Mobile Internet Adoption Faster than Mobile Voice

Some of us just do not doubt that mobile Internet access rather sooner than many expect is going to be about as ubiquitous as mobile voice usage has become. One reason is simply that adoption curves for mobile Internet usage alrady look to be more robust than the adoption curve for mobile voice.

And mobile voice adoption was itself a shocker.

Even in Rural Areas of the Developing World, People Have Voice Access

There is a very good reason why most observers believe mobile service providers will provide most of the Internet access for people living in rural areas of the developing world: rural area mobile coverage is no less than 79 percent in Africa, 87 percent in Asia and 81 percent in Oceania.

That high level of coverage of course pertains mostly to 2G and 3G coverage, but the general principle remains valid: it is the mobile networks which have the greatest coverage at prices most consumers can afford. Satellites have wide coverage, but generally cannot match mobile operator retail prices.

In 2014, fixed-broadband subscriptions reached a total of 711 million accounts globally, corresponding to a penetration rate of almost 10 percent, according to the International Telecommunications Union.

In developing countries, fixed-broadband penetration growth rates have dropped from 18 percent in 2011 to six percent in 2014, and less than one percent in lesser-developed countries.

Asia and the Pacific stands out as a region with low fixed-broadband penetration (7.7 per cent) and a sharp decline in the growth of fixed broadband since 2010.

In large part, that is because mobile broadband is a substitute. Mobile broadband registered continuous double-digit growth rates in 2014 and an estimated global penetration of 32 percent.

Mobile broadband is growing fastest in developing countries, where growth rates

in 2014 were twice as high as in developed countries (26 percent growth in developing countries, compared to 11.5 percent growth in developed markets).

All regions continue to show double-digit growth rates, but Africa stands out with a growth rate of over 40 percent, twice as high as the global average growth rate.

By the end of 2014, mobile broadband penetration in Africa had reached 20 percent, up from less than two percent in 2010.

Basic 2G population coverage stands at over 90 percent worldwide. According to ITU estimates, global 3G population coverage stood at around 50 percent in 2012.

Backhaul access remains an issue.

In Asia and the Pacific, 40 percent of the population live out of reach of an operational optical fiber backhaul network (the facilities are more than 50 km distant), and just over 10

percent live within 0 km of an optical long haul fiber.

Public Wi-Fi to Support Mobile Data in India

Reliance Jio Infocomm, a subsidiary of Mukesh Ambani’s Reliance Industries, plans to enter into agreements with various state and local authorities to offer Wi-Fi  services.

But Ozone, Bharti Airtel and Vodafone India also plan huge public Wi-Fi networks.

Reliance also is building fiber to premises networks in 900 cities and towns as well, which will create the backhaul networks needed to support the Wi-Fi deployments.

It seems highly likely that is part of an effort to leverage public hotspots to support mobile services, which Reliance Jio also is launching across india.

In part, that strategy is dictated by Reliance Jio spectrum holdings, which are heavily in the 2300 MHz band, where in-building coverage is going to be an issue.

Also, the capital investment to create public hotspot coverage is vastly better than the cost to install additional mobile tower sites.

Separately, Bharti Airtel and Vodafone India created a Wi-Fi joint venture, Firefly Networks,to create a similar public hotspot network.

Firefly Networks is currently building in Delhi, and will compete with Reliance Jio for Wi-Fi supplied as part of Prime Minister Narendra Modi’s Digital India and Smart City initiatives.

Firefly Networks is a 50:50 joint venture between Bharti and Vodafone India, the largest mobile service providers in India.

Those efforts illustrate the fact that public Wi-Fi, which might otherwise be thought to be impractical, at best, where there is little fixed network infrastructure, actually does make sense in India, since the areas of heaviest mobile Internet usage at present are the urban centers, where fixed network infrastructure does exist.

It's Hard to "Move up the Stack"

“Telcos must climb the value stack and not become dumb pipe providers.”  That bit of advice is hard to dismiss. For lots of reasons, it is hard to accomplish those objectives. Consider the simple matter of operating system updates.

You might argue mobile service providers would want to be central to that process, especially when specific apps are supplied to specific versions of devices supported o the carrier’s network.

Providing the updates arguably makes the carrier more relevant in terms of the device experience. So if Microsoft starts taking control of operating system updates, at least for some business customers, the potential mobile service provider is that much more reduced, in terms of role as an enabler.

