Cloud, Data Center Spending Might Drive Communications to As Much as 43% of Total Enterprise IT Spending

Frost and Sullivan predict Indonesia cloud and data center services will be the growth engine for enterprise IT spending, growing 605 percent from 2013.

By 2018, enterprise IT spending in Southeast Asia will total $62 billion, according to forecasts from Gartner.

Indonesia enterprise spending overall will be up 317 percent from 2013. Frost and Sullivan predicts..

If global patterns of spending apply, communications spending in Southeast Asia will be much as $27 billion in 2018, using a rule of thumb that communications represents about 43 percent of all information technology spending, these days.

That might seem a high percentage. Keep in mind the forecast includes spending on mobile services as well as voice services and data bandwidth.

The Southeast Asia region comprises 11 countries of which Singapore, Malaysia, Indonesia and Thailand spend the most on IT and account for roughly 80 percent of IT spend in the region.

Together, Indonesia, Malaysia, Singapore and Thailand will spend $52 billion on IT in 2015, with annual growth of six percent, Gartner says.

Indonesia enterprise IT spending will reach US$3.8 billion in 2019,” said Ajay Sunder, Frost & Sullivan VP, up from $1.6 billion in 2014. Using the same 43 percent ratio, communications spending in Indonesia would reach $1.6 billion.

Indonesia will have around 1.7 billion connected devices by 2020 with over 470 million mobile subscribers and over 200 million active Internet users, Sunder said.

Globally, the percentage of communications spending specifically related to core communications services was much as 44 percent of 2014 information technology spending, and about 43 percent of all 2015 global IT spending.

                    Worldwide IT Spending Forecast (Billions of U.S. Dollars)

	2014 Spending	2014 Growth (%)	2015 Spending	2015 Growth (%)
Devices	696	3.8	732	5.1
Data Center Systems	141	0.8	143	1.8
Enterprise Software	317	5.8	335	5.5
IT Services	956	2.7	981	2.5
Telecom Services	1,626	-0.1	1,638	0.7
Overall IT	3,737	1.0	3,828	2.4

source: Gartner

Gartner estimates that enterprise spending on IT products and services in Singapore will be US$19.1 billion (SGD $24 billion) in 2015. Compared with other mature markets in the region, such as Australia, this intensity of IT spending is high relative to Singapore's gross national output and population.

The dominant sectors in 2015 will be communications, media and services, banking and securities, government and manufacturing. Together they will account for 70 percent of total enterprise IT spending in the country in 2015. The fastest-growing industry segments through 2018 will be banking and securities, utilities and manufacturing, and natural resources.

Spending by enterprises in Malaysia is projected to be US$12.6 billion (MYR 40.6 billion) in 2015 at an annual growth rate of 6.4 percent across data centers, software, IT services, internal services, devices and telecom services.

Sampling Facebook for Fee Doubles Globe Telecom Internet Adoption in Less Than a Year

Zero rating of content--allowing mobile users access to one or more Internet apps without requiring a mobile Internet subscription, is controversial in some quarters as a violation of network neutrality principles.

But a test by Globe Telecom in the Philippines shows that zero rating works: it can significantly increase mobile service provider Internet access sales, and obviously end user use of the Internet.

Facebook and Globe launched the “Free Facebook” campaign in October 2013. The campaign aimed to jumpstart internet usage in the Philippines by offering free access to Facebook, and ran to May 2014.

All Globe subscribers – new and existing – could opt-in to unlimited Facebook on mobile. After the trial, subscribers would upgrade to paid data plans.

Over the course of the first phase, the number of data users on Globe’s network doubled, and the portion of Globe’s prepaid subscriber base who were active on mobile data expanded from 14 percent in September 2013 to 25 percent in November 2014, Facebook and Globe say.

In other words, the mobile Internet customer base nearly doubled.

Globe’s Free Facebook campaign (and similar internet outreach efforts by other players in the market), led to a six million increase in the number of active mobile internet users in the Philippines as a whole.

During the first phase of the trial, Globe’s user base increased by 17 percent. Along with continuing to use data, these users also shifted core telco spend over to Globe’s network, growing voice and text messaging revenues by five percent.

By the end of the first campaign, prepaid mobile data users grew from 4.8 million to 9.7 million, more than a two-fold increase.

During phase one, average revenue per user remained relatively constant, since Globe zero-rated Facebook data usage.

However, the succeeding quarter saw a 34 percent jump in ARPU, as customers converted to paid mobile service.

The percentage of Filipinos who access Facebook only from WiFi--and never from a mobile data network--decreased from 38 percent at the start of the Free Facebook campaign to 17 percent at the end of Free Facebook Phase two.

