NHK Will Skip 4K; Go Straight to 8K

“Leapfrog” is a well-known business strategy. In many instances, a supplier might decide to skip an evolutionary upgrade (2G to 3G, for example) and skip ahead with a more-radical move (2G to 4G, for example), in an effort to gain advantage.

That is why executives at NHK have been thinking and now saying they will skip 4K and go straight to 8K. NHK said it would do so at the Pacific Telecommunications Council 2015 meeting.

How much impact that will have on consumer experience is unclear. To detect 8K image quality now requires that the viewer be sitting a distance of about 75 percent of screen height. In other words, for a screen height of three feet, the viewer has to sit about 2 feet 3 inches away from the screen.

Nobody is going to do that, routinely, in a home setting. At typical livingroom viewing distances, the 8K image quality will not appear any different than 4K. So it isn’t so clear the value of 8K actually will occur in the consumer display market, but rather in the medical or other imaging settings where such image quality really is useful, and users are very close to the screens.

T-Mobile US is Not Sustainable, Long Term, Its Owner Says

T-Mobile US is not viable long term, as an independent firm with its current position in the market, Timotheus Höttges, Deutsche Telekom CEO now says in public. For observers of the attempted effort to merge Sprint and T-Mobile US, that might be a predictable statement by the CEO of one of the two firms in favor of the merger.

Others, including T-Mobile US CEO John Legere, agree that additional scale is necessary, longer term, but that there are many ways to gain such scale. What many might assert is that gaining sustainable scale solely or primarily through organic growth is unlikely to work. Growth at the expense of margin can happen, for a time.

But that is not sustainable long term. And that means the issue is how long T-Mobile US can attain its current path. Some would argue the U.S. mobile market is fundamentally unstable.

Longer term, the current T-Mobile US positioning is not sustainable, especially given the need to invest between $4 billion and $5 billion each year just to keep up, Höttges said.

Some of that opinion argue that T-Mobile US does not, at present, earn enough revenue, or have a profit margin, that allows it to compete effectively with AT&T Mobility and Verizon Communications. If so, some future reduction of the number of leading players in the U.S. mobile market still remains inevitable.

Others argue that the recent strong subscriber growth provides evidence T-Mobile US does not need to bulk up by means of a merger.

That can take a while, though. Many of us argued in the 1990s that the ultimate fate of the two leading U.S. satellite TV providers was likely absorption by a telco. Whether that happens, and if it turns out to the ultimate case, is hard to say, yet. Regulatory and antitrust authorities have yet to approve or deny the AT&T purchase of DirecTV.

Still, the strategic logic was hard to ignore. Satellite is not a platform able to compete effectively in the triple-play services business, or support on-demand streaming delivery of video. Conversely, absorption of the satellite providers immediately would make the owners major providers of entertainment video, on a nationwide basis neither Verizon, nor AT&T, can reach, at present.

In other words, some of us always have seen the two leading satellite TV companies as strategic sellers, AT&T and Verizon as strategic buyers.

The same logic might apply in the U.S. mobile market. Long term, many would argue three leading contestants is desirable and sustainable, where a four-supplier market is not sustainable.

Regulators prefer to retain the four-provider market structure. Sooner or later, those preferences are likely to collide directly with sustainability questions.

Deutsche Telekom’s favored outcome would be an exit from the U.S. market, and a merger would allow DT to sell its majority stake in T-Mobile US to a new set of owners.

DT has an incentive to argue T-Mobile US is not viable, long term. It wants to convince regulators and antitrust authorities to allow some future merger that would reduce the number of leading U.S. mobile service providers.

But it still is unusual to hear the owner of a sizable business argue that business is not sustainable, long term.

Telecom Exec is Frustrated by "Unfair" Competition: Get Over It

“Building networks is what we know how to do best: we’ll leave making apps and creating services to others,” said Timotheus Höttges, Deutsche Telekom CEO. Some might say that statement accurately reflects the fundamental role access providers play in the Internet ecosystem.

But Höttges also argues Facebook is a communications service that is not investing in telco infrastructure: this is unfair,” Höttges said.

It’s an odd pairing of statements, in many ways, and likely requires a bit of context. What Höttges is saying likely reflects a logical position, namely that providers of like services should be treated in a like manner.

The Deutsche Telekom CEO might also be saying that if Facebook were to become an actual access provider, it should be bound by the same rules that Deutsche Telekom is (consistent with the differences that often apply to former monopoly providers).

But Höttges also seems to argue that Facebook--as an app--not an Internet service provider, is providing services that are functionally equivalent to the services Deutsche Telekom provides, and should be regulated in the same way that DT is regulated.

