Verizon Sale of Fixed Assets Could Boost Mobile Revenue to Nearly 75% of Total

If Verizon acquires $10 billion worth of assets from Verizon Communications, and the value of a subscriber is about $3000, that implies the purchase of about 3.3 million subscribers. At $3200 per subscriber, the deal implies the purchase of about 3.13 million subscribers.

Precisely how many fixed network subscribers Verizon presently has is a bit of an estimate, since “revenue generating units” tends to be the new metric, in a triple-play market.

But assume total high speed access subscribers are in the range of 9.2 million units, and that high speed access is about 50 percent of total fixed network active household accounts. That implies 18.4 million homes provided with at least one service.

So a sale of perhaps 3.13 million subscribers might reduce Verizon Communications fixed network accounts by about 17 percent.

In any event, Verizon soon will be generating even more of its revenue directly from mobile services, not fixed services. In the past, Verizon has generated 69 percent of revenue from its mobile segment. Selling 17 percent of its fixed network subscriber base will boost mobile even further. As a rough approximation, the sale of fixed assets might boost mobile segment revenues to about 74 percent of total.

Add Low Reputation Scores to Low Customer Satisfaction Performance

It will not come as a surprise that Internet service providers, telcos, cable TV or satellite TV firms suffer in virtually all studies of customer satisfaction. It appears they also have that problem in the area of company reputation as well.

A study of company reputation shows telcos, cable TV and satellite TV companies in the bottom half of the rankings. The top score was earned by Wegman’s, the grocery chain. If you ever have shopped there, you will know why.

Apple and Google scored 80 and change. Verizon Communications scored 69. Sprint, AT&T and T-Mobile US scored 67.

DirecTV scored a 65, while Comcast and Charter Communications scored 60. Dish Network scored 58.

One might argue those scores are the result of deliberate choices, not malfeasance or dumbness. Some businesses arguably cannot afford to spend very much on “delighting customers.”

Car dealers, for example, might reasonably assume that “repeat buying” opportunities actually are rather rare. If that is the case, only so much rationally should be spent on customer experience.

Most consumer telecom or video subscription companies might rationally assume the average account life cycle is four years, perhaps less. If so, practitioners might be making rational choices about how much to spend upgrading customer experience and service.

Occasionally firms might underspend too severely, and see churn rates increase. But in all likelihood no firm in the consumer segment wants to overspend. And that might account for the generally low customer satisfaction or reputation scores earned by service providers.

How Much Revenue Could U.S. ISPs Lose as Competition Builds?

Some argue the U.S. Internet service provider business could lose about $2 billion a month in subscriber revenues were the market to use a regulatory framework such as exists in the United Kingdom and most of Europe, where most ISPs operate using wholesale access provided by an underlying carrier.

Even if one argues that a major shift of regulatory framework does not happen, it still is possible to argue that U.S. high speed access competition will grow, in the near future, if for no other reason than that new providers, including Google and a growing number of other firms, see the gigabit access market as interesting and sustainable.

Verizon Wireless, historically the U.S. mobile service provider most hesitant to compete on price, has launched new offers offering more for the same price.

At the same time, for a growing number of consumers, mobile Internet access is becoming a viable substitute for fixed network access. That trend is likely to accelerate as 5G networks, supporting speeds up to a gigabit per second, are launched in a decade or so.

Also at least for a couple of more years, U.S. government policy is likely to continue in a direction of “more regulation, not less.”

Whether such competition could shave $24 billion in existing annual ISP revenues is the issue. For starters, it is increasingly difficult to identify the size of the high speed access revenue stream, since most U.S. consumers buy a triple play package where the actual revenue contributors are accounting issues (attributed revenues).

“It seems, at the moment, likely that some version of increased competition will drive prices down in the next five years,” Point Topic argues.  

In fact, the Federal Communications Commission already has tried that approach, in the wake of the passage of the Telecommunications Act of 1996, and abandoned the approach in favor of facilities-based competition, a move many would credit for rapid investment in next generation access facilities.

