Device Boundaries (PC, Tablet, Smartphone) Blur

With tablet sales down as much as 30 percent in some instances, Apple appears to be getting ready to enhance tablet attractiveness for business customers, planning a device with a 12.9-inch screen, possibly outfitted with USB 3.0 ports useful for direct offline data backups, as well as keyboard and mouse ports.

Among the problems is an apparent consumer preference for larger-screen phones as an alternative to tablets.

Tablets were supposed to replace personal computers. It now looks like larger-screen smartphones are displacing tablets.

The differences between PCs, tablets and smartphones are blurring.

Softcard Mobile Payments Venture Closes

It’s official. After selling core technology to Google, and agreeing to pre-install Google Wallet on their smartphones, AT&T, Verizon and T-Mobile US are formally closing the Softcard mobile payments service.

Instead, customers are directed to Google Wallet as an alternative. The end of the Softcard business is not the first time a mobile operator consortium has closed.

ABN Amro, ING, KPN, Rabobank, Vodafone and T-Mobile abandoned their planned mobile payments  venture in 2012, for example.

In the United Kingdom, O2 has shuttered its mobile wallet application, while France’s Bouygues Telecom apparently has ended its NFC program as well.

It probably is notable that those failures affect ventures aimed at retail payments. Services focused on mobile banking services, or money transfer services, seem to be doing much better.

Globally, 255 mobile money ventures are operating in 89 countries, according to the GSM Association. Those services include remittances (sending money to another person or entity), insurance, credit or savings services.

Mobile money is generating substantial revenues for a growing number of mobile service providers, GSMA says. At least 11 providers reported generating more than US$1 million in revenues during the month of June 2014, and all but one of these providers were mobile operators.

HBO Now Readying April 2015 Launch?

Time Warner appears to readying an April 2015 launch of its new “HBO Now” streaming video service, at a price of $15 a month. That will mean the first time the full HBO service has been made available directly to U.S. consumers, without the need to buy a linear video subscription first.

That means a new set of distributors (Apple TV, Roku, Xbox, PlayStation, Amazon) will be engaged to sell the product to end users, though some U.S. cable TV operators have expressed interest in retailing the product as well.

HBO claims the HBO Now service will be marketed primarily to the 10 million U.S. high speed access subscribers who do not buy a linear video subscription.

But consumers themselves will decide how the demand shapes up. Linear video distributors will be watching closely to see whether there is an upsurge in HBO churn, as well as the degree of demand from consumers who do not want to buy a linear video service.

CBS and Starz already have committed to launching an over the top product, and NBCUniversal is launching a new comedy-focused niche service as well.

At some point, linear video distributors are going to have to make a hard choice about whether to compete with Verizon Communications, Amazon, Apple TV, Roku, Xbox, Playstation and others.

Verizon, among the larger U.S. linear video distributors, has been most supportive of the notion that over the top entertainment video, especially delivered to mobile devices, was a significant opportunity.

Are Dish Network, Sprint, T-Mobile US Operations Really Worth "Nothing?"

While assigning a value to a company is always based on some key assumptions, the present circumstances surrounding valuation of Dish Network, Sprint and T-Mobile US illustrate the huge role of assumptions.

Dish makes its money from selling video entertainment services. Its value normally is a multiple of the recurring revenue stream. The same sort of analysis works for Sprint and T-Mobile US, even if the services sold by those two companies are mobile communications services.

But on a "sum of the parts" perspective, the valuations are skewed. Looking only at the possible value of spectrum assets, all three firms are worth less than the value of their spectrum.

Because of the historically-high values spectrum was sold for in the recent AWS-3 auctions, we have the unusual situation where, at least conceptually, all three firms are worth more, as holders of mobile spectrum, than they are as going concerns.

In other words, looked at only from a spectrum valuation perspective, all three firms have a market value based on their actual revenue-generating operations that is less than the value of the raw spectrum.

In fact, the value of the operations might be negative.

Spectrum represents perhaps 80 percent of Dish Network’s equity value, even if that spectrum does not generate any revenue at all for Dish, at the moment, and all revenue comes from its satellite video entertainment business.  

Lance Vitanza, a managing director at CRT Capital Group LLC, agrees that the likely value of Dish’s spectrum, which he estimates at $45 billion, is higher than the market value (roughly $36 billion) or the enterprise value of $40 billion of the entire company.

Then consider Sprint. About $17.5 billion is the value attributed only to some excess 2.5-GHz spectrum Sprint might sell.

Keep in mind that in September 2014, Sprint’s equity value was about $22.5 billion. In other words, Sprint could now be valued at less than its spectrum holdings.

Bloomberg Intelligence, in fact, estimate the total value of Sprint’s 2.5-GHz spectrum alone at $115.1, about 2.4 times Sprint’s enterprise value of $48 billion.

