Sprint, T-Mobile US Tout Subscriber Growth: Will AT&T and Verizon Tout ARPU?

Average revenue per user, or average revenue per account are important measures of mobile service provider operational performance. The total number of accounts, and the composition of accounts (prepaid or postpaid; tablet or phone) also are important.

With a mobile marketing war going on in the U.S. market, the value of each metric might change. At a high level, Sprint and T-Mobile US are likely to tout subscriber growth. AT&T and Verizon are likely to soon emphasize ARPU or ARPA.

The reasons are prosaic as well as strategic. No company likes to report negative numbers, and eventually, it is possible AT&T or Verizon or both might actually have to report negative account figures. It hasn’t happened yet, but it is possible.

T-Mobile US and Sprint, on the other hand, are gambling on a furious pursuit of account growth, at the expense of ARPU or ARPA. Executives at those firms will be no more happy to report negative numbers for ARPU or ARPA, and will tout account growth.

Sprint preannounced net account growth in the calendar fourth quarter (Sprint’s third fiscal quarter) of 2014.

During the quarter, Sprint platform net additions totaled 967,000 including postpaid net additions of 30,000, prepaid net additions of 410,000 and wholesale net additions of 527,000. That reversed a trend of account losses.

“The growth in postpaid customers was driven by the highest number of postpaid gross additions in three years, and postpaid phone gross additions increased 20 percent for the quarter year-over-year,” Sprint said. “ In addition, the percentage of prime customers was the highest on record.”

Non-prime customers are those who are subject to involuntary churn, being disconnected for non-payment of their bills. In fact, financial performance at Sprint is credited with a 10-percent drop in profits for Sprint parent SoftBank.

T-Mobile US, for its part, likewise touted high account growth for its fourth quarter of 2014.

In the fourth quarter, T-Mobile US added 2.1 million net customers,  the seventh quarter in a row that T-Mobile US has generated more than one million net customer additions.

Branded postpaid net customer additions were 1.3 million, a 47 percent improvement compared to the fourth quarter of 2013, T-Mobile US said.   

Branded postpaid phone net additions were over one million, implying T-Mobile US activated about 300,000 tablet connections.   

For the full-year 2014, the Company reported branded postpaid net customer additions of 4.9 million and 8.3 million net total customers, an 89 percent increase from the prior year.

Killer App for LTE Might be Entertainment Video

What is the “killer app” for fourth generation Long Term Evolution networks, if in fact there is such a killer app? The easy answer is to reiterate that there is no killer app for 4G or 3G, only many apps and services that contribute to the total value, and of course, faster speeds.

That answer, even if arguably correct, is not granular enough to be of any value to practitioners and companies in the ecosystem. If faster speed alone were the key driver, and if retail pricing and packaging allowed mobile to become a viable substitute for fixed network access, a variety of revenue opportunities based on “substitution” would immediately become relevant.

If mobile video, specifically, were to become a lead app, that would imply there is a new opportunity for mobile streaming services. The same is true if LTE creates a better mobile gaming experience (latency performance, not just speed).

Other opportunities arise if cloud-based apps, in general, are widely accessible on mobile devices.

But it always has seemed as if entertainment video was likely to be the key application that distinguishes 4G from 3G. A study by  the Office of Communications, the U.K. communications regulator, suggests that, in most countries, 4G Long Term Evolution networks lead to more video streaming, compared to all other mobile networks.  

More video consumption also was among the predicted value of 4G networks, according to the conclusions reached by a study prepared for the Ofcom.

Among U.S. internet users polled, 50 percent of respondents who used 4G streamed or downloaded mobile video, according to a study by eMarketer.

About 32 percent of non-4G users reported they downloaded or streamed video. And new smartphone users on 4G networks say video is among the new apps they use most.

When a July 2014 Deloitte study asked subscribers in the US about which activities they conducted more often on their mobile networks since signing up for 4G, 33 percent said they watched more video.

Another example is skyrocketing video on Facebook, an app used exclusively on a mobile phone by about 30 percent of Facebook users. About 78 percent of Facebook users use the app on their mobile devices at least some of the time.  

So a shift towards visual content on Facebook, especially video, automatically means more usage on mobile networks.  

In one year, the number of Facebook video posts per person has increased 75 percent globally and 94 percent in the United States.

Globally, the amount of video from people and brands in News Feed has increased 3.6 times year-over-year.

Since June 2014, Facebook has averaged more than one billion video views every day, the company says.  

