T-Mobile US "Kills It" in Fourth Quarter 2014

The quip by John Legere, T-Mobile US CEO that “we killed it” pretty much sums up T-Mobile US fourth quarter 2014 results. Adjusted earnings (EBITDA) of $1.8 billion, up 41 percent,  beat analyst expectations of $1.62 billion.

Service grew 13.6 percent year over year in the fourth quarter, and were up nine percent in 2014, compared to 2013.

Total revenues were up 19 percent in the fourth quarter and stronger by 13 percent annually.

In fact, T-Mobile US it won nearly 80 percent of industry postpaid phone growth in the fourth quarter,and nearly 100 percent of phone account net growth in 2014. That could happen because AT&T and Verizon account growth is substantially driven by tablet account additions.

T-Mobile US added 2.1 million net new accounts, including 1.3 million branded postpaid accounts.

In 2014, T-Mobile US added 8.3 million net accounts to end with 55 million total. Of the total branded postpaid net adds in 2014, T-Mobile US added more than four million phone net adds and 0.8 million mobile broadband accounts.

Branded postpaid average billings per user grew 5.1 percent to a record $61.80. Branded postpaid phone average revenue per user was $48.26.

T-Mobile US expects to add another 2.2 million to 3.2 million net branded postpaid accounts in 2015.

Will Title II Lead to App Provider Charges Even Higher than "Paid Prioritization?"

Unintended consequences are among the reasons why intended policies rarely work as expected.

Is there a danger content providers would have to pay Internet access providers termination charges if Internet access is regulated as a common carrier Title II service? Yes, say economists and analysts as the Phoenix Center for Advanced Legal & Economic Public

Policy Studies.

“Reclassification turns edge providers into customers” of access providers, argue George Ford, Phoenix Center chief economist, and Larry Spiwak, Phoenix Center president.

This new “carrier-to-customer” relationship (as opposed to a “carrier-to-carrier” relationship) would then require all access providers (telephone, cable, and wireless) to create, and then

tariff, a termination service for Internet content under Section 203 of the Communications Act, Ford and Spivak argue.

Though skeptics will argue that is not going to happen (that the Federal Communications Commission will not impose such obligations, though it can), the potential outcome could be far worse than the hypothetical “content delivery network” fees some have argued should be outlawed.

With the caveat that the arguments--however important--are “in the weeds” for most people, the FCC  “would likely be prohibited from using its authority under Section 10 of the Communications Act to forbear from such tariffing requirements because the Commission has labeled all BSPs as ‘terminating monopolists.’ Spiwak and Ford argue.

In other words, the FCC cannot avoid having ISPs impose such charges, even if the FCC now claims it can apply a “light touch” Title II regime that does not create such obligations.

Historically, edge providers (application providers) have not been considered “customers” of

the Internet access providers.

By reclassifying broadband as a telecommunications service, this termination service becomes a common carrier telecommunications service, thereby formalizing this “customer” relationship between application providers and ISPs whose facilities they use, Phoenix Center argues.

In other words, application providers are customers of the ISPs, just as end users are.

What the “just and reasonable” tariffs ought to be, and how much application providers must pay, is the issue. The only certainty is that the tariff cannot be “zero.”

In a perhaps terrifying new development for content and application providers, it could turn out that most of the revenue IPSs earn will come from content and app providers, not end users.

That unanticipated outcome could be the worst outcome of any Title II regulation for application providers, though oddly enough ISPs could benefit. Ultimately, the ecosystem would suffer, as economics suggests higher prices will lead to lower usage.

Unstable U.K. Mobile Market About to Become "Stable?"

Given regulator preference for four leading mobile players, rather than just three leading providers, it has to be noted that regulators are deliberately opting for a market that is inherently unstable, compared to the likely structure of a three-provider market.

The reason is that the mobile business arguably and ultimately is an oligopolistic industry, even if the markets can, for a period of time, apparently diverge from that pattern. As a theoretical rule, one might argue, an oligopolistic market with three leading providers will tend to be stable when market shares follow a general pattern of 40 percent, 30 percent, 20 percent market shares held by three contestants.

Up to this point, the U.K. mobile market has featured EE and O2, each with 29 percent market share, followed by Vodafone with 23 percent share, trailed by Hutchison’s 3 at 12 percent.

That four-provider structure is roughly similar to the U.S. mobile market, where AT&T and Verizon each tend to have 30 percent share, while Sprint has about 17 percent and T-Mobile US has about 14 percent share.

If one assumes a stable oligopoly market structure has the leading provider with about 40 percent share; the number-two supplier with about 30 percent share and the third player a share of about 20 percent, the U.K. market would, with a Hutchison acquisition of O2, be functionally stable.

That still leaves open the question of whether Vodafone ultimately is acquired, but that change of ownership would not make the market unstable.

Looking only at the mobile market, BT has 40 percent share. If Hutchison were to acquire Telefónica assets, Hutchison would have about 29 percent share. Vodafone would have about 23 percent share. That fits the stable oligopoly market pattern almost perfectly.

Whether it still will make sense in the future to evaluate fixed and mobile markets as distinct entities is the issue. In reality, the consumer services market has become reliant on a bundled services approach that initially has been anchored by voice, video entertainment and high speed access, but is moving to a quadruple play approach that includes both fixed and mobile services.

