Even in Fast-Growing SE Asia, Commoditization and Margin are Big Issues

source: Statista

South Asia and Southeast Asia are parts of the world where communications growth (subscribers and revenue) remains among the highest in the world. Unlike some other regions, huge upside remains for uptake of mobile phone service and Internet access, for example.

Still, service providers from Southeast Asia have many of the same concerns as their counterparts in regions where revenue and subscriber growth is slow or negative.

During a recent course attended by executives from service providers from Angola, Brunei Darussalam, Cambodia, Indonesia, Philippines, and Thailand, a litany of business challenges that would be familiar in many other regions were mentioned.

Declining profit margins already are an issue, even if retail growth opportunities remain. As elsewhere, “commoditization” of telecom services is an issue.

source: AT Kearney

“We need to differentiate our services” was a common theme, as telecom services are not viewed as “sexy,” compared to devices or apps.

Competition from over the top competitors already is an issue, and managers wonder whether cooperation is possible.

With the growing importance of Internet access, executives said providing greater capacity was a definite issue.

Service provider managers also said they were concerned about the ability of their firms to “execute” in a fast-moving and competitive environment where innovation is difficult.

Organization skills also are seen as issues. “Do we have the right skills; and if not, how do we acquire those skills” was seen as a challenge.

Also, as you might guess, in a region with significant populations living in hard-to-reach areas, local connectivity was viewed as an important issue, as costs are too high.

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The meeting, held in Nonthaburi, was organized by the Pacific Telecommunications Council and  sponsored by APTelecom and hosted by TOT Academy.

Instructors included:

• Sean Bergin, President, APTelecom, Thailand
• Anup Changaroth, Director, Portfolio Marketing, Asia Pacific, Ciena,Singapore
• Eric Handa, CEO, APTelecom, USA
• Aamir Ibrahim, dtac, Thailand
• Sam Johnston, Director, Cloud & IT Services, Equinix, United Kingdom
• Gary Kim, Founder, Spectrum Futures, USA
• Rozaimy Rahman, EVP, TM Global, Malaysia
• Chris Wilson, International Head, TIME dotCom Berhad, Malaysia
• Qian Zhong, Managing Director, Asia Pacific Sales, TE SubCom, USA

Even in high-growth regions, telecom professionals are dealing with some issues common with their counterparts in slower-growing regions. Product commoditization and declining profit margins are salient examples.

Why European Commission Deregulated Fixed Network Voice

Among the most-important considerations for any regulatory body is the fundamental health of the industries regulated.

The reason is that regulatory policies arguably should be lighter to foster the growth of a new industry, heavier in highly-concentrated industries at their peak and lighter again when an industry already is in decline.

But what often happens is that declining industries lobby for “protection” (which might be considered a form of regulation) when threatened, essentially propping up demand that otherwise might naturally shift at a faster pace.

The point is that flexibility (letting the market shape new demand) is needed most when new industries are struggling to be born, or conversely when an industry is in decline and resources must be shifted to new replacement lines of business.

In other words, though a common industry strategy is “protection,” or artificial support for falling demand, letting a market’s supply fall to match demand arguably is the rational choice. Still, the frequent choice is to “regulate less.”

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During the 1930s Great Depression, for example, U.S. regulators encouraged firms to compete less,  limiting price competition and restricting production, investment in plant and equipment and the workweek.

In essence, the government reversed its normal stance of seeking to prevent market concentration, and actually encouraged such concentration.

So one might argue different circumstances call for different regulatory approaches. When a new industry is growing, it might make sense to forbear from imposing regulations.

When an industry is established and there is danger of market power abuses, regulators might apply more stringent rules.

When an industry is in great trouble, regulators often seek to protect the industry by again loosening rules.

Neelie Kroes, the outgoing European Commission digital agenda commissioner, arguably illustrates the application of the principle.

“It is not a healthy sector,” she says of the EC telecom industry.

In the voice services area, the EC says a shift of calling to mobile, VoIP and over the top messaging (with voice), competition has increased dramatically.

For that reason, EC authorities have decided that two telecom markets should no longer be subject to regulation in Europe, and that two more should be redefined to reflect market and technology developments.

Segments that have been deregulated include retail fixed telephony and wholesale markets for fixed call origination.

The Commission also redefined two broadband markets, in order to limit regulatory burdens to that necessary for competitive broadband access and investment.

The new rules recognize that “virtual access products” can be considered substitutes to physical unbundling when they fulfil certain characteristics.

Those customers who still use fixed telephony also are now able to purchase fixed access from a number of different platforms, such as traditional telephone network, fiber or cable networks, and also from alternative operators offering broadband and voice services over unbundled local loops, So deregulation is possible, the EC says.

