T and Verizon Wireless as well.

If T-Mobile US and Verizon Wireless each gain nearly a million net customers in a quarter, AT&T adds half a million and Sprint loses half a million, in a context where 90 percent of net adds must come from some other carrier’s market share, the numbers do not add up.

Simply, there are more accounts being added than are possible, counting only phones.

What seems to be happening is that most of the net new additions are driven by tablets and other machine-to-machine connections of various types, such as alarm connections.

Analysts say AT&T has lost some phone accounts to T-Mobile US. Of 551,000 net postpaid wireless subscribers AT&T added in the second quarter of 2013, for example, 398,000 were for tablets.

UBS estimates 160,000 were for other connections, such as home security or wireless home-phone service. AT&T lost a net 7,000 mobile-phone customers.

UBS analysts also expected net additions of 350,000, virtually all from tablet connections, with 200,000 other net new connections canceling out a net loss of 200,000 phone subscribers.

Indeed, connected devices (tablets, principally) drove net mobile additions at AT&T during the third quarter of 2013.

AT&T added nearly one million net subscribers, including 63,000 mobile postpaid accounts. AT&T also added 192,000 prepaid accounts. But connected device net adds were 719,000, or 73 percent of net additions.

In the fourth quarter of 2013, AT&T likewise added  a net 566,000 customers on a contract, with 440,000 net new tablet customers.

AT&T Plans Gigabit Network in Research Triangle and Piedmont Triad in North Carolina

Many complain that there isn't enough competition in the U.S. fixed network high speed access market. But largely because of Google Fiber, the amount of competition is heating up. 



AT&T now says it is negotiating wtih municipal officials to build gigabit networks in areas of Carrboro, Cary, Chapel Hill, Durham, Raleigh and Winston-Salem, N.C.



AT&T says it is in "advanced discussions" with the North Carolina Next Generation Network (NCNGN) to deliver gigabit service "where there is demand." 



For those of you familiar with the ways municipalities traditionally have regulated either video entertainment or telecom services, that is a switch. 



In the past, regulators would have required ubiquitous deployment everywhere in a region, even if demand likely would not be high. That has the effect of depressing investment that otherwise would be made, in areas where there is demand. 



The more-flexible approach now seems to be to encourage gigabit network deployment as widely as possible by allowing Internet service providers to build first in neighborhoods or communities where the likelihood of uptake is the highest.



The hope is that demand in close-by communities will grow over time, as residents bcome aware of the value. Also, the initial deployments will help create a better business model for additional neighborhoods to be added to the network. 



At least in part, the new flexibility has been helped by other public-private partnerships that have focused on creating gigabit networks around anchor institutions. Google Fiber also has shown the wisdom of allowing new facilities to be deployed initially where uptake is expected to be greatest, allowing ISPs to build volume and reduce costs for follow-on deployments.



In part, the new flexibility will encourage other ISPs to make similar investments. The movement will be most crucial for ISPs such as AT&T and Verizon, which have bigger opportunities than most other providers, given their size and presence in major markets most conducive to gigabit deployments. 



CenturyLink has yet to make similar moves outside of some parts of its Omaha markets where previous owner Qwest had built fiber facilities that can be upgraded for gigabit access. 



The point is that competition is heating up, in the gigabit high speed access market. 

Mexico to Build Wholesale Mobile Network in 700 MHz Band

When the cost of building a new broadband access network is high, regulators and Internet service providers alike will consider wholesale approaches, as featured by the Australian National Broadband Network, as well as similar efforts in Singapore, New Zealand and the United Kingdom.

Now Mexico is creating a wireless broadband wholesale network using the entire 90 MHz spectrum in the digital dividend (700 MHz band), and hopes to have the network activated by 2018.

The wholesale-only network will sell capacity to retailers, according to Ernesto Flores-Roux, Associate Researcher, Centro de Investigación y Docencia Económicas - CIDE, Mexico, who spoke at a meeting organized by LIRNE Asia in March 2014, on the subject of broadband policy to bring broadband access to the poor in India.

Incumbent service providers will be able to buy capacity on the wholesale network, with one key trade-off. If they do so, such incumbents also must open up their existing networks to third party wholesale as well, on conditions similar to wholesale access terms on the new 700-MHz wholesale network.

The decision to build a wholesale-only network was driven by the belief that this is the best way to assure lowest-possible cost for consumers, said Flores-Roux.

It remains unclear how investment in the wholesale network will be made. At the moment, “any conceivable structure can be used for the ownership and financing of the network,” said Flores-Roux.

In other words, investment can be “private, public or both.”

But other approaches to getting low-cost broadband access likely will be tried as well.

As in the United States, where shared spectrum approaches now are being introduced, existing spectrum presently licensed to government users can be shared with commercial users.