Comparing third quarter 2013 (pre-Free Facebook phase one) to the third quarter of 2014 (post-Free Facebook phase one) saw a 58 percent increase in mobile browsing revenue on Globe’s network.

Complain about zero rating if you desire. It worked to acquaint millions of Filipinos with the value of the Internet, and increased the number routinely using the Internet.

Effective or Not, Spectrum Bidder Limits Will be a Feature of U.S. 600-MHz Auctions

Spectrum bidding rules that favor smaller companies have been a feature of U.S. spectrum auctions for decades, The rules have often been contentious, as you would guess, and that hasn’t changed.

The latest disputes concern the use of “designated entity” bidding rules that allowed Dish Network--not a designated entity itself--to acquire a significant amount of mobile spectrum in the AWS-3 auction through its 85-percent control of a couple of smaller entities that do have the designation.

Basically, Dish Network worked through two smaller entities, using their status to bid, even if Dish Network owns 85 percent of each of the smaller entities.

The Federal Communications Commission also has created “set aside” rules for the planned auctions of 600-MHz spectrum sometime in 2016.

Those rules would limit the amount of spectrum AT&T or Verizon could win in the auction, reserving a major chunk of the available spectrum for “smaller” entities such as Sprint and T-Mobile US (and presumably Dish Network, again).

In late 2014, the Commission decided to set aside as much as 33 percent of spectrum for “smaller” bidders. The mechanism to be used is that, at some point in each local auction, the spectrum set aside would go into effect.

At that point, once entities owning a least 33 percent of “low-band” spectrum would be prevented from bidding for any more spectrum in those specific markets.

The FCC's threshold for setting aside spectrum in a market hasn't yet been announced, but it could include some combination of the overall bids in the market, or the price per megahertz.

The FCC's plan represents a victory for Sprint and T-Mobile, which have lobbied fiercely for limits on how much low-band spectrum AT&T and Verizon can buy at the auction.

Some question the ultimate usefulness of such policies, as spectrum rights and firms are tradeable. In the U.S. market, spectrum eventually has been consolidated by the larger providers, over time, despite any initial policies or awards that were won initially by smaller entities.

The practice enriches some smaller bidders, but does not have generally seemed to increase the amount of effective competition over time, with a couple of exceptions, namely Sprint and T-Mobile US. Some would say that is evidence of the effectiveness of set-asides.

Others argue consumer benefit is enhanced by allowing the most-efficient providers to acquire as much spectrum as the market will allow. In part, that is because larger, consolidated blocks of contiguous spectrum are more spectrum efficient than non-contiguous spectrum blocks generally held by smaller providers.

At the moment, it appears the set-asides will be a feature of the 600-MHz auction, however.

Will LEOs be Mobile Partners or Competitors?

Once before, the shocking growth of mobile services essentially killed the business hopes of low earth satellite providers. Iridium, Globalstar and Teledesic are among the ventures that failed to gain traction because mobile services suddenly satisfied the demand the satellite providers hoped to supply.

Round two now is coming, as several proposed new low earth orbit satellite constellations (LEOs) prepare for commercial operations, in addition to O3b, which already is in business.

O3b already is supplying 2 Gbps of backhaul for mobile operators, according to David Burr, O3b VP.

To be sure, at least a couple of the ventures hope to escape danger by holding themselves out as potential partners for mobile operators. But not all.

At least one business plan, and possibly two,  aim to provide Internet access directly to end users, perhaps globally. That will provide new competition for mobile service providers and others who provide Internet access on a retail basis to consumers and businesses.

But the retail Internet access might not be the only business segment to be challenged if the LEO constellations are successful.

As crazy as it might sound, LEOsat believes it can relay traffic, satellite to satellite, with latency lower than undersea backhaul on fiber networks. That could make LEOsat, and possibly also SpaceX, a competitor to long haul undersea networks.

LEOsat, for example, proposes to launch a new constellation of low earth orbit satellites to provide backhaul for a number of customer segments, ranging from maritime communications to enterprise private links for high speed trading.

The new wrinkle is that LEOsat proposes to do so entirely using its space segment, with latency lower than undersea optical fiber. That is something Elon Musk at SpaceX also has said could be a use for the LEO constellation it proposes to launch, as well.

But some, including OneWeb, plan to sell Internet access directly to end users. “Our value proposition is capacity, low investment cost and coverage of  every inch of the globe,” sys Dave Bettinger, OneWeb CTO. “Our prime mission is residential connectivity,” but O3b also sees opportunities in the maritime, aeronautical and mobility segments, also.

O3b expects to be fully operational in 2019.  