The perhaps-unpleasant reality is that “competition” and “investment” are contradictory goals, where it comes to the use of wholesale facilities. The reason is simple enough to comprehend.

Where one actual network services provider is required to sell wholesale access with significant discounts (half retail price, for example), there is almost no incentive for a retail service provide to invest in its own assets.

If the underlying carrier must provide highly-discounted access to the network, the value of the upgrade cannot be captured.

To use an analogy, how much innovation would Apple be willing to pursue were it forced to sell as an original equipment manufacturer to all other device retailers, allowing them access to all the core features, including iTunes and the app store, at a 50-percent discount?

On the other hand, there is little incentive for the network services provider to invest further, if it is required to make the new facilities available to wholesale buyers on the same terms as presently required.

The Federal Communications Commission has not yet voted on rules that would classify Internet service providers as common carriers, but the legal challenges already are being prepared. As always, the challenges will rely on specific points of law outside the domain of a typical consumer’s frame of reference.

The point is that business headwinds in the U.S. high speed access market are building.

Big IoT Revenue Impact Within 3 Years?

Expectations for business benefit from the Internet of Things (IoT) arguably are wildly overestimated at the moment.

Many would agree IoT will be big, at some point. Accenture has estimated a $14.3 trillion impact by 2030, just in industrial applications. But there arguably is a big gap between hopes and actual business models that help organizations realize those dreams.

Consider the results of a survey by Gartner that found more than 40 percent of 463 surveyed IT and business leaders expect the Internet of Things (IoT) to transform their business or offer significant new revenue or cost-savings opportunities over the next three years.

At the same time, most also said their organizations have not established clear business or technical leadership for their IoT efforts.

Less than 25 percent of survey respondents report they have established clear business leadership for the IoT, either in the form of a single organizational unit owning the issue or multiple business units taking ownership of separate IoT efforts.

"The survey confirmed that the IoT is very immature, and many organizations have only just started experimenting with it," said Nick Jones, Gartner VP. "Only a small minority have deployed solutions in a production environment.

Google, Amazon, Microsoft Pay Adblock Plus "Not to Block"

Google, Amazon and Microsoft pay Adblock Plus, the world’s most popular software for blocking online advertising, to stop blocking ads on their sites. That is ironic.

Many advocate strong network neutrality rules, in large part, on the grounds that any paid forms of packet delivery are unfair. Paid prioritization gives big companies who can pay for expedited delivery an advantage over small companies who cannot pay for such services.

So here we have Google, Amazon and Microsoft paying to given their own advertising priority over ads shown by all other advertisers who do not pay for the privilege.

Don’t get me wrong. Adblock Plus can do as it likes to stay in business. Google, Amazon and Microsoft have the right to try and protect their revenue streams. I as a user can avail myself of Adblock Plus, or not, as I choose.

Big firms, or firms with lots of money or other advantages, will use those advantages in the marketplace, just as many firms already pay for content prioritization, using content delivery networks.

Adblock Plus, Google, Amazon and Microsoft can do as they please with their voluntary business arrangements. But others should be able to do so as well, so long as the deals are voluntary, mutually agreed upon and available to any who wish to participate in such deals.

No, it is not “completely fair.” Nothing in business, and little in life, actually is “completely fair.”

So long as people can use any lawful Internet app, and have choices about their Internet access providers, firms should be free to compete as they see fit. We always have antitrust tools to wield if the market doesn’t work so well.

Mobile Now Shapes Global Bandwidth Demand

It might still seem a bit unusual to hear an executive at a major company in the undersea bandwidth business argue that his firm, like all others, has to be “in” the mobile business.

“Without mobile, you are in trouble: you have to be part of mobile.” according to Andrew Kwok, Hutchison Global Communications president, international and carrier business.

That doesn’t necessarily mean offering retail mobile services. It does reflect a recognition of what drives global bandwidth.  Mobile connections already outnumber fixed Internet access connections globally.