Business customers might prefer that arrangement, especially where it comes to security updates.

“Windows Update for Business,” available with Windows 10, will allow enterprise information technology staffs to specify which devices go first in an update wave, and which ones will come later.

The new program will allow enterprises to create maintenance windows, where IT managers can specify the critical timeframes when updates should and should not occur.

Peer-to-peer delivery will enable updates to branch offices and remote sites with limited bandwidth.

Windows Update for Business, Microsoft argues, “will reduce management costs, provide controls over update deployment, offer quicker access to security updates, and provide access to the latest innovation from Microsoft on an ongoing basis.”

Windows Update for Business is free for Windows Pro and Windows Enterprise devices.

The point is that if Microsoft directly provides the service, that is one less service for consultants, system integrators or service providers to sell.

Microsoft, on the other hand, increases its value for device buyers and users. It is just a reminder: “moving up the stack” is hard.

In Defense of "Harvesting," Not "Moving Up the Stack"

“Telcos must climb the value stack and not become dumb pipe providers.”  That bit of advice is hard to dismiss. “Telcos need to protect their core business.” Also a reasonable platitude.

But there’s a problem with platitudes: they are worthless, or almost so.

In the former case, one might as well admit telcos are in one business, and need to be in another. In the latter case, one asks what might literally be impossible, long term.

I say that as someone who has been in business long enough to have tried both strategies in a media and content context, before and after the Internet, and who has made a conscious effort to track business model challenges in telecom for nearly 30 years.

Not to belittle reasonable efforts to make big transitions, which is precisely what telcos, cable TV companies, satellite TV providers and Internet service providers must do, but sometimes very little beyond slowing the rate of decline is feasible, in the legacy business.

“Winning,” in other words, might literally be strategically impossible. “Losing more slowly” might be best outcome.

In other words, the core business might not be strategically defensible. Climbing the value chain might work, but that is tantamount to “getting into a new business.”

If that is the case, platitudes are not so helpful. What is helpful is to make a fundamental decision that the core business is going to decline, and that the best outcome is a harvesting of cash flow, and then deployment of that cash flow elsewhere.

That is tricky, for lots of reasons. Public companies have to convince their investors that a transition plan really makes sense, and that the core business also can be sustained.

Even if some of us might say it is difficult to achieve the former, impossible for the latter, there are lots of reasons for executives to say it is possible.

The best example is what happened to AT&T, after the 1984 divestiture. AT&T tried mightily to maintain--and finally merely to harvest--its present business (long distance calling) while investing in many new growth initiatives.

It was a sound strategy, ultimately not executed well enough to allow AT&T to continue life as an independent entity. But then, no company in that original space managed to survive, either. MCI was absorbed first by WorldCom, then by Verizon. Sprint’s long distance unit continues as the “wireline” part of Sprint, but is a footnote.

And though the matter is not yet decided, one could ask what becomes of the “access” function. Already, huge shifts have occurred.

In part, access, though an essential function, is provided by “other companies or networks.” That is the case where cable TV companies provider high speed Internet access, video entertainment and voice.

That is the case when mobile companies provide voice, data access and messaging. And partial fulfillment is provided by third party Wi-Fi networks, satellite constellations, wireless ISPs and others.

To be sure, the traditional access function is far from “played out.” Telcos are gaining share in video entertainment while cable TV companies are gaining share in the business services market. High speed access is largely saturated in developed markets, with market share shifts between suppliers are the key change.

But product maturation is quite clear in the voice and messaging areas, where mobile has become the way most people prefer to consume voice, where competitors are taking share and where fixed lines are dropping every year.

Does attrition continue forever? Probably not, but largely because voice and messaging become features of the network or the service, not necessarily huge revenue contributors. As it is, much fixed network voice consumption happens because it is sold as part of a compelling bundle. Absent the bundling, fixed network voice take rates would be even lower.  

The clear point is that it might not, strictly speaking, be possible to “save” the voice business. The function will continue to be valuable and essential. It simply might not be a major revenue driver, in the end.

That leaves the “move up the stack” advice. Just as clearly, that makes sense. But what it actually means sometimes is not so clear.

The fundamental character of any Internet Protocol network is the separation