GoGo, Chevrolet Partner for Free Facebook in Flight

Gogo, the provider of inflight Wi-Fi for airplane passengers, is partnering with Chevrolet to offer passengers free access to Facebook, using Gogo, on select Gogo-equipped flights through July 20, 2014.

To reiterate, Gogo is going to offer no-cost access to Facebook on Gogo-equipped aircraft, subsidized by Chevrolet advertising. That is an example of “sponsored data,” similar in concept to toll-free calls, over the air TV and over the air radio.

It also is a concept similar to “free Facebook access” offered in some countries by some mobile service providers. Under those programs, users are allowed to use Facebook without having to buy a mobile data plan.

If it hasn’t already occurred to you, those examples do not “treat all apps equally.” The value for end users is precisely that all apps are treated differentially; that people can use Facebook in flight for no charge, even if other apps are unavailable.

Sometimes, the value of Internet access is provided by access to all lawful apps.

In this case, the value is access to a popular app in a setting where no Internet access has been available before, at no charge to the users.

As examples continue to proliferate, it will become increasingly clear that “treating all apps equally” prevents innovation that delivers value to Internet users.

Global Telecom Revenue Will Hit $4.58 Trillion by 2017

Looking at global telecom revenue over the past several decades, and considering the latest revenue forecast from the Telecommunications Industry Association, it is hard to conclude anything but that the industry grows, year over year, every year.

Where in 2008 global revenue was about $2.9 trillion, in 2013 revenue had grown to $3.87 trillion. By 2017, TIA forecasts global revenue of about $4.58 trillion.

Over nearly every time period, global telecom revenue grows. The only possible exceptions were the years 1929 and 2001, but even there the dips were relatively slight.

For that reason, many consider telecommunications “recession proof,” a theory that was tested in 2000 and 2008. For the most part, aggregate revenue remained fairly stable, though there were some changes in composition of revenues.

And that generally remains the present revenue trend, where annual revenue, on a global basis, grows about 2.7 percent.

Recessions might have impact in some regions, from time to time, slowing growth rates. But even the 2008 global recession did not halt revenue growth.

The impact of the Great Recession beginning in 2008 is easy enough to describe. According to TeleGeography Research, revenue growth slipped from about seven percent annually to one percent in 2009, returning to about three percent globally in 2011.

To be sure, growth prospects vary between regions. In fact, growth in Western Europe has gone negative, perhaps the first time in history that communications revenue, at least in a region, actually has seen a declining trend.

So it might seem odd that service provider executives worry so much about revenue cannibalization. It isn’t a misplaced concern.

As now is clear, telecom products or services have life cycles, like all other products. For more than 150 years, voice services drove industry revenues. That did not change in the 1980s, when a global wave of deregulation and privatization began.

By the 1990s, however, profit margins clearly began to erode, as competition in the formerly high-margin long distance market eroded pricing.

By the mid-2000s, growth had shifted to mobile services, even if voice was the biggest contributor even for mobile services.

Most recently, Internet access and video entertainment have been the revenue growth drivers for fixed networks.

These days, “marginal costs” often mean “marginal revenue” for service providers. To be sure, one can argue that the marginal cost of one additional minute of use of a telecom network is almost nil.

That has implications for pricing, as a provider arguably could price slightly above marginal cost and still make a profit, provided fixed costs are covered and the pricing does not disrupt pricing of existing services and products.

That is a big “if.” The traditional problem with a massive shift to VoIP, on the part of service providers, is not so much the incremental profit or loss from VoIP, but the impact on the entire installed base of customers.

In other words, it is one thing for a service provider to match market prices for over the top voice. It is quite another matter to lower prices for all carrier voice to those levels. That is why “harvesting” has been the strategy for virtually all carrier voice providers.

Service providers rationally have chosen not to formally drop prices on carrier voice, but rather have chosen to lose share and call volume, to protect what remains of the revenue stream.

The argument can be made that prices have been lowered, but only because they are effectively hidden within triple-play bundles, allowing stand-alone voices to remain largely as they were.

The other change is that some service providers have shifted to “consume as much as you want” retail pricing, instead of a metered approach. In some cases, that represents a lower effective price for usage.

In other cases, because people only use so much of a resource, effective pricing on a “per unit of consumption” basis has not actually changed so much. A customer who typically uses 250 calling minutes a month, or 2 Gbytes of data a month, or 200 text messages a month, will not generally consume much more, even if pricing shifts from usage to “unlimited” rating.

But that is one sort of issue faced by mobile service providers, namely margin pressure.

Fixed network service providers face a different problem, namely abandonment of voice services altogether, since mobile provides a substitute.

So even if both mobile and fixed network providers face issues related to the stability and growth of their voice services, mobile faces quantitative changes. Fixed network providers face qualitative changes.

Mobile customers are not abandoning voice; fixed network customers are doing so. The obvious corollary is that future fixed network service provider performance will be dictated by how well service providers can find replacement services.