Observers will vigorously debate whether that line of thinking is reasonable, or makes sense. It’s a complicated matter because many apps now feature “communications” as a core feature of the app, even when they do not directly use any “communications” network features.

The friction won't end any time soon, if ever. At some level, the issue really is that "apps" are providing substitute solutions for traditional "communications" products, and for that reason the economic and financial value of app firms often vastly outstrips the value of access firms.

Telco executives will be frustrated by that state of affairs. It is not a death spiral, but arguably is a value spiral. Value within the ecosystem has shifted.

Research that Only Confirms What You Already Know, or Want to Believe, is a Problem

Surveys are only as good as the assumptions that underlie them. If the samples are not truly representative of the population one claims to study (women, men, Millennials, retirees, electric vehicle enthusiasts, Facebook users), then one cannot extrapolate from a survey. 

In addition, the survey instruments, methods and questions must be constructed in ways that do not overtly bias the results. 

So without implying any shortcomings in methodology, or any overt attempt at influence the results on the part of any firm that hires a research firm to conduct a study, the results of one recent study of potential Internet of Things demand are so out of line with the likely state of current awareness one has to assume the survey sample was chosen from an atypical group of subjects.

In all likelihood--and without alleging any effort to skew results--a survey claiming extraordinarily high confidence in the value of IoT by business users produces those results because the survey sample is of people whose job responsibilities involve IoT in some way.

That doesn't mean the findings are in any way deceptive or inaccurate, or the result of survey methodologies that were faulty.

It likely does mean that the survey sample was not typical of all business or technology executives and managers of businesses in the United States as a whole. 

Some might argue the study only confirms that the survey population primarily was of information technology executives who believe IoT will be important. 

Will U.S. Mobile Operators Backpedal on Mobile Payments?

AT&T, Verizon and T-Mobile USA had high hopes for their SoftCard mobile payments venture in 2011. So did Google. But many observers would say neither venture has gotten much traction.

Google Wallet, which launched in 2011, accounted for four percent of digital payment transaction volume in November 2014.

Apple Pay in November 2014  was responsible for one percent of digital payment transaction volume (measured by dollar amount), according to ITG Investment Research.

Still, so far, Starbucks is the transaction leader for retail payments.

“In 2013, payment for purchases by use of all mobile devices in the US totalled $1.3 billion, that was the entire market,” said Starbucks CEO Howard Schultz. “With over 90 percent of those purchases taking place in a Starbucks store, that means we had 90 percent share of mobile payments in 2013 while brick-and-mortar commerce in 2013 totalled more than $4.2 trillion.”

But there is a very long ways to go, so the outcome is not clear. Nor is mobile service provider involvement necessarily a settled matter, though at the moment it appears device providers, app providers or possible even some retailers have stronger momentum.

Some of us have argued that it could well take a decade or more before mobile payments become a routine part of the consumer experience when paying for merchandise at a retail location. And even then, “routine” use might be a reality for only about half of all consumers.

After 20 years, the percentage of U.S. households using automatic bill paying is still only about 50 percent. Likewise, after 20 years, use of debit cards by U.S. households is only about 50 percent.

It took about a decade for use of automated teller machines to reach usage by about half of U.S. households.

So history is the reason it is reasonable to predict that mobile payments will not be a mass market reality for some time.

Some might argue the problem is that big companies cannot innovate. Actually, that might be a problem, but is only a small part of the adoption process.

The bigger problem is that major changes in end user behavior have to happen, and before that can become a reality, it often is necessary to spend quite significant sums to create the infrastructure enabling the behavior change.

In the case of mobile payments, that involves creating a critical mass of devices, payment apps and processes, merchant terminals and retail brands. Beyond that, the developing market would have to come to a practical consensus about standards, interfaces and methods.

Also, with huge amounts of revenue at stake, it will take some time to sort through rival business interests and approaches that pit credit card issuers against retailers, for example.

All of that ensures a lengthy period of confusion before scale is possible. And until scale is possible, progress will be limited.

In consumer financial services, decades can pass before a significant percentage of consumers use an innovation. In fact, a decade to reach 10 percent or 20 percent adoption is not unusual, in the consumer financial services space.

So far, PayPal remains among the potential leaders. In September 2014, excluding Starbucks, PayPal had about 60 percent share of mobile wallet share, followed by Google Wallet at 43 percent.

But excluding Starbucks for retail payment volume is a big caveat

Still, PayPal was used by close to half of online consumers in 2012, so the trick is to leverage that position in the proximity payments business (retail store checkout).

Some believe Apple Pay could pose a major threat to market leader PayPal's current dominance of the general purpose mobile payment space, according to Steve Weinstein, ITG senior Internet analyst.

In the near term, it is Starbucks that Apple Pay might have to displace, even though Starbucks presently is a “captive” system, while Apple Pay aims to be a general purpose payment system.