That will allow Internet service providers to move faster in building networks, and at lower cost, to provide broadband services to unserved consumers, according to Professor Martin Cave, Deputy Chairman, Competition Commission, UK.

As has happened in the past, entirely new approaches to network infrastructure are the key to extending communications service to everyone. Nobody originally thought cable TV networks would become full-service communications networks.

Nobody originally thought mobile networks would be the way everybody, everywhere, got voice communications.

Likewise, it is likely new approaches, originally unforeseen, will help ISPs deliver broadband services to everybody, everywhere.

Which Will Win: Wi-Fi-First, Wi-Fi-Only or Wi-Fi Sometimes?

Republic Wireless and Scratch Wireless already offer discount mobile service on Wi-Fi-first basis. Google and  Comcast reportedly also are looking at the idea.

To be sure, whether public Wi-Fi can compete with mobile has been asked for a decade and a half. Until recently, the answer has been “not yet.” The question was asked of 3G networks and now is asked about 4G networks.

Arguably, two major hurdles will have to be overcome, first, ubiquity of public Wi-Fi access and second, the business model.

For the moment, ubiquity remains the biggest challenge, as it remains difficult to ensure coverage, let alone roaming, on public Wi-Fi today, outside the fairly limited universe of cafes, malls, hotels, airports and other areas where there is high pedestrian traffic.

Business models also are key, though. There is a key difference between services that provide full roaming and those that conceivably could be built on untethered access (hotspot based).

Though a “phone” service requires roaming, a service based on untethered access for Internet apps, used primarily when users are stationary, is different. The classic examples are mobile phone service and public Wi-Fi hotspots.

The developing opportunity is for something possibly in between, oriented around content consumption rather than real-time communications.

One might argue such concepts have been tried before, as with the Personal Handy Phone System. There was some thinking such a service might also develop in the United States, around the time Personal Communications Service spectrum was awarded in the 1.8 GHz band.

As it turned out, PCS wound up being “cellular telephone service.” But all that was before the Internet, before broadband, before the rise of Internet-based content consumption.

Though it is hard to tell whether all those changes, plus the advent of smartphones and tablets, small cells and more public Wi-Fi, will finally enable a Wi-Fi-only approach to services that appeal to a large base of consumers. In the past, rapid development of fully-mobile services has fundamentally limited the appeal of such less-than-fully-mobile services.

But you might also argue that consumer behavior already includes use of both modes: mobile for communications and Wi-Fi (at home, at work, plus public Wi-Fi) for PCs, tablets and offloaded mobile media consumption.

So some might argue the biggest opportunity is for Wi-Fi-first, rather than Wi-Fi-only, services. People already understand and use devices and networks in a “Wi-Fi-sometimes” or “Wi-Fi-frequently” mode.

So if Wi-Fi-first is to succeed as a major service, it will have to default to mobile mode, and use public or private Wi-Fi access simply to lower overall costs of operation.

The issue is that mobile operators can do this as well as attackers.

Is Apple TV With Managed Service the "Something Big?"

Back in September 2013, Apple hired a CableLabs exec who promised he would be working on "something big." Is it possible the "something big" is a version of the Apple TV box that is optimized for cable TV delivery, with quality of service mechanisms, for example?

Even at the time, the speculation was thatJean-François Mulé, former senior VP at CableLabs, the cable industry development organization, was going to be working on a cable-optimized set-top box.

Now there are rumors that Apple is in talks with cable giant Comcast about a streaming TV service that would offer live and on-demand content. In one sense, that might not be unusual. Lots of video streaming services are available today.  

The really big change would be if the offering wound up being a managed service, with quality of service guarantees, much as voice and existing linear TV services feature quality of service mechanisms.

According to a Wall Street Journal report, the service would enhance traditional cable channels and over the top, cloud-based video.

And the significant aspect is that Apple apparently wants to bypass the public Internet and deliver non-Comcast content using the same delivery methods Comcast already uses for its own video and data services.

In other words, Apple wants to provide a managed over the top video streaming service, with quality of service mechanisms.

Given Apple’s historic concern for quality and elegance, such management would be the only way an “Apple” premium experience could be assured.

In case the implications are not clear, this would mean Apple itself wants to deliver over the top Internet video as a managed service, not subject to congestion the best effort Internet encounters.

And the bandwidth demands could be substantial. In addition to supporting stall-free video on the “watching now” channel, what if Apple also wants to allow over the top video to be recorded on digital video recorders as well?

That could involve simultaneous delivery of up to five video streams. Even on a fast connection, that might be problematic.

Ironically, for some observers, Apple’s desire to create a managed service, with quality of service guarantees, points out the defects of “best effort only” network neutrality rules. Blocking is not the issue: quality of experience is the issue.