Growth, in other words, is not a given. Only in Western Europe has growth actually gone into reverse. But other markets face similar challenges.

Demand for fixed network voice is dwindling. Sooner or later, that matters, unless new revenue sources--of at least equivalent magnitude--can be created.

To Make Omelets, One Must Break a Few Eggs

“Sustainability” is a bigger issue than many suppose. It is easy to decry a “commercialized” Internet, or marketplace advantages enjoyed by some firms and not all.

But valuable products and services are not produced, on the Internet, or elsewhere, without a sustainable resource model.

Innovation--creation of new apps, products and services--requires discovery of sustainable resource models.

It is one thing to bemoan commercialization. But the alternative--losing important apps, products and services--arguably is quite worse. “Commercialization” is just another way of saying a firm has found what it hopes is a “sustainability model.”

It is an odd sort of logic that sees a profusion of new apps and services as somehow diminishing the value of the Internet. To be sure, the Internet has, in a real sense, become “balkanized.” Sometimes that is by government edict.

But more often than that, people are simply making choices. They decide which apps, services and communities make sense, and then participate in those subsets of “everything” that is available on the Internet.

“Choice” is not a bug. But people intentionally make choices that effectively “narrow” their use of Internet apps and services.

That is the flip side of choice. It sometimes is argued that sustainability prevents choice.

In other words, sponsored data favors firms able to pay, which will eventually lead to smaller firms losing the ability to compete.

One might make the argument in reverse. Some firms have gained leadership in their markets because they have done a better job producing products and services people actually want.

They have “unfair” market positions because people prefer their products. That is supposed to happen. It is how consumers express their preferences.

Providing quality of service enhancements, or any number of other enhancements, is far easier for a successful firm, with lots of revenue, than for all other contenders. So long as those firms operate lawfully, and so long as markets are not overly-concentrated, that is the way much innovation spreads widely.

Only a big, powerful firm such as Apple could have revolutionized the relationship between mobile service providers and device suppliers. Only a big, powerful firm such as Google could have disrupted the U.S. Internet access market.

Some might decry “commercialization” in the same way all of us have, at one time or another, bemoaned advertising.

But sustainability requires a dependable source of inputs. All organizations require inputs.

The notion consumers and citizens are somehow worse off because new products have sustainable resource models is questionable, if not worse.

Sustainability and choice require resource models, period.

Some condemn “profits” without recognizing that every organization required inputs and resources to keep doing what they do. But a resource model is essential, whether that is grants, donations, tax revenues, profits or volunteer labor.

Digicel Blocking OTT VoIP Apps in Caribbean Markets

Digicel’s mobile network in Haiti now is blocking--or trying to block--VoIP services including Viber, Skype, Tango, Nimbuzz and MagicJack, among other over the top voice apps and services.

Digicel argues it is doing so “to recover millions of dollars in lost taxes and national income of the National Fund for Education (FNE) for the Government of Haiti.”

Probably more to the point, Digicel is concerned about voice revenue amounting to between $500,000 and $1 million.

The blocking apparently has been happening since June 17, 2014 on Digicel’s 4G network.

These same Internet applications are fully functional on all computers and tablets that do not use a subscriber information module, though.

Digicel calls the OTT voice providers “unauthorized providers” that compete unfairly with carrier voice services. It is an argument some service providers have made in the past.

The argument sounds as clumsy and craven as ever, as the one thing most observers might agree upon is that lawful apps--and all those apps are lawful--should be accessible by end users who have purchased Internet access.

"It’s time for us to act to protect our business, our customers and our service integrity and to ensure that the Haitian Government gets the monies it is owed,” said Maarten Boute, Digicel Haiti CEO.

“The actions of these unlicensed VOIP operators in contributing nothing to the delivery of these services mean that our customers do not reap the benefits of our significant investment, commitment and focus,” Boute said.

Separately, The Telecommunications Authority of Trinidad and Tobago has requested Digicel not block customers from using third party VoIP apps while it conducts an investigation into the matter.

Digicel in Trinidad and Tobago apparently has said it will refrain from blocking for 90 days.

Digicel also is blocking VoIP in Jamaica. Mobile provider LIME additionally is  blocking OTT VoIP apps in Jamaica.

That OTT apps threaten Digicel's revenue is not terribly controversial. OTT apps threaten virtually all voice providers. But there is only one way forward. Digicel, as do other service providers, simply must find new revenue sources.

In Enterprise Telecom Markets, New Revenue Sources are an Order of Magnitude Greater than UC, Conferencing

One might make a few interesting observations about the latest telecom and enterprise spending forecasts contained in the latest Telecommunications Industry Association market review.

The report finds that in 2013, for the first time, United States information and communications technology spending accelerated faster than overall global spending, a trend that is expected to continue through 2017.  

