Sub-Saharan Africa Mobile Data Consumption to Grow 20X by 2019

The mobile internet penetration rate in Sub-Saharan Africa is expected to increase to 37 percent by 2020, with an additional 240 million people across the region becoming mobile internet users over the period.

At the end of 2013, there were almost 150 million individuals using mobile devices to access the internet across the region, over 60 percent of which were doing so via 2G devices.

This is equivalent to an overall mobile internet penetration rate of only 17 percent of the total population, compared to a global average of just over 30 percent.

Consumers using 3G connections accounted for 17 percent of total connections in June 2014, but is forecast to account for more than half of the total by 2020.

Long Term Evolution 4G adoption might account for four percent of total connections by 2020, according to GSMA Intelligence.

Sub-Saharan Africa is also expected to see the strongest growth of any global region in the number of smartphone connections over the next six years, reaching 525 million by 2020, GSMA says.

That also will mean mobile data traffic grows 20 times between 2013 and 2019, about twice as fast as the global rate, GSMA Intelligence predicts.

Vodacom South Africa saw the average monthly data usage on smartphones increase by 81.7 precent to 253 MB per device, and by 25 percent to 743 MB on tablets, for the year ending March 2014.

Orange Senegal reported that first half 2014 that total mobile data traffic had increased by a factor of 2.5 times over the prior year.

To be sure, there are many demand hurdles in markets where daily income can be as low as $2.

So MTN South Africa in September 2014 announced the availability of new bite-sized internet bundles, designed to give consumers quick access to the internet for three months. Some app providers, including Facebook, are providing access to mobile apps with no need to buy a mobile Internet access plan.

Tanzania and Zambia are countries where Internet.org offers a no-incremental charge access to a bundle of Internet apps including Facebook.

To create even more demand In India, Internet.org is sponsoring a competition for new apps aimed at women, students, farmers and migrant workers (four awards total).

One prize in the amount of US$250,000 will be presented to the app, website or service in each category.

In addition, two apps, websites or services designed for each of the four specified population categories will receive a prize in the amount of $25,000 USD (eight awards total).

Low-cost smartphones are another way mobile service providers are trying to remove barriers to mobile Internet adoption, in Asia and Africa.

Tax burdens are another impediment GSMA notes can be a barrier to higher availability and purchasing of mobile Internet services.

A recent study by the GSMA found that across a sample of 19 countries, US$3 out of every US$10 of mobile revenues was transferred to the government in the form of taxes,

regulatory fees or other charges.

Availability of local content, rates of literacy and familiarity with the Internet are other issues, but will be surmounted, as was the earlier challenge of enabling voice communications for everyone.

Revenues grew at a compound annual growth rate of seven percent per year between 2008 and 2013.

Growth rates slow to about 5.6 percent annually to 2020.

The regional 2G subscriber base will continue to increase in absolute terms up to 2016 and will still account for nearly 70 percent of mobile data connections in 2016.

As is the case in many other markets, though, average revenue per account is dropping.

Average revenue per subscriber in Sub-Saharan Africa has been falling sharply over the last five years, declining at a CAGR of minus nine percent per year.

Increasing competition, efforts to improve affordability and the penetration of mobile services into lower income segments are the reasons.

Still, growth is the story, despite all the obstacles.

WhatsApp Remains Free in India

WhatsApp, the messaging service firm owned by Facebook, is not enforcing its $1 a year fee in India.

Normally, the service is free for a year and the US-based firm charges users a dollar a year after that. That is not to say the policy will be enforced indefinitely. "Monetization is on the cards,” said Neeraj Arora, WhatsApp VP. “It will happen over the next few years.”

In part, the issue is infrastructure. Low use of credit cards makes collection of the fee difficult.

Another likely driver is that defraying the fee increases app adoption.

WhatsApp already works with carriers to provide “no incremental cost” access to WhatsApp in India, and elsewhere.

The upside for mobile service providers is the boost in demand for mobile Internet access features and services.

Ironically, some might note, that policy--which has clear value for customers and for service providers and WhatsApp, long term--might be said to violate “network neutrality.”

And that is one problem with net neutrality: it prevents app provider and access providers from doing things that directly benefit people who need Internet access.