Vodafone, which with a Hutchison acquisition of O2 would fall to fourth place among mobile operators, is shifting from its historic mobile-only strategy to a quadruple play approach.

As a rule, there are two kinds of companies in the telecom business: strategic buyers and strategic sellers.

After disposing of its U.S. Verizon Wireless stake and SFT to Vivendi in France, Vodafone might have been seen as a strategic buyer. But some have considered Vodafone a strategic seller. In the near term, Vodafone might be a buyer, even if it ultimately winds up being a strategic seller.

The point is that it might soon be misleading to assess market share in the mobile segment as distinct from share in the fixed services segment. If the market shifts to quadruple play, with a mix of fixed and mobile assets, share across networks and services will matter most.

Telecom Revenue Growth Slows in Every Region

“Overall, growth in telecom revenue continues to slow in every geographic region,” according to  Stéphane Téral, Infonetics Research principal analyst.

Europe’s five largest service providers—Deutsche Telekom, Orange, Telecom Italia, Telefónica, and Vodafone—continue to experience declining revenue, though less pronounced than in the past three years, he noted.

Global mobile service revenue barely budged in the first half of 2014, up just 0.5 percent from the same period a year ago, Infonetics says.

But mobile data services (text messaging and mobile broadband) rose in every region in the first half, driven by the increasing usage of smartphones.

Mobile broadband services grew 26 percent year-over-year, enough to offset the decline of text message revenue declines, Infonetics reported. On the other hand, that sometimes was not enough to offset losses of voice revenue.

In Latin America, mobile data will not replace lost voice revenues. Orange voice revenue declined 3.3 percent in 2014. In Japan, DoCoMo says a change in voice tariffs might mean NTT does not make money on voice until 2017.

High speed access revenue still drives growth in mobile and fixed line segments, but revenue will “begin to stabilize” between 2015 and 2016, if  “our competitors behave, said Ramon Fernandez, Orange CFO.

Vodafone now is focusing on fixed network broadband for revenue growth, as its mobile business is declining.

On the video entertainment side of the business, there also are warning signs.

Only 40 percent of Millennials (people roughly 18 to 34) in the U.S. watch live TV each month, Forrester Research.

ComScore said in October 2014 that 24 percent of 18- to 24-year-olds do not have a traditional pay TV service.

Of those survey respondents, 13 percent previously had subscription TV service but have disconnected, while 11 percent have never subscribed to a linear subscription TV service at all.

Nielsen found in December 2014 that U.S. adults spent 60 percent more time in the third quarter of  2014 watching streaming video than they did the year before.

Traditional TV viewing, which had been falling among viewers ages 18 to 34 at around four percent a year since 2012, tumbled 10.6 percent between September 2014 and January 2015, according to Nielsen.

All of that illustrates fundamental revenue challenges in all the key products sold by communications service providers, fixed or mobile.

Acquisitions will help, as service providers buy growth in new product segments or geographies. Still, some big new revenue stream eventually will have to be found. That explains the interest in a variety of new businesses, largely centered around the Internet of Things.

Mobile is Becoming the Way Lower Income Users Access the Internet

Reasonable people will disagree about whether specific mergers or acquisitions should be approved, as well as about the merger conditions appropriate when such mergers or acquisitions are deemed reasonable.

What does seem odd and unwise, though, are conditions that mandate specific and high adoption rates of specific services as a condition of an acquisition. One example is a proposed condition specifying that 45 percent of low-income consumers buy a "lifeline" Internet access service from Comcast. 

Service providers cannot guarantee that specific numbers of consumers will buy any specific service. The details of the offer, aside from mandatory buy rates, are reasonable areas for discussion.

But it would be hard to ensure that 45 percent of potential consumers buy any specific products at all, under the best of circumstances. 

There is a growing body of research indicating that the most logical consumers of such a service actually rely on mobile access for Internet service, for example. The point is that mobile access is emerging as the preferred way of using the Internet. 

For that reason, it is possible demand for a lifeline Internet access service could be limited. 

Mobile Money Providers Will Provide Full Range of Financial Services in Africa by 2030

Banking and agriculture are two important ways mobile phones will help transform the lives of billions of people over the next 15 years, argues Bill Gates.

In Bangladesh, the fastest-growing financial services company is a mobile money provider called bKash. Less than four years after launching, it processes roughly 2 million transactions per day, with a total value of nearly $1 billion each month.

Mobile also will play a role in raising agricultural outcomes. As more farmers have access to mobile phones, they will be able to receive all sorts of information, from weather reports to current market prices, and be able to use that information to advantage.

“Already, in the developing countries with the right regulatory framework, people are storing money digitally on their phones and using their phones to make purchases, as if they were debit cards,” the Gates says. “By 2030, two billion people who don't have a bank account today will be storing money and making payment with their phones.”

By 2030, mobile money providers will be offering the full range of financial services, from interest-bearing savings accounts to credit to insurance.

Prices Matter: in Japan, Consumers are Buying More Feature Phones

As with most consumer products, mobile data plan prices do matter. In Japan, where mobile data plan costs are high, consumers seem to be deliberately buying feature phone devices that can be used without incurring high data costs.

Since 2012, smartphone sales in Japan have been falling. Since 2013, sales of feature phones have been growing.

Prices matter.