Of roughly three billion Internet connections in service in 2014, about 2.3 billion used mobile access.  

That said, North American fixed network bandwidth consumption is between two and three orders of magnitude higher than median end user consumption.

But mobile consumption is growing, in part because more smartphones are in use, and in part because video is becoming the dominant driver of mobile bandwidth.

About 75 percent of mobile data traffic in 2019 will be driven by smartphones, according to the latest Cisco Visual Networking Index.

Mobile video traffic exceeded 50 percent of total mobile data traffic by the end of 2012 and grew to 55 percent by the end of 2014.

So mobile data traffic will grow at a compound annual growth rate of 57 percent from 2014 to 2019, reaching 24.3 exabytes per month by 2019, according to Cisco.

In a sense, mobile is growing in importance because it increasingly represents the way most people use the Internet. Mobile networks also are getting faster. For example, 4G traffic will be more than half of the total mobile traffic by 2017.

At the same time, Internet traffic now dominates global bandwidth requirements, and content--especially video content--dominates Internet traffic.

Increasingly, for all those reasons, mobile also drives Internet traffic, growing 45 percent annually.

Global mobile data traffic grew 69 percent in 2014, for example.

Granted, service providers have several tools to increase effective bandwidth. Different network architectures and better air interfaces will help. But almost nobody believes the growth can be accommodated without allocation of additional spectrum.

Still, more traffic will be offloaded from mobile networks--on to Wi-Fi networks--than remains on mobile networks by 2016. Without offload, mobile data traffic would have grown 84 percent rather than 69 percent in 2014.

Still, virtually every trend other than offload drives higher mobile data consumption.

Global mobile devices and connections in 2014 grew to 7.4 billion, up from 6.9 billion in 2013.

Smartphones accounted for 88 percent of that growth, with 439 million net additions in 2014.

Globally, smart devices represented 26 percent of the total mobile devices and connections in 2014; they accounted for 88 percent of the mobile data traffic.

Mobile network (cellular) connection speeds grew 20 percent in 2014. Globally, the average mobile network downstream speed in 2014 was 1,683 kilobits per second (kbps), up from 1,387 kbps in 2013.

In 2014, a fourth-generation (4G) connection generated 10 times more traffic on average than a non‑4G connection. Although 4G connections represent only six percent of mobile connections today, they already account for 40 percent of mobile data traffic.

Average smartphone usage grew 45 percent in 2014. The average amount of traffic per smartphone in 2014 was 819 MB per month, up from 563 MB per month in 2013.

Most bandwidth buyers (mobile or fixed, commercial or non-profit, industrial or media) are fundamentally similar in many ways, in terms of expectations. What is changing is that more of the total demand is coming from content or media companies and mobile service providers.

That underlies Kwok’s argument about the need to be part of the mobile business.

Mobile Now Drives 25% of All Online Transactions

In the fourth quarter of 2014, 25.8 percent of global online transactions took place on a mobile device, according to Adyen. That is the first time mobile payments have accounted for more than a quarter of global online payments since Adyen began tracking mobile payments  in June 2013.

Mobile transactions grew 11 percent sequentially and 37 percent year over year.

“For many companies, mobile is now the primary sales channel, rather than simply a key sales channel,” said Roelant Prins, Adven chief commercial officer.

The iPad generated 34 percent of mobile transactions, the iPhone 32 percent, while Android phones contributed 25 percent.

If the current trends persist, Android may surpass the iPhone and iPad in the latter half of 2015 while the iPad also loses its lead over the iPhone, if perhaps not in 2015.

Smartphones represented 58 percent of mobile transactions in the quarter.

Smartphone transactions accounted for about 20 percent of all online transaction for digital goods (including games, services like club memberships, hotel reservations, and tickets).

In the case of retail goods (clothing, furniture, appliances, groceries), smartphones accounted for less than 10 percent of retail purchases.