In fact, some argue that T-Mobile US  spectrum accounts for more than 100 percent of its total market value.

Those are anomalies, for certain. Few investors would actually assume that the operating value of the businesses really is worth less than the value of spectrum holdings. But that is how the situation might be construed.

Fight OTT or Embrace it? NBCUniversal Seeks Middle Path

In an important shift, The advent of voice over Internet Protocol has forced legacy voice providers to choose between “joining” or “fighting” the trend. The rise of third party messaging platforms likewise has forced mobile service providers to ponder a similar choice: join in the trend, or not.

In a somewhat similar way, Comcast’s NBCUniversal unit has had to decide whether it would join the streaming delivery business, or not. In a modest way, it has decided to launch a niche streaming service.

Comcast Corp. ’s NBCUniversal is aiming to launch a comedy-focused over the top video service later in 2015.

The comedy service would likely feature full episodes of NBC shows such as “The Tonight Show” starring Jimmy Fallon and “Saturday Night Live.”

Original and exclusive content is envisioned. NBCU apparently has not decided on a price point, but a range of $2.50 to $3.50 per month is possible.

That niche approach is not an instance of NBCUniversal cannibalizing its linear video business, as the offer is for a new niche channel that will not be available to linear video distributors.

Unlike the cases of VoIP and instant messaging, NBCUniversal has not had to make a full choice between legacy products and replacement products.

Still, the move is one more sign that a shift to streaming is coming.

Network Neutrality Might Interfere with 5G: Uh oh.

Nobody yet knows what is contained in the 332-page Federal Communications Commission decision on network neutrality. Given the certain round of lawsuits, nobody knows whether the rules, or what parts of the rules, might ultimately be sustained. Nobody knows whether Congress might intervene at some point.

Assuming the rules eventually are sustained, or that major Internet service providers conclude they have to build their businesses as though some version of the rules will be in place, what are the outcomes?

Some believe European service providers might gain some global advantage, as European regulators seem to be heading in the other direction--lessening regulatory burdens--and creating more clear incentives for investment by ISPs.

The extent to which the current European Union vision of fifth generation networks will be realized remains unclear. The good news is that the vision is breathtaking. The bad news is that the  vision is breathtaking.

Telcos have a spotty record where it comes to next generation network visions.

That vision is that 5G will integrate networking, computing and storage resources into one programmable and unified infrastructure.

Some might say that would be the culmination of a multi-decade movement towards a unified “communications and computing” best exemplified, for example, by cloud computing, where the computing infrastructure and communications infrastructure are hard to extricate.

That is explicit in calls for a network protocol that features “dynamic usage of all distributed

resources,” as proposed by the 5G PPP. That is only part of a vision that incorporates flexibility, spectrum efficiency, sustainable, scalable, energy efficient access across optical, cellular and satellite networks.

As envisioned, 5G will heavily rely on emerging technologies such as Software Defined Networking (SDN), Network Functions Virtualization (NFV), Mobile Edge Computing (MEC) and Fog Computing (FC).

The plan explicitly calls for use of frequencies above 6 GHz, to support end user bandwidth as much as 1,000 times more than is available today.

The caution is that telecom companies have had major issues when rolling out new “next generation networks.” Failure is more common than success. Recall that ISDN, broadband ISDN (ATM) and  IP Multimedia Subsystem (IMS) all were seen as “next generation network” protocols.

Now some observers worry that network neutrality rules could interfere with the 5G vision of seamless services provided across seamless networks. That is possible. But it is far more likely that ISPs and application providers will simply move to create managed services that are not covered under the rules.

That might work fine if a managed service is provided only on one network. But if required to work across any network, while retaining all the features, use of “best effort only” access as mandated by network neutrality rules might prevent the interworking.

Unforeseen consequences were virtually inevitable.

IoT, OTT Mobile Video Will Drive Incremental Revenue for Verizon

Exhaustion of the older revenue models and products means firms such as Verizon increasingly will rely on new services to drive revenue growth in the future, Verizon CFO seems to agree.

Incremental subscriber account additions have been the most important measure of mobile service provider growth, as access lines once were the most-convenient shorthand for the health of a fixed line telco, or basic subscribers once were the easiest way to assess the value of a cable TV company.

All that has changed. These days, with bundles of products being the key strategy, units matter more than subscribers or lines in service, to a large extent.

"It's not just going to be about the net adds anymore," Fran Shammo, Verizon Communications CFO said.  

Instead, new products and services built around the Internet of Things and "mobile first" over the top video are going to drive incremental revenue growth. The emphasis on IoT is shared with AT&T.

In fact, IoT revenue is growing almost 45 percent year over year, Shammo said.

The view about video contrasts with AT&T’s strategy, as AT&T believes linear video subscriptions will throw off significant cash flow for quite some time.