On average, more than 50 percent of people visiting Facebook in the United States every day  watch at least one video daily and 76 percent of people in the United States who use Facebook also say they tend to discover the videos they watch on Facebook.

A Sandvine report shows that Facebook now accounts for 19.43 percent of all smartphone data consumed in North America.

Facebook leads in “upstream” data, accounting for 22.4 percent of that traffic, and is behind only YouTube in “downstream” data.

YouTube accounts for 19.8 percent of that traffic, compared to Facebook’s 19 percent.

But Facebook has 19.4 percent share of aggregate of upstream and downstream data, exceeding YouTube’s 18 percent share.

Facebook-owned Instagram also accounts for an additional 2.6 percent of upstream data, 4.5 percent of downstream data, and 4.3 percent of total smartphone data consumption.

Facebook Video Traffic Grows 94% in U.S. Market

Facebook says it increasingly is seeing a shift towards visual content on Facebook, especially video.

In one year, the number of video posts per person has increased 75 percent globally and 94 percent in the United States.

Globally, the amount of video from people and brands in News Feed has increased 3.6 times year-over-year.

Since June 2014, Facebook has averaged more than one billion video views every day, the company says.  

On average, more than 50 percent of people visiting Facebook in the United States every day  watch at least one video daily and 76 percent of people in the United States who use Facebook also say they tend to discover the videos they watch on Facebook.

A Sandvine report shows that Facebook now accounts for 19.43 percent of all smartphone data consumed in North America.

Facebook leads in “upstream” data, accounting for 22.4 percent of that traffic, and is behind only YouTube in “downstream” data.

YouTube accounts for 19.8 percent of that traffic, compared to Facebook’s 19 percent.

But Facebook has 19.4 percent share of aggregate of upstream and downstream data, exceeding YouTube’s 18 percent share.

Facebook-owned Instagram also accounts for an additional 2.6 percent of upstream data, 4.5 percent of downstream data, and 4.3 percent of total smartphone data consumption.

Major Innovations--Even IoT--Take Decades to Produce Clear Productivity Increases

Vodafone notes it has been 30 years since the first mobile call was carried on the Vodafone network in January 1985. About that time, Vodafone forecast it would sell about a million subscriptions. BT predicted the market at only about 500,000 subscriptions.

In 1995, after a decade of availability, U.K. mobile adoption had reached seven percent. By 1998 adoption reached 25 percent. By 1999 adoption had reached 46 percent. Just five years later, adoption exceeded 100 percent.

We might argue about when mobility became an essential service for consumers or businesses. But we might all agree that point has been reached, and that the bigger question is how much more vital mobility will become, and how it displaces older modes of communication, computing, shopping, working and learning.

Mobile usage in the U.S. market followed a similar trajectory, with 340,000 subscribers in 1985, growing to 33.8 million by 1995. By 2005, mobile adoption had grown exponentially to about 208 million accounts.

Those figures hint at the perception of value by consumers and businesses. Growing abandonment of fixed line voice, greater volumes of mobile-initiated Internet sessions, use of websites, email and social media provide other bits of evidence about mobile’s perceived value.

But even looking only at ubiquity of usage, it took 20 years for mobility to become something “everybody” uses. It took 40 years for electrification to change productivity in measurable ways.

Keep that in mind when thinking about the “Internet of Things.” Despite the fact that U.S. businesses and organizations made huge investments in information technology in the 1980s, many would argue the benefits did not appear until much later in the 1990s.

Most of us likely instinctively believe that applying more computing and communications necessarily improves productivity, even when we can’t really measure the gains.

But investments do not always immediately translate into effective productivity results. This productivity paradox was apparent for much of the 1980s and 1990s, when one might have struggled to identify clear evidence of productivity gains from a rather massive investment in information technology.

Some would say the uncertainty covers a wider span of time, dating back to the 1970s and including even the “Internet” years from 2000 to the present.

Computing power in the U.S. economy increased by more than two orders of magnitude between 1970 and 1990, for example, yet productivity, especially in the service sector, stagnated).

And though it seems counter-intuitive, some argue the Internet has not clearly affected economy-wide productivity.

Whether that is simply because we cannot measure the changes, yet, is part of the debate. To be sure, It is hard to assign a value to activities that have no incremental cost, such as listening to a streamed song instead of buying a compact disc. And many of the potential productivity gains we might be seeing are of that sort.

The other issue is that revenue is decreasing, in many industries, even if most users and buyers would say value is much higher.

A productivity gain, by definition, means getting more output from less input.