Some might argue that, not only is deregulation possible, it is necessary so that service providers can invest capital elsewhere, to support high speed access, for example, while adjusting voice prices as required to harvest what remains of the business.

Will Wi-Fi First Lead to Retail Prices 25% Lower Than Current Prices?

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Mobile service providers necessarily have a mixed attitude towards Wi-Fi. As always, mobile service providers prefer licensed spectrum to support the core of their operations, in part because it allows them to better control quality of service, and also in part because licensed spectrum is scarce.

Because licensed spectrum is scarce, it offers scarcity value, creating a barrier to competitor entry, for example.

On the other hand, Wi-Fi allows mobile service providers to offload substantial amounts of traffic, increasing end user value while also allowing investment in the core mobile network to be substantially lower than otherwise would be the case.

Some attacking mobile service providers have even more reason to like Wi-Fi, as it has a substantial positive effect on the cost of a wholesale approach to supplying mobile services.

The concept of using a fixed network for mobile service actually is not new. Before firms such as Sprint and T-Mobile US got spectrum to support their mobile networks, there was speculation about how a fixed network could be adapted to support untethered, if not fully mobile services.

In other cases, there was speculation new spectrum could be used to create new services that might offer full call handoff between cells, but only when users were moving slowly between cells (walking along a sidewalk), rather than traveling in cars, for example.

When able to employ a “Wi-Fi first” access approach, the amount of wholesale capacity the attackers have to pay for is reduced.

Some have estimated a “Wi-Fi first” approach could save about 35 percent of capital investment that otherwise would be required to create a mobile capability.

And that might allow a firm such as Comcast to offer mobile service about 25 percent lower than other mobile service providers.

That, in fact, is why Republic Wireless, Scratch Wireless, BT, Comcast and Free Mobile all rely on Wi-Fi networks, or plan to rely on Wi-Fi networks, to underpin mobile service efforts.

Doing so requires efficient and reliable call handoff, in addition to a dense network of Wi-Fi hotspots, in tandem with wholesale access to mobile service, for times when no Wi-Fi connection is possible. That is the importance of the Passpoint 2.0 initiative of the Wi-Fi Alliance.

Passpoint aims to provide seamless call handoff between Wi-Fi zones and mobile networks.

Some might argue there are several ways this approach leads to lower costs for the service provider. For starters, the suppliers save the cost of investing in their own spectrum.

In other cases, the suppliers are able to leverage the cost of already-installed fixed network infrastructure.

Comcast, for example, is able to use customer-supplied power as well as piggyback on Wi-Fi gear installed at the customer premises to support high speed access. In other words, Comcast is able to create a wide area communications capability on the back of its consumer entertainment and communications business.

Comcast already offers access to the Wi-Fi network to KDDI and Taiwan Mobile, for example, to support mobile access when customers of KDDI or Taiwan Mobile are traveling in the United States.  

The advantage, presumably, is lower per-minute or per-megabyte roaming charges for the customers using the roaming access.

Comcast aims to have eight  million hotspots activated by the end of 2014, covering 19 of the 30 largest U.S. cities.

In 2013, according to Cisco Systems Inc.’s Visual Networking Index, mobile service providers offloaded 45 percent of all mobile data traffic onto a fixed network using Wi-Fi or some other “small cell” method.

By 2018, Cisco predicts, there will be more data traffic offloaded from moble networks using Wi-Fi than remain on the mobile networks.

There still are challenges, but the “Wi-Fi first” method is becoming a realistic way for service providers to get into the mobility business without using a licensed mobile spectrum approach.

Wi-Fi is combined with wholesale mobile access in ways that reduce the overall cost of supplying mobile network access.

Public Cloud Revenue Grows 34% Annually in India

Public cloud services revenue in India will reach $638 million by the end of 2014, an increase of almost 34 percent, or $161 million over 2013 revenue, according to Gartner analysts.

Software as a service will generate $249 million in 2014, an increase of 37 percent over 2013. Spending on infrastructure as a servivce will grow 33 percent to $77 million during the same period.

In 2018, the public cloud market will generate almost $2 billion in revenue.

Some 53 percent of surveyed organizations in India indicate they are using cloud services today, with another 43 percent indicating plans to begin using cloud services in the next 12 months, Gartner says.

Business process as a service (BPaaS) is expected to grow to from $131 million in 2014 to $358 million in 2018.

SaaS is expected to grow to $735 million in 2018, PaaS is forecast to grow to $121 million, and IaaS is forecast to grow to $295 through 2018.

Where Available, Fixed and Mobile Internet Access Both Get Used, All the Time

Smartphones are expected to become the way most people in some markets use the Internet. In markets where smartphone adoption is significant, and where fixed network connections also are common, both mobile and fixed Internet access get used daily, a study by The Cocktail Analysis has found.