So the issue is what mobile operators will do. One might expect they will begin to move faster with their own plans to bring Internet access to hundreds of millions of potential users, not waiting for LEO constellations to serve them first.

And that, in turn, could pose grave dangers for LEO providers. Mobile operators destroyed LEO business plans before. Will they do so, again?

"Do as I Say, Not as I Do"

The “evidence paints a complex portrait of a company working toward an overall goal of maintaining its market share by providing the best user experience, while simultaneously engaging in tactics that resulted in harm to many vertical competitors.”

That quote from an actual Federal Trade Commission report might sound like a reason for imposing strong network neutrality rules.

Extracted from a 160-page FTC report, the conclusion does not, in fact, refer to any ISP, or any content slowing, blocking or acceleration.

It refers to Google, the company whose mantra used to be “don’t be evil,” and what the report says were efforts by Google to use its monopoly power to quash competitors.

Ironically (or maybe worse, perhaps it is venial), the antitrust agency rejected the report’s conclusions and cleared Google of any wrongdoing.

To be fair, this illustrates a danger. For those of us who believe antitrust remedies always are possible when bad actors emerge in the Internet ecosystem, and for that reason no additional “protections” (more laws, more rules) are required, this represents a potential failure.

The FTC failed to follow through when its own studies suggested there was abuse of commercial power in the ecosystem.

On the other hand, despite the failure to act, the market itself seems to be moving clearly to reduce Google’s dominance in search (Facebook and others are shifting the “search” process away from Google).

An irony here is that Google might have been vastly more implicated in potential antitrust activity, on a broad scope, compared to the two documented instances of Internet service provider content blocking, both of which were quickly squashed by the Federal Communications Commission.

That is a precedent some will say shows the necessity of strong network neutrality rules. Others would say that if a problem did ever develop at scale, the FTC would have acted, and that the FCC acted in the past without any such rules.

Ironically, a company that has pointed to potential non-competitive behavior by others actually has engaged in such activity, on a broad scale, itself.

Google’s actions  likely helped to entrench monopoly power over search and search advertising,” the FTC report says.

The staff report from the agency’s bureau of competition recommended the commission bring a lawsuit challenging three Google practices. The move would have triggered one of the highest-profile antitrust cases since the Justice Department sued Microsoft Corp. in the 1990s.

The revelations will not be helpful to Google, which is fighting European regulators worried precisely about this sort of behavior.

FTC staff said Google’s conduct “helped it to maintain, preserve and enhance Google’s monopoly position in the markets for search and search advertising” in violation of the law.

An additional irony is that action might now be taken just at a point when Google’s dominance already is challenged by the shift to mobile content consumption, where “search” or “discovery” happens in different ways.

As the old adage suggests, it is a case of locking the barn after the horse has already gotten out.

Looking forward, one might argue Google already is on the strategic defensive, making any potential new restrictions a bit late, and likely unnecessary.

Still, some might note the irony.

Google might have actually engaged in widespread and arguably successful anticompetitive behavior, where ISPs already were covered by FCC no-blocking rules, and have actually never been shown to engage in “slowing” or “speeding up” content of competitors.

It's a blemish on the record of a firm whose products and inititiatives valued by so many, and brings to mind so many adages. "People who live in glass houses should not throw stones. "Do as I say, not as I do."

Streaming Services Ask for Zero Rating and Quality of Service

Even though most of how the new common carrier regulation of Internet access is going to work, important questions already are being raised about business model and service innovation on several fronts.

T-Mobile US, for example, might face scrutiny of its Music Freedom feature, which allows T-Mobile US customers to stream music without incurring data charges. Such zero rating is viewed by some as a violation of network neutrality rules, since it does not treat all bits equally.

Separately, HBO, Showtime, and Sony Corp. reportedly have asked major Internet service providers such as Comcast about having their over the top streaming services delivered as managed services, which would offer quality of service features enhancing quality.

The network neutrality rules created by the Federal Communications Commission forbid anything but “best effort” access for consumer Internet services, but do not cover managed services such as carrier voice or standard cable TV services that use the same physical facilities as those used to support Internet access.

Reportedly, the streaming firms want not only quality of service features, but also a zero rating feature similar to Music Freedom, allowing customers to stream at will without having the usage count against usage buckets.

Some have argued it is precisely the need for quality of service features, for many services, that make “best effort only” rules objectionable.

Ironically, we now find, immediately after passage of the rules, app providers looking to secure the advantages of quality of service (treat some bits unequally) mechanisms that enhance app performance.

There is, to be sure, a difference between “Internet-based applications” and “private network applications that use Internet protocol.”