And now there are rumors that Google might buy SoftCard, the mobile carrier initiative. That doesn’t necessarily mean the leading mobile service providers will abandon all efforts to find a role in the mobile payments or mobile wallet ecosystem.

But there are other potential new lines of business that seem to have more traction right now, including connected car, home monitoring and security, or any number of opportunities in the broader Internet of Things or machine-to-machine services markets.  

Innovation is always risky, and rarely happens precisely as its backers hope, and that has been the story for mobile payments so far.

Initially, both Google Wallet and Isis, the mobile service provider operation now rebranded “SoftCard” had explored a transaction business model. Both efforts quickly pivoted, though, disclaiming any effort to build a revenue stream based on transaction fees, which was the original revenue stream most mobile payment contestants had argued was the target.

Both turned to business models based on advertising and loyalty, the “wallet” part of the mobile commerce business, rather than the “payments” function itself.

That, in general, includes advertising, retention and rewards programs.

Those moves were a recognition that the payments ecosystem cannot easily afford to support many new “mouths to feed” in the revenue chain, if transaction fees are the revenue model for the new payments providers.

That stance meant incumbent participants had every incentive to use their considerable resources to thwart entry by a new category of participants.

One might also argue that the “commerce” angle, aiming to reinvent the shopping experience, almost automatically answers the question of “what’s in it for retailers” in a way that “payments” systems have not.

Merchants care about loyalty, customer retention and promoting customer traffic. The “wallet” approach addresses all three of those concerns, in addition to providing value for consumers, said  David W. Schropfer, a partner at Luciano Group.

Will AT&T Use Mexico Wholesale Mobile Network?

Mexican regulators have approved AT&T’s Iusacell acquisition, which now sets up an interesting issue: how does AT&T expand geographic coverage nationwide, especially for the new Long Term Evolution network AT&T believes represents a major opportunity? 

To be sure, Iusacell now reaches about 70 percent of Mexico’s potential mobile consumers and has perhaps eight percent to nine percent market share. But those networks use CDMA or GSM 3G air interfaces. The LTE network remains to be built. Nor is the spectrum to support the new network readily available.

“Expanding and enhancing Iusacell’s mobile network to cover millions of additional consumers and businesses is our top priority,” according to Randall Stephenson, AT&T chairman and CEO.

Consistent with AT&T thinking about the market opportunity Long Term Evolution adoption represents. Smartphone penetration in Mexico is about half that of the United States.

“AT&T sees a significant opportunity to increase smartphone adoption and mobile Internet usage in Mexico,” AT&T said. How AT&T will do so, and when, is not yet clear.

In the immediate future, it is more likely AT&T will create new cross-border calling services, as that will leverage existing customers--fixed and mobile--on both sides of the border.

China Telecom, for example, is creating a consortium to win a contract to build a national wholesale mobile network in Mexico. Others bidders are expected to emerge as well.

Whether AT&T would use such a network is one question. Whether it would use a network built by China Telecom that also uses Huawei gear is another question.

But the new network, which must be built, according to the Mexican constitution, might be valuable for mobile virtual network operators as well as mobile operators with at least some owned facilities, as the network would create a seamless national infrastructure, presumably also offering Long Term Evolution services, as soon as 2018.

Presumably, the wholesale network would allow contestants to use spectrum without specifically acquiring spectrum of their own. But sourcing fron the wholesale network also means each contestant would have the same features, coverage and quality as all others on the wholesale network.

That might leave retail price as the key variable, within some clear limits, unless contestants were able to bundle with other products and services.

So a reasonable person might argue AT&T will not want to rely on the wholesale network, burt rather build its own facilities.

Ting, the U.S. MVNO, Launches 2nd ISP Operation

Ting, the mobile service provider owned by Tucows, now has made its second investment in an Internet Service Provider business. In an earlier move, Tucows had invested in a small Charlottesville, Va. ISP, with new plans to provide gigabit access.

In the latest move, Ting will be the retail operator of a fiber to home network owned by the municipality in Westminster, Md. It isn’t yet clear what bandwidths will be offered.

Tucows, an Internet domain name registrar, in 2012 launched Ting, a mobile virtual network operator.

It doesn’t take much insight to note that lots of smaller towns and smaller ISPs might find the prospect of building or operating gigabit access networks a reasonable business proposition.

Decades ago, we used to call this sort of thing "overbuilding." That was a scenario where a third provider built a network and competed directly with a local cable TV operator and telco for video and other services. It always was a tough business, and few ever occurred.

These days, the focus is high speed Internet access, with or without video entertainment. That's the Google Fiber model. What Ting is trying is based strictly on a pure-play ISP business model.