OTT and Mobile Allow Geography-Bound Firms to Mimic App Providers

The old adage about the value of a house--“location, location, location”--also applies to many telecom businesses and most Internet access providers. Increasingly, geography also applies to app providers, though not for technology reasons.

To be sure, location is far less an issue for most app providers, which Internet Protocol allows to operate over any Internet connection, so long as government entities will allow it. That is a big change, but is only one way the Internet has changed in ways that limit freedom.

Access providers often can operate only in specific geographies, based either on franchise or licensing requirements, spectrum licenses, or capital limitations.

There are direct business implications. Geographical restrictions create limitations on scale, and scale often is a necessary precondition for success.

By definition, a franchise-limited or license-limited business can spread fixed costs only over the potential number of customers it can serve in a specific geography.  An app provider can spread fixed costs over a functionally-infinite number of potential customers.

Consider linear video entertainment services, which are highly dependent on scale. For that reason, few if any small access service providers actually can hope to break even as providers of linear video entertainment.

Most--if not all--small telco video operations lose money, while mobile operations likewise face declining average revenue per user, the report said.  Average revenue per user was $35.51 a month, down from $37.12 in 2009 and $40.93 in 2008.

And those scale issues, dictated largely by geography, extend beyond video.

The latest study by the Telergee Alliance illustrates business model issues faced by U.S. rural and small telcos.

Profit margins are dropping, part of a three-year trend that saw an overall five percent drop over the last year, Telergee Alliance said. Profit margin on new or non-regulated services were up by about that amount, but margins on voice services dropped more than 15 percent.

The key point is that geography-bound firms can sell products and services only to potential customers within a specific geography. An app provider can sell out of region, to the extent allowed by national regulators, generally.

That, to a large extent, explains why AT&T wants to buy DirecTV. Doing so would allow it to create voice-video-data bundles that can be sold anywhere in the United States, instead of primarily where it owns fixed network assets.

That is part of the reason why Verizon Communications remains focused on prospects for over the top streaming services. Like AT&T, Verizon can only sell so many units of video within its fixed network footprint.

Over the top services could be sold nationwide, and bundled with its mobile Internet access and voice services.

In that sense, mobility and over the top video represent profound changes. In a sense, they allow AT&T and Verizon to escape the bounds of geography.

17.3 Mbps is "Average" Global High Speed Access Speed

One hears with some regularity that the “United States is behind” on some key measure of consumer high speed access performance. Some would note that it is not likely the United States ever will have the “fastest” high speed access, globally.

That prediction would be based on history, namely the U.S. ranking on tele-density. Back when voice was the only service telcos sold, anywhere, the United States never ranked at the top, globally, and typically ranked somewhere between 10th and 20th.

The reason is the continent-sized market and the lower population density. So some might argue it always will be possible to argue that the United States is behind in high speed access.  

Also, global indices are different when looking at fixed network access and mobile access.

The global average fixed download speed is 17.3 Mbps, and the global median fixed download speed is 11.1 Mbps, according to Cisco.

The global average fixed upload speed is 8.8 Mbps, and the global median upload speed is 3.8 Mbps.

In the mobile segment,  global average mobile download speed is 6.3 Mbps, and the global median mobile download speed is 4.8 Mbps.

The global average mobile upload speed is 2.6 Mbps, and the global median mobile upload speed is 1.3 Mbps.

Western Europe leads all regions with an average fixed download speed of 20 Mbps.

Asia Pacific follows with an average fixed download speed of 18.8 Mbps. Central and Eastern Europe and Asia Pacific lead all regions in average fixed upload speeds with nearly 12.2Mbps.

North America leads all regions with an average mobile download speed of 10.1 Mbps.

Western Europe follows with an average mobile download speed of 9.5 Mbps. Central and Eastern Europe and North America lead all regions in average mobile upload speeds with 4.9 Mbps and 4.3 Mbps respectively.

The point is that there typically are all sorts of ways to compare high speed access between countries. Such comparisons are difficult and nuanced, and change over time.  

Data Center Traffic Drives WAN Capacity, But Most Traffic is Inside the Building

Global Internet traffic volume forecasts historically have been tricky, and on occasion have been wildly too optimistic.