Additionally, the U.S. has passed Europe in overall ICT spending, and now ranks behind only Asia.

Those findings mirror the healthy revenue trends in the U.S. mobile and broader telecommunications industry, where U.S. mobile service providers continue to grow revenue at a time when revenue in Europe is declining.

There also is some significant information about the balance between legacy and new revenue sources in the enterprise and business segments of the market.

Among the most revealing bits of data is that cloud computing, cybersecurity and M2M already dwarf legacy services such as unified communications, videoconferencing and audioconferencing, which have been mainstays of the business segment.

In 2014, unified communications will be a $2 billion revenue stream, videoconferencing will be a $1.3 billion revenue source and audioconferencing will be a $3.7 billion business.

Compare that to cloud computing at $67.8 billion, M2M at $13 billion and cybersecurity at $46 billion in 2014. Every one of those emerging new lines of business already is an order of magnitude bigger than the legacy services.

By 2017, the picture will be even more pronounced.

By 2017, unified communications will be a $2.5 billion revenue stream. Videoconferencing will remain flat at $1.2 billion. Audioconferencing will be only marginally bigger, at $3.8 billion annual revenue, than it was in 2014.

But cloud computing will have grown to $107 billion, M2M will reach $28 billion and cyber security will represent $$61.5 billion in annual revenue.

In other words, even the smallest of the new revenue sources--machine to machine services--will be an order of magnitude greater than the combined revenue from conferencing and unified communications.

Collectively, revenue from cloud computing alone will be two orders of magnitude greater than all conferencing and unified communications revenue.

Meanwhile, the combined value of cloud computing, cyber security and M2M services will be very close to four orders of magnitude greater than the revenue generated by conferencing and unified communications.

And that is why some of us essentially have stopped following voice and some legacy markets to concentrate on the newer revenue segments related to Internet-based communication services.

Internet of Things Builds Toward Peak of Hype

The “Internet of Things” is building towards a hype cycle peak. In 2013, Gartner positioned the Internet of Things just shy of the peak of expectations. If the typical pattern holds, that means we might see and hear quite a lot about how big a market the Internet of Things represents.

Machina Research forecasts $100 billion in revenue by 2020 for applications such as toll-taking and congestion penalties. Smart parking-space management, expected to drive $30 billion in revenue.

Smart electricity grids that adjust rates for peak energy usage will represent savings of $200 billion to $500 billion per year by 2025, according to the McKinsey Global Institute.

And it is possible to see IoT upside in many consumer appliances, traffic management, waste management, Internet-managed assembly lines, connected factories and warehouses, for example.

But that illustrates a problem, namely that IoT represents hundreds of potential applications, industry segments or business models.

Also, IoT might in many cases represent a feature of some other existing product, such as kitchen appliances, not necessarily a discrete new revenue source.

Of course, if the hype cycle has validity, it also means those wild revenue hopes are certain to be dashed, in the near term.

After a new technology reaches the peak of the hype cycle, there is a longish following period where observers become disillusioned by the market’s failure to generate the promised revenues and growth.

Only after that period is over does a new market actually develop around a new technology that has proven its value.

Internet of Things will hit the peak of hype soon. After that will come a period where practical and real-world applications seem not to materialize. Eventually, that will be overcome. But IoT reminds me a lot of the mobile payment or mobile wallet opportunity.

After the peak of the hype cycle, the industry has settled down into a period where expectations are modest. And some observers are using language such as the “death of” near field communications, failure to gain traction and “no business model.”

IoT will likely experience a similar deflation of expectations. And observers will finally understand that IoT is, in fact, not a single market.

Netflix is Responsible for Experience Degradation, Verizon Says, After Study

Netflix itself is responsible for congestion experienced by its customers, a study by Verizon engineers suggests.

A FiOS customer in Los Angeles wanted to know why the Netflix experience was not optimal, so the Verizon network operations team studied the network connection for this customer for the week preceding the date that he emailed us.

They measured the utilization at every link in the Verizon network to determine where, if at all, congestion was occurring.

The review confirmed here was no congestion anywhere within the Verizon network, Verizon says.

There was, however, congestion at the interconnection link to the edge of Verizon’s network (the border router) used by the transit providers chosen by Netflix to deliver video traffic to Verizon’s network, Verizon notes.

While the links chosen by Netflix were congested, the links from other transit providers to Verizon’s network did not experience congestion and were performing fine.

The maximum amount of capacity used on those links ranged from 10 percent to 80 percent,  with an average peak utilization of 44 percent.

“For whatever reason (perhaps to cut costs and improve its profitability), Netflix did not make arrangements to deliver this massive amount of traffic through connections that can handle it,” Verizon says. “Instead, Netflix chose to attempt to deliver that traffic to Verizon through a few third-party transit providers with limited capacity over connections specifically to be used only for balanced traffic flows.”

“Netflix knew better,” says David Young, Verizon VP, Federal Regulatory Affairs