Nigerian Mobile Retailer Loans Minutes of Use

Sustainable business models are a challenge for mobile and Internet service providers in South Asia, Southeast Asia and Africa where many would-be customers are hard to reach and cannot afford to pay too much for service.

As with products such as laundry detergent, mobile minutes of use are sold in bite-sized quantities. 

Mobile usage typically is sold on a prepaid basis. So customers limit use when their prepaid cards approach the limit. That will tend to reduce consumption.

But Channel IT, a Nigerian mobile operator, allows customers to borrow about $1 in airtime when their prepaid cards approach spending limits. 

Customers pay back $1.10, even if the loan is only for a day. That increases usage dramatically.

The default rate is less than one percent, since customers aren't allowed back on the network until they've repaid the loan.

That is the type of retail pricing innovation other mobile service providers might think about, as the program apparently generates about $2.4 million in annual revenue for Channel IT.

How Much Market Share Will AT&T Mobility and Verizon Wireless Lose?

It isn’t yet clear how much market share Verizon Wireless and AT&T Mobility are willing to lose to Sprint, T-Mobile US and other contestants, undoubtedly including Google, in the near future.

Verizon and AT&T already say the customers they are losing to Sprint and T-Mobile US are the “least attractive,” financially, and there likely is much truth in such statements.

Offers based on price--which is how T-Mobile US and Sprint are attacking the market, are likely to be most attractive to price-conscious customers.

Verizon historically positions at the “premium” end of the market, and often is willing to lose customers rather than compete vigorously on price.

For that reason, some believe Verizon could lose 10 percent market share to other fixed network providers of gigabit Internet access services, unless Verizon decides to compete at the “gigabit for $70 to $100” price-value point. Some think Verizon will not do so.

But some also believe Google Fiber will keep the pressure on the other major ISPs with less investment than some might have predicted.

Instead, some think mobile and wireless now is the new focus. By some estimates, about 10 percent of U.S. consumers buy service from a mobile virtual network operator, as Google will be.

So is it reasonable to think Google, all the rest of the MVNOs, Sprint and T-Mobile US might be able to take up to 10 percent additional share from AT&T and Verizon?

It’s hard to say, as it also is possible Sprint, T-Mobile US and Google might take share from the other MVNOs as much as from AT&T and Verizon.

Maybe five percent from each service provider is a more reasonable expectation of potential AT&T or Verizon share loss.

The point is that AT&T and Verizon, while moving to protect the core of their customer bases, are not going to try and protect 100 percent. Some attrition at Verizon and AT&T therefore is going to happen.

How Will Mobile Operators Respond to Elon Musk, Google, Richard Branson, Greg Wyler Satellite Efforts?

With the potential launches of two brand-new satellite networks to deliver Internet access to unserved populations across three continents, mobile service providers in developing regions are going to have to make hard decisions about their own strategies.

The reason: mobile networks now are the primary way most people in developing markets use the Internet, and get their access. But there remain billions that cannot buy the service because they are not reached by the networks.

Facebook and Google, among others, have been thinking, and now are acting, to provide such access by new satellite networks that presumably will offer far-lower retail prices than have been possible in the past.

Elon Musk will be part of a new battle between global satellite fleets intended to bring Internet access to underserved people around the globe. SpaceX, Musk’s satellite firm, just got $1 billion from Google to help build a new satellite fleet.

Just days ago, Musk talked about a new project aimed at putting up to 4,000 satellites into low Earth orbit to provide low-cost Internet access. The satellite system could start providing data services by 2020, though the full constellation could be in place by 2030, possibly. The cost of the venture could amount to $10 billion or more, Musk said.

Separately, WorldVu Satellites Ltd. has raised funding from Virgin Group and Qualcomm for a proposed global satellite internet company focusing on potential users in developing countries that cannot be reached by fixed or mobile networks, as well as to supply Internet access to flying aircraft.

The potential launch of two new huge fleets of satellites essentially will force mobile service providers to choose between accelerating building of networks to areas that have been deemed non-economic, or risk losing all that subscriber growth to satellite providers.