In other words, it is “how” technology is used productively that counts, not the amount of raw computing power or connectivity. And there is good reason to believe that new technology does not reshape productivity until whole processes are changed. Automating typing is helpful. But changing the content production ecosystem arguably is where the biggest productivity gains come, for example.

Windows Phone Bigger Than Apple IoS?

source: Statista

Forecasting is a tough challenge, even if it is natural to wonder "what will happen this year, or beyond," and something we always hear lots about at the start of a year.  

Most of us would not wish to be reminded of how wrong our own forecasts have been. 

Consider projections about market share in the mobile market made just a couple of years ago, when Microsoft purchased Nokia in 2013 and made a renewed push into the mobile operating system business. 

That move of course required analysts to make estimates of potential changes in the mobile operating system market. Many expected Windows Phone to become the third largest OS in terms of market share. 

At least a few major firms forecast that Windows Phone would eclipse eclipse Apple iOS to become the second largest OS market share. 

That is not to diminish the accuracy of other predictions made by those firms, or the overall accuracy of any other forecasts always made by market researchers, weather experts, economists and executives in general. Still, forecasting is a tough business. 

In 2011, Gartner expected that by 2015 Microsoft would have nearly 20 percent OS market share by 2015. 

But Windows Phone seems unable to grow beyond about three percent of the installed base even if recent sales share was as high as 13 percent in Italy. In the same time period in Italy, Android grew 68 percent, by way of comparison.  

It's just hard to predict the future.

When Might Cable, Telcos Devote 100% of Bandwidth to High Speed Access?

Tier-one U.S. cable TV companies and telcos face interesting access bandwidth challenges as demand for high speed access requires more capacity, while linear video also competes for that bandwidth.

Eventually, one might surmise that nearly all bandwidth on the access networks could be devoted to Internet access, that occurring when the linear TV business has become so challenged by on-demand delivery that virtually all entertainment video is delivered using streaming, rather than dedicated linear bandwidth.

The transition is the issue. U.S. cable TV operators, still the leading providers of linear programming, are steadily allocating more bandwidth for high speed access, in an incremental way that makes more efficient use of available bandwidth on hybrid networks.

Verizon, where it has FiOS deployed, reserves 870 MHz of bandwidth for linear video, but does so using a separate optical wavelength from that used to deliver high speed access and voice services. That means, as a practical matter, that linear video does not compete with bandwidth required to deliver high speed access.

In other words, linear TV and high speed access are not in a “zero sum” situation where more bandwidth for high speed access must come from bandwidth used to deliver video.

AT&T, on the other hand, uses an access technique similar that of the cable TV operators, where all services are delivered over a single physical medium, with bandwidth shared between all applications.

Like the cable TV operators, AT&T (except where it is deploying fiber to the home), has to make “zero sum” decisions about allocation of its access bandwidth. More bandwidth for high speed access must be created or taken from video bandwidth.

Should AT&T succeed in buying DirecTV, one potential future development, aside from the ability to compete for nearly 100 percent of the linear video business, nationwide, is to reclaim nearly 100 percent of access bandwidth to deliver high speed access services, as video might be delivered using DirecTV. That might not happen right away, as regulators require a transition period where AT&T is barred from switching existing U-verse video customers to DirecTV.

Cable TV operators switched from a mix of analog and digital TV signals to “all digital,” in part, to free up bandwidth for high speed access.

AT&T might eventually be able to act in the same way to reclaim bandwidth, by shifting all linear video to the separate satellite network.

Cable operators might someday shift even more bandwidth, if streaming delivery becomes the norm. That would be a radical step, and would be contemplated only at the point operators concluded they would be no worse off, in terms of revenue, by switching to streaming delivery on an all-IP network, and abandoning linear formats.

Cable operators do not seem to anywhere close to that point, yet. But they already foresee the possibility. The DOCSIS framework aims for 10 Gbps downstream, one Gbps upstream. It is hard to see how that could happen unless virtually all bandwidth were devoted to high speed access.

In that regard, Broadcom has announced gigabit speeds on hybrid fiber coax networks using its new DOCSIS 3.1 cable modem system-on-a-chip capability.

The new chip relies on use of two OFDM 196 MHz downstream channels and two 96 MHz OFDM-A upstream channels. Modern HFC networks feature something up to 948 MHz of total downstream bandwidth.

So two 196-MHz OFDM channels would represent consumption of about 392 MHz of downstream bandwidth, or about 40 percent of total available downstream bandwidth on an HFC network operating up to 1002 MHz in a standard frequency plan.

source" Volpefirm

The objective, eventually, is support for 10 Gbps downstream and 1 Gbps upstream. But that likely would occur only after the linear video subscription model has run its course, and been abandoned for streaming access.