The study of female Internet users in Brazil, conducted in January 2014, found that smartphones were arguably the most-used platform for Internet access. About 81 percent of female smartphone users surveyed reported they used a smartphone for Internet app access every day.

Brazilian digital woman: Permanent Connectivity from The Cocktail Analysis

On the other hand, high speed access using desktops and laptops also get used daily for Internet access, 79 percent of respondents reported.

Tablets are used by 52 percent of owners to access the Internet every day, and tend to be used at home.

The point is that, in markets where mobile and fixed Internet is available, people use both forms of access, daily. 

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Why Not Let Users Decide if Some Apps Need, and Should Get, Delivery Priority?

One objection some have to strong versions of network neutrality is that some applications, especially VoIP and video (either conferencing or entertainment) are sensitive to jitter and delay that typically get worse when access networks get congested.

Some argue that more bandwidth fixes these problems, but some engineers would disagree.

It doesn’t make sense, one might argue, to deny end users the right to choose some apps that get priority, either all the time, or under conditions of congestion. Among the classic examples is when a user is on a VoIP call.

At such times, higher quality of experience results when email, website or software updates get delayed, or at least get a lower priority, than the more mission-critical voice or video-enabled communication sessions.

Under one proposal, AT&T U-verse and business customers might choose which sites they want to designate for expedited packet delivery, a way of allowing end users to decide when expedited packet delivery has value, and avoiding the need for strict “best effort only” Internet access that can pose issues for services such as voice and video.

An AT&T customer might choose to prioritize latency-sensitive and jitter-sensitive apps such as VoIP or video conferencing, for example.

Under the AT&T concept, AT&T and other ISPs would honor those end-user designations over that customer's "last mile" Internet facilities.

“There is no conceivable reason that such services, demanded and used widely by business customers today, should be foreclosed by regulatory fiat,” AT&T argues.

That solution avoids the charge that an Internet service provider is picking winners and losers, provides better user experience and remains under the customer’s control.

It is well worth considering.

Only 33% of U.S. Households Use the PSTN Anymore

Only about 33 percent of U.S. households actually use the public switched network anymore, according to USTelecom.

As of June 2013, incumbent local exchange carriers (telcos) served a total of about 78.5 million switched and VoIP access lines. That is just 44 percent of the 178 million telcos served at the end of 2000.

Traditional switched lines had fallen to 70.5 million by June 2013, or only 40 percent of lines served at the end of 2000.

In eight states, suppliers other than the telco had more wired telephone lines (switched access or VoIP) than the telco, and most of those were provided by the cable TV company.

In an additional 10 states, providers other than the telco had 45 percent to 50 percent of the wired voice connections.

And then there is mobile. The FCC reports that there were 305.7 million mobile voice connections in the United States as of mid-2013, about double the number of all fixed network voice lines.

Looking at the total voice market (including mobile, telco and cable TV or other fixed voice connections), telco market share fell from 60.5 percent to 18.5 percent from 2000 to 2012.

Total telco retail switched access lines have fallen by 60 percent since the year 2000, from 178 million to 71 million.

From the end of 2007 to mid-2013, there were almost 60 million retail switched access lines lost, and the rate of decline was still around 9.5 million per year as of mid-2013.

At the same time, and in large part because of legacy regulations, the majority of capital investments made by U.S. telephone companies from 2006 to 2011 went toward maintaining the declining telephone network (legacy voice), not the high speed access network that represents the future.

One might note that U.S. cable TV companies, that are not so regulated, now account for the “overwhelming percentage” of high speed access lines. The issue is not that cable TV suppliers have more than 50 percent market share in the high speed access market.

The issue is the percentage of market share at the top end of the market. Cable TV suppliers of high speed access have about 58 percent market share, but are getting 80 percent of the net new additions.  

“Today, a majority of American homes have access to 100 Mbps,” said Federal Communications Commission Chairman Tom Wheeler.

But it might soon be the case that as much as 75 percent of the fastest connections are supplied by cable TV operators.

In fact, cable modem services broke decisively from asymmetrical digital subscriber line services in 2006. Since then, digital subscriber line services have fallen far behind, and only telco fiber-to-home services have kept pace with cable modem potential speeds.

source: National Broadband Plan

So it is no surprise that telcos want legacy regulations removed. It comes as no surprise that competitors to the telcos want the legacy rules maintained.

But a reasonable person might well conclude it is foolish to maintain rules that funnel investment capital into a network offering services consumers do not want. That capital is badly needed elsewhere, to create faster access networks supporting Internet Protocol services and apps.