U.K. Mobile Market: Four to Three at the Top

Four and three are the key numbers for contestants and regulators in many markets, but particularly in Europe, where the numbers describe the leading mobile service providers in a market.

In the highly-competitive U.K. mobile market, the key number will drop from four to three as a result of Telefónica’s sale of its U.K. mobile operation to Hutchison Whampoa, previously the smallest of the four leading service providers.

Not often does any single provider jump from last to first in market share, in any industry.  

Hutchison’s acquisition of the Telefónica subsidiary O2 UK for £10.25 billion in cash will vault smallest mobile operator with 7.5 million customers to the largest with 31.5 million customers.

At the same time, the BT acquisition of EE will give Hutchison and BT market share of about 38 percent each.

Vodafone would drop to third place with 24 percent market share.

The conventional wisdom is that reduction of the number of leading providers from four to three would allow all the firms to firm up profit margins and reduce the amount of ruinous competition. That of course raises concerns about whether there will be enough competition to restrain predatory behavior.

Some would argue pressure from application providers is the new restraint. Google, for example, sees lower prices for Internet access, mobile services and devices as helpful inputs to its own business, and Google will not stop putting into place operations that help drive such cost reductions.

Google will emerge in precisely that role in the U.S. mobile market soon.

Windows 10 Makes Voice a Feature of the Operating System

Windows 10 unifies end user experience across devices (PC, tablet, phone), but also illustrates a trend long underway, namely voice communications that are a feature of an application, rather than a discrete service.

In Windows 10, Skype comes built in as a communications suite. In other words, Skype will be directly built into messaging, calling and video experiences, with no need to download an app.

That obviously has implications for telcos and cable TV companies that sell public network voice communications and messaging. Perhaps the biggest effect is a decline in usage of traditional long distance calling services, even if, globally, long distance calling volume continues to grow.

Some amount of volume growth, and some amount of profit margin, have been lost to over the top voice and messaging services, however tough it might be quantify.

And voice as a feature of widely-used apps--and now even operating systems--points to some longer-term strategic issues for telcos selling retail services to end users.

The way telcos and cable TV companies have combated declines in volume and profit margin for their core legacy services (voice and entertainment video) is to shift to the “bundle of services” (voice, video entertainment, high speed access) as the core offer.

To get the best prices, consumers buy all three products, even if actual demand for each constituent product varies. Over time, however, the perceived value of two of the core components--voice and entertainment video--is going to be challenged even further.

That doesn’t necessarily mean customers will stop buying, only that fewer will do so. Consider for example take rates for legacy voice, text messaging or linear video subscriptions. Some might argue there is a zero-sum dynamic at work.

If consumers want more on-demand access to video, on all devices, at lower prices, then OTT video has to displace linear video. That ripples back through the ecosystem.

Some might point out, for example, that if linear video demand dwindles, then satellite services built on point-to-multipoint architectures are dangerously exposed, since that architecture is ill suited to on-demand services.

But demand can be shaped by retail packaging. Assume many consumers face a situation where the services they really want to pay for amount to $80 a month (linear, Netflix, HBO, Amazon Prime and other streaming services).

Assume distributors decide they want to keep offering linear services, but also make on-demand streaming access available at modest incremental prices. In such cases, at least some consumers will conclude--as they do for triple play offers--that buying the bundle costs less than purchasing each discrete service on a stand alone basis.

In that case, linear demand might not fall as much as one might predict. And, in fact, demand for linear distribution architectures (satellite, for example) might last far longer than otherwise would seem to be the case.

For the same reason, bundling public network voice, messaging and other services props up demand for services that might otherwise fare worse. That might be the good news for today’s distributors.

The bad news is that profit margins are likely to keep falling, as greater inducements will be needed to entice consumers to keep buying services they otherwise might decide to abandon. Some consumers, for example, buy triple play services including fixed network voice even if they don’t use the phone line.

The point is that, long term, the triple play bundle, today’s fundamental strategy, will come under increasing margin pressure. On the other hand, the bundle could be shaped in ways that prolong the value of the bundle, overall, beyond an expected product life cycle that is mature and declining.   

What Happens to "Triple Play" Strategy when Voice and Linear Video Both Have Dwinded?