Why Internet of Things Might, and Might Not, be the "Next Big Thing" for Telcos

Even if one agrees that the Internet of Things represents the single biggest future revenue opportunity for tier one telcos, some perspective is needed. The obvious way mobile or fixed network service providers might gain from IoT is a dramatic increase in the number of connected devices.

As a matter of perspective, consider that there are, in early 2015, perhaps 3.5 billion mobile phones in service. In a decade, some believe there will be as many as 30 billion to 50 billion additional devices connected to the Internet.

Broadly speaking, that suggests an order of magnitude (10 times) more connected devices than now are in service. If so, the upside will come directly from more subscriptions and indirectly from higher data usage or ancillary services related to Internet connectivity.

But many predict most of the new connected devices will use local wireless connections (Bluetooth, for example).

Still, on a base of 50 billion devices, some think an incremental one billion to two billion additional mobile connections are likely to be driven by IoT.

So the impact on Internet subscriptions (mobile or fixed) is not so clear. Still, it would be hard to name another area where the financial upside for telcos is higher, since the number of connected devices increases by about an order of magnitude with every generation of computing technology. Virtually all observers see something similar happening with IoT as well.  

Even if connection growth is substantial (one billion to two billion new mobile connections, for example), IoT will represent a huge new revenue stream for mobile service providers or fixed network telcos largely if the service providers are able to become part of the applications portion of the IoT business.

The reason is simple enough. IoT sensor connections, which might represent a few dollars of monthly revenue, are expected to drop into the cents per month range over time. Even two billion new mobile connections, at $1 a month, would add $24 billion in global mobile service revenue.

That is helpful, but in a business currently earning at something higher than $1.2 trillion worth of annual revenue, that is about two percent of current revenue. If that is all IoT ever represents for the telecom industry, it would be a rather small revenue contributor.

Some forecasters believe U.S. IoT application revenue already had reached the $1.4 billion range in 2014, representing 39.9 million accounts, expected to grow to 51.7 million accounts by the end of 2016.

IoT app revenues were estimated to grow from $1.43 billion in the second quarter of  2014 to $1.54 billion at the end of 2016 with a semi-annual growth rate of 1.4 percent.

In other words, average annual revenue for an IoT application was about $29.87 a month, according to one estimate by Compass Intelligence. Compare that to estimated IoT Internet access revenue of perhaps $3 a month.

Most of that activity undoubtedly includes the embedded base of industrial sensors deployed over the last three or four decades to support energy management or other industrial processes.

So the fundamental issue for tier-one telcos and mobile service providers is that most IoT revenue will be dominated by application providers, not “access,” as has been true of the Internet so far.

As telcos have struggled to find ways to create and own the key applications on the Internet, they likewise will have to strive mightily to create a role in the applications and services parts of the IoT ecosystem, to participate in most of the revenue upside.

That suggests IoT will be important for telcos and mobile service providers in the enterprise customer portions of their businesses. Fleet management operations, oil and gas, public safety or transportation, utility and factory operations are likely to be among the top vertical market opportunities.

Smart watches and other consumer IoT devices are unlikely to matter very much. That means it is not yet clear when fixed connections will be used, and when mobile connections are necessary (automobile apps, oil drilling platforms, aircraft).

If you had to make a bet, right now, about the most-promising big opportunity for tier-one telecom providers--something big enough to replace about half of all current revenue over about a decade--IoT would be the choice many would make.

The only other category that might rival IoT is streaming video, in part because of the indirect stimulation of demand for Internet access services. Assume there are about 142 million U.S. mobile Internet users. Assume there are about 85 million fixed high speed access accounts in service, for a total of 227 million connections.

Assume IoT helps drive increased purchasing of high speed access representing $5 per account, per month, or $60 annually. That might imply increased revenues of perhaps $13.6 billion in the U.S. market.

If U.S. telecommunications revenue overall is about $400 billiion, that would represent a revenue boost of about three percent.

In other words, it is hard to see how incremental IoT access revenue “moves the revenue needle” very much. If IoT is to drive significant new revenues, it would have to come from the applications and services side of the business.

Consider the impact of streaming video, by way of comparison. Assume a potential market of 80 million streaming video accounts, representing monthly revenue of $10, or $120 a year.

Assume telcos could gain 20 percent share of that market. That implies 16 million accounts with annual revenue of about $1.9 billion. If average monthly revenue were $40 a month, representing annual revenue of about $480, the industry upside might be $7.6 billion. Again, that is about two percent of U.S. industry revenues.

