More Trouble for Linear TV?

Total live TV ratings were down 12.7 percent year over year across the networks of major media companies, according to Nomura Research

That is part of a pattern of declines in linear video consumption that might now be on the verge of accelerating, trends recently highlighted by 21st Century Fox, which cut its revenue forecasts for 2015 because of declining viewership.

Sprint Gains Subs, Loses Operating Income

Sprint posted strong account gains but lower operating income in its latest quarter, adding nearly a million net new accounts, while net operating income dropped two percent and postpaid churn grew slightly.

Those account gains represented net customer additions up 42 percent year-over-year, while postpaid gross additions (not net additions) were at the highest level in three years, Sprint said.

The strong points were the subscriber gains and a shift in the customer mix towards higher-quality. Those gains came at the cost of higher churn rates and a dip in income.

BT Nails Deal to Buy EE

BT Group, Deutsche Telekom and Orange have agreed to terms by which BT will buy EE for £12.5 billion ($18.98 billion) in cash and stock, a move that will put BT back into the consumer  mobile services business after a decade absence, and also merge the U.K.’s largest fixed network operator and the U.K.’s biggest mobile service provider.

As part of the deal, BT will gain 30 million accounts, including some 24.5 million consumer mobile accounts and a Long Term Evolution fourth generation network that covers about 75 percent of potential U.K. customers.

The deal has to be approved by shareholders and regulators, but is part of several trends. European service providers now believe they need more scale to compete, driving mergers and acquisitions.

Also, because of the difficulty of growing in saturated markets, tier one service providers are blending mobile and fixed network services, moving towards quadruple play services (video entertainment, voice, high speed access, mobile).

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.