As foundational as the “triple play” bundle of voice, linear video entertainment and high speed access now is in the U.S. consumer telecom services market, it is bound to change as over the top subscriptions gain traction.

If that seems an unremarkable statement, consider that AT&T CEO Randall Stephenson--presently working to acquire DirecTV--also says says it is “inevitable” that the traditional bundle of cable television channels will crumble as more content travels “over the top.”

“Crumble,” he said. So what about DirecTV, the sort of operation that will be negatively affected by the shift?

AT&T is fully prepared for erosion of the DirecTV customer base over time, as over the top streaming becomes a bigger market reality.

Verizon, for its part, has been more circumspect about linear video in recent years, arguing that the company doesn’t actually make much money from linear video subscriptions, and actually has more confidence in eventual over the top solutions.

The apparent differences in video strategy on the part of AT&T and Verizon might be less than they appear. It is a matter of timing only in part. Probably equally significant is that AT&T has a larger fixed network geographic footprint than does Verizon.

Linear video really is a scale business, and AT&T would benefit more than Verizon does from a successful linear video adoption rates by its customers. In the past, smallish numbers of video-capable households have been an issue for AT&T and Verizon.

For both firms, as for cable TV operators, the issue is the timing of the shift.

At the moment, many would argue that the “essential bundle” is high speed access plus linear video. How that might change in the future, when streaming video is the replacement product for linear subscription TV, is the issue.

But the timing matters. AT&T is betting that owning DirecTV will provide value long enough to justify the acquisition.

Still, if “channels crumble,” does the linear video business model also crumble? Even as it hopes to invest billions in linear video, AT&T also is saying the business eventually will diminish. So what happens to the triple play?

Verizon Predicts 2015 Results Similar to 2014: But What if Competition Gets Worse?

As has been the case for a couple of years, Verizon Communications fourth quarter 2014 financial results were robust enough to be the envy of many other tier-one service providers in the developed world. Top-line revenue growth was nearly seven percent.

Verizon also added two million net mobile accounts.

Verizon predicted continued solid growth for 2015, which many will consider even more important than fourth quarter results.

For 2015, Verizon expects consolidated revenue growth of at least four percent, profit margins (EBITDA) consistent with full-year 2014 results and strong free cash flow generation.

Mobile segment operating revenue climbed 11  percent in the fourth quarter.

Full-year total revenues to $87.6 billion, up 8.2 percent compared with full-year 2013.

Mobile segment operating income margin was 23.5 percent. Service EBITDA margin was 42 percent in the quarter. Full-year mobile segment EBITDA was 48.5 percent.

So no worries, eh? Well, that depends. How much competition Verizon faces in the U.S. mobile market is part of the uncertainty. Near term, the issue is T-Mobile US, Sprint and AT&T. But it looks as though Google will start to be a new factor in 2015.

In other words, past assumptions will have to be revised if Google gets into the mobile business in a significant way, adding even more instability in the market.

Verizon reported a loss of 54 cents per share, compared with earnings per share of $1.76 in the same quarter of 2013.

Revenue growth was strongly driven by equipment revenues, not service revenues. That is a nuanced performance, as observers had predicted that revenue would shift from recurring service revenues to device revenues as service providers shifted from a “subsidy” model to an “installment plan” model.

Recurring service revenue grew about 2.8 percent, down from the seven percent rate in the first quarter of 2014.

Also, mobile net adds were driven by tablet accounts, a trend that has been in place for more than a year. Of the two million net adds, 1.4 million were tablet accounts. So it is no surprise that average revenue per account dipped from $161.2 in the third quarter to $158.80 in the fourth quarter.

Mobile service profit margins dropped from 47 percent to 42 percent sequentially. Recurring service earnings dropped about eight percent (EBITDA).

In the fixed network segment, total revenues were $9.6 billion in fourth-quarter 2014, down 1.6 percent year over year.

Consumer revenues were $4 billion, up 4.1 percent compared with fourth-quarter 2013, with FiOS revenues representing 77 percent of the total.

If the competitive pressure accelerates, it is hard to say whether current expectations prove to be realistic.