With fixed and mobile revenue slowing, flat or declining, the “next big thing” will matter. To be sure, there are lots of smaller and important things to be done.

But nothing might matter more than discovering big new markets and services to drive growth beyond today’s leaders. After all, the industry already has watched revenue leadership shift from fixed voice to mobile and voice to data. Video services will help, in some cases. Expansion out of market will help as well.

But organic growth still has to hinge on a new wave of services yet to be created, even if out of region expansion, video or fixed-mobile integration also drive additional revenues.  

Right now, it would be hard to name a category of services with more potential than Internet of Things, as fuzzy as that concept might be, since IoT represents many potential new markets and services, ranging from fitness trackers and watches to industrial and traffic sensors and in-home or in-car automation services.

With the Internet of Things at the peak of its hype cycle, we will all be hearing predictions of non-linear growth. Many forecasts, for example, call for deployment of 20 billion or 30 billion IoT units by 2020. That implies potential new Internet connections of as much as the same number.

A few years ago, some analysts had predicted that, by 2020, the market for connected devices  would be between 50 billion and 100 billion units. The point is that projections already have proven too optimistic.

None of that is at all unusual. Big new business opportunities are tough to pin down, in terms of concrete business models. Think of the Internet itself. In mobile, creation of sizable and concrete 3G and 4G revenue models took time.

But IoT remains in an early stage. For example, a recent survey of executives found they lack a clear perspective on the concrete IoT business opportunities, as promising as the field might be.

Semiconductor executives surveyed in June 2014 by McKinsey said the Internet of Things will be the most important source of growth for them over the next several years—more important, for example, than trends in wireless computing or big data.

Those hopes might be misplaced, though. “For players in the traditional semiconductor market, the Internet of Things may spark some growth, but it certainly will not change two percent industry growth today to the 10 to 15 percent growth we had in the 1980s,” one industry executive says.  

If so, that might imply that hopes for massive new service provider revenues might also be excessively optimistic, at the moment. Whether that also means service provider hopes are misplaced is the issue.

Important innovations in the communications business often seem to have far less market impact than expected, early on.

Even really important and fundamental technology innovations (steam engine, electricity, automobile, personal computer, World Wide Web) can take much longer than expected to produce measurable changes.

Quite often, there is a long period of small, incremental changes, then an inflection point, and then the whole market is transformed relatively quickly, but only after a long period of incremental growth.

Mobile phones and broadband are among the two best examples. Until the early 1990s, few people actually used mobile phones, as odd as that seems now.

Not until about 2006 did 10 percent of people actually use 3G. But mobiles relatively suddenly became the primary way people globally make phone calls and arguably also have become the primary way most people use the Internet, in term of instances of use, if not volume of use.

Prior to the mobile phone revolution, policy makers really could not figure out how to provide affordable phone service to billions of people who had “never made a phone call.”

IoT might prove to mimic that pattern. And that is the optimistic scenario. Not all innovations prove to have such impact.

Still, the reason the industry needs to create viable and big business models around IoT is that it now is the single best hope for replacing about a quarter of all current revenues.

We might reasonably expect video entertainment, mobile data and out or market expansion to produce additional revenue representing about a quarter of the size of existing firm activity.

The issue there is that some of those gains are “zero sum.” Gains by one contestant come only at the expense of another contestant, and do not represent net market growth. IoT is among the few big new revenue sources that actually grow the market.

And that is why IoT matters. But it will matter much more, for service providers, if they can create sustainable roles on the application side of the business. Patience will be required.

The Internet of Things likely will develop as many other technology-enabled markets do. Concepts are spawned in university computer labs, then are commercialized over time. That used to take the form of campus--enterprise-consumer. These days, the pattern is as likely to be campus-consumer-enterprise.

However, much like artificial intelligence, IoT might take a bit longer to gain widespread adoption. Some technologies embedded in products can be spot deployed (computers, watches, tablets, game systems).

Others require extensive ecosystems to be created (air traffic control systems, airports, reservation systems, distribution networks, aircraft, The first “Internet-connected Coke machine was demonstrated in 1982, for example. So we have been aware of Internet-connected machines for 30 years.

Technology enables new markets, but though necessary, is not sufficient to create them. Consumers and firms first need to see the value, and only then can viable and sustainable business models be created.

A great wave of expectation will be dashed initially, as growth forecasts prove too optimistic. Then, after a gestation period that could last as long as a decade, the practical value will be understood by end users, followed by a non-linear adoption pattern that occurs rather suddenly.