Many private networks use IP technology and platforms, but are not public Internet apps. Carrier voice and video provide some examples. Other enterprise apps, health and safety apps, security and other services are “managed” services not necessarily using the public Internet, even if they use IP platforms.

The internal contradictions are certain to grow. Ironic, don’t you think?

No Signs of Stability in U.S. Mobile Market

T-Mobile US unveiled a new set of initiatives aimed at attracting business customers, and an expanded program to take consumer share  from other U.S. mobile carriers, as part of its Uncarrier 9.0 announcement.

Sprint earlier this month launched new programs to encourage switching as well.

With some observers wondering how long the U.S. price and promotion war might moderate, or end, the answer seems to be “not yet,” even if no price war lasts forever.

Under other circumstances, a reasonable expectation might be that we face at least another year of unusual efforts at price disruption, to be followed by a period when the leading contestants have adjusted enough to show they can weather the attack, and the attacker or attackers find they have gained share, but now have to switch to improving profits.

Under other circumstances, one might argue the price war will last as long as T-Mobile US and Sprint  believe they can continue to add net new customers every quarter.

If the rate of net additions starts to flatten, then T-Mobile US, for example, will have to begin weighing a shift in strategy from price disruption to earning profits.

One other likely predictor is that the war will end when U.S. market structure stabilizes into a structure with a clear number one, a number two that has no easy way to displace the top provider, and a number three provider large enough to sustain itself in that position, with the number four supplier far behind the other three.

Under other circumstances, one might argue we are close to a stable market.

In a classic oligopolistic market, one would expect to see an “ideal” (normative) structure something like:

Oligopoly Market Share of Sales
Number one	41%
Number two	31%
Number three	16%

source: economicsonline

We are not too far from that pattern. In terms of revenue share, Verizon in early 2015 has about 39 percent share, while AT&T had 33 percent. One might argue both Verizon and AT&T will lose much incentive to engage in promotional behavior when AT&T no longer believes it can catch Verizon, and the number three contestant no longer really believes it can catch number two, for example.

The number-three supplier, in terms of revenue, is Sprint, at about 15 percent revenue share. It is almost precisely where one would predict the number-three supplier would be.

The issue, right now, is that T-Mobile US believes it must grow, or eventually be acquired. Of late, T-Mobile has been rapidly gaining share, with the intention of supplanting Sprint at the number three position.

The problem is that U.S regulators seem unwilling to allow an acquisition of T-Mobile US by Verizon, AT&T or Sprint. That means only a new contestant could do so. And that means the classic oligopoly structure cannot form.

Among the variables are Dish Network’s need to enter the market or sell its spectrum; Comcast’s expected entry and then any future moves by a large Internet player (Google, Apple or another firm).

U.S. Revenue Share
Firm	%
Verizon	39
AT&T	33
Sprint	15
T-Mobile US	12

With the caveat that spectrum is not revenue, the U.S. mobile spectrum ownership picture remains likewise unstable.

Spectrum Share
Provider	Percent
Sprint	29
AT&T	21
Verizon	17
Dish Network	15
T-Mobile US	12

The point is that the U.S mobile market does not presently resemble a stable oligopoly market, not do the medium term competitive prospects suggest the market will assume such a form.

That means, no matter how long the immediate marketing war lasts, the market will remain unstable.

Strategically, Comcast is expected to enter the market, at some point. Cablevision Systems Corp. already has done so, though as a niche provider with greatest potential impact in its limtied home operating area. Comcast almost certainly will have to enter as a national provider.

Dish Network either must enter the market as an operator, or forfeit the rights to spectrum that presently accounts for as much as 80 percent of its total market value.

And then there are the other contenders, including Google, which it is believed soon will be entering the mobile market, and Apple, a perennial potential actor in the market as well.

Even if the biggest current question mark is what Dish Network will do, Dish decisions will not affect the unstable market structure, since Dish entry would not eliminate a major contestant. Nor would a spectrum sale do so.

Verizon arguably has the greatest gap between revenue share and spectrum share. But some say Verizon cannot afford to buy that spectrum at prices Dish Network would ask for, or that regulators would not allow Dish to sell to Verizon.

Sprint has excess spectrum and T-Mobile US cannot afford to buy much more.

So Dish Network might yet actually move ahead and become a service provider, adding one more contestant. Dish might become a wholesale capacity supplier, which would not increase the number of retail suppliers.

It might try to buy T-Mobile US. Or it might sell the spectrum. If so, the buyer is likely to be another company not presently in the mobile business in a significant way, such as a Google or a Comcast or another firm.

Dish might also try to create a new type of mobile supplier--focusing on mobile TV.

In all those scenarios, the number of suppliers would not contract to a stable pattern.