Forecasts also are complicated by the new reality that so much Internet traffic is exchanged inside data centers, and does not cross the wide area network. That has implications for any company investing in, operating or selling wide area network infrastructure and services.

A further complication is that “data center traffic” often includes both traffic that crosses wide area networks and traffic that is exchanged solely within a data center.

The fact of note is that traffic carried inside a data center exceeds global wide area network traffic volume. The implication is that forecasters will have to be careful when dealing with concepts such as “data center IP traffic.”

Some of that traffic will drive demand for local access, metro and long-haul capacity. Some will not.

The analogy is to today’s data networks, which include WAN and local access connections and revenue, as well as local area network data transfers (Wi-Fi, for example) that do not represent revenue for service providers.

And inside-the-data-center traffic is a huge deal.

By 2018, as much as 75 percent of all IP traffic will occur within data centers, and will not cross the WAN, about even with the 2013 estimate that 77 percent of total IP traffic actually remains within a data center, Cisco predicts.

Although the amount of global traffic crossing the Internet and IP WAN networks is projected to reach 1.6 ZB per year, by 2018, the amount of annual global data center traffic in 2013 is already estimated to be 3.1 ZB, and by 2018, will triple to reach 8.6 ZB per year, according to Cisco.

Traffic between data centers is growing faster than either traffic to end-users or traffic within the data center, though, and by 2018, traffic between data centers will account for almost nine percent of total data center traffic, up from nearly seven percent at the end of 2013.

The high growth of this segment is due to the increasing prevalence of content distribution networks, the proliferation of cloud services and the need to shuttle data between clouds, and the growing volume of data that needs to be replicated across data centers.

Over the next five years, the study projects data center traffic to nearly triple, with cloud representing 76 percent of total data center traffic.

In 2013, cloud accounted for 54 percent of total data center traffic. By 2018, cloud will account for 76 percent of total data center traffic.

(Data center traffic includes data center-to-user traffic along with data center-to-data center traffic and traffic that remains within data centers.)

The study predicts that global data center traffic will nearly triple from 2013 to 2018 with a combined annual growth rate of 23 percent.

A few clear observations can be made about what drives global Internet traffic. It has been clear for some time that content bits--especially entertainment video--is the primary driver of volume across global and access networks.

It has been clear for some time that consumer-facing Internet apps likewise drive traffic, not enterprise traffic.

Most Internet traffic has originated or terminated in a data center since 2008, according to Cisco.

Now there is one more assumption we can make: data center traffic will continue to dominate Internet traffic for the foreseeable future, and will be driven by cloud applications, services, and infrastructure.

By 2018 76 percent of data center traffic, will be cloud traffic, Cisco now says.

source: Cisco Global Cloud Index

What is Dish Nework's Biggest Revenue Opportunity in High Speed Access?

DirecTV and Dish Network have made different decisions about their video assets.

DirecTV decided the time to remain a stand alone provider of satellite TV was ending, and agreed to sell to AT&T.

Dish Network believes it can make a transition to triple play provider by getting into the mobile and perhaps fixed wireless businesses, with “a pretty clear path to actually grow the business.”

Those decisions reflect the fundamental strategic danger for the U.S. satellite TV business, namely the shift to triple play offers as the core retail product.

As telcos and cable TV companies after 1996 began transforming themselves from “single-purpose networks” to “multi-purpose networks” able to deliver any media type, and thereby drawing from multiple revenue sources, satellite networks have struggled to keep up.

To some extent, satellite providers have added separate “satellite broadband” fleets, but most observers would say that market remains a niche, and a precarious niche as fixed network speeds start to climb into the range between 100 Mbps and 1,000 Mbps retail offerings often priced no more than 15 Mbps satellite offers.

But most observers would say satellite networks will be quite challenged, going forward, as triple play platforms.

“I don't think anything's changed in terms of what we've been saying for the last three or four years, which is the pay TV business... is a mature business,” said Charlie Ergen, Dish Network CEO. “It continues to, in a way, surprise us that it has held up as well it has.”

Over the top video is one of the growth avenues, Dish Network believes.

“The second thing is broadband and general satellite broadband, first and foremost,” Ergen said. “We think that the fixed broadband business is, we're cautiously optimistic that that's a real business.”

Assuming satellite broadband remains a niche, primarily attractive to one to three percent of U.S. homes, the bigger opportunities would come in the mobile broadband and perhaps fixed wireless high speed access areas.

That is why there is logical and persistent thinking that Dish Network will make a bid to buy T-Mobile US, a way to buy assets Dish needs to put its mobile spectrum into play and get into the mobile broadband business.

How big an opportunity the fixed wireless business might be is not so clear. The issue is not whether that will work. ISPs all over the United States--and AT&T in the event its DirecTV acquisition is approved--do so routinely.

The issue is how big a business opportunity fixed wireless might be for Dish Network. One suspects that, as with satellite broadband, the revenue upside is more limited than the mobile opportunity.

If it acquires T-Mobile US, that network will scale more efficiently, have the largest potential customer opportunity, and offer the greatest degree of packaging synergy with the existing linear video business.

Owning a high speed access network also will mesh with the OTT video push, as well.

Regulatory Incongruity Will Increase; Multi-Purpose Networks are One Reason

The existing adage that regulation has a hard time keeping up with technology probably underestimates the challenge. Regulations have a hard time keeping up with end user behavior and new business models as well.

“How do you create a rule today that still is relevant and helpful in five years” is one natural question.

Five years might be too little time to trigger major changes in regulatory framework, though.

Fundamental matters, such as how best to use scarce communications spectrum, or how to apply a regulatory model, tends not to change that fast.

Though the matter is not on the public agenda, it has been obvious for some time that media delivery is changing. It is not just a switch from live performance to radio to broadcast television to wired network delivery to mobile delivery.

Each of those changes created whole new industries and new regulatory approaches. The perhaps-bigger challenge is that industry boundaries are dissolving.

Among the best examples is the incongruous fact that the cable TV industry operates under one regulatory regime that is substantially less rigorous than that applied to AT&T, Verizon and CenturyLink.

That, despite the fact that cable TV and telecom industry product offerings in the consumer and business market are fundamentally the same, if not identical.

More of those sorts of incongruities will arise. Consider TV white spaces, or the proposed 600 MHz auction proposed by the U.S. Federal Communications Commission whereby TV broadcasters can give up their broadcast licenses, allowing spectrum to be redeployed to mobile communications.

Why are regulators shifting spectrum from broadcast TV to mobile communications? Partly because more mobile spectrum is required.

The other incongruity, though, is that most people in the United States consume video entertainment using a fixed network delivery method, with an in-room untethered access, with a similar--if less clear pattern--in audio content consumption.

At some point, that will raise politically-charged new questions, such as whether it makes sense to allocate important spectrum for point-to-multipoint linear content distribution, as compared to other on-demand delivery methods, particularly using mobile networks.

The uncomfortable question will be whether the regulatory silo that separate “broadcasting” and “communications” must be reworked in some fundamental way. Given the size of each of those industries, the challenges will be difficult.

But difficult questions often cannot forever be avoided, as the boundaries between “industries” is becoming porous.

Three decades ago, researcher Nicholas Negroponte of the Media Lab at MIT suggested that broadband content devices received content “over the air” while narrowband devices received content using cables.

Negroponte argued that the reverse situation should prevail. A better use of available communication resources would be to deliver broadband content using cables and narrowband content using airwaves.

That came to be known as the "Negroponte Switch".

Updated for changes over three decades, the new issue is that linear content is being augmented by on-demand content, and devices increasingly are mobile or untethered, not fixed.

That might suggest the Negroponte Switch is outdated. Paradoxically, the issue of over the air delivery--in the Negroponte Switch sense--remains relevant.

Mobiles typically continue to use airwaves for video and other content delivery. But sometimes that access is shifted to the fixed network (cables to a location, then Wi-Fi for local device access).

The new wrinkle is on-demand video delivery (over the top streaming), sometimes accessed by people using the mobile network, sometimes using the fixed network.

At some point, the issue of symmetrical regulation is likely to seem more necessary. If, one day, mobile operators provide similar services or apps or content as “TV broadcasters,” what does that mean for the fundamental models of regulation?

It is another version of the challenges of “general purpose networks.” Cable TV and telco firms deliver the same services, but live under distinctly-different regulatory frameworks. Does that make sense?

Someday, it is likely similar questions could be asked about “TV broadcasting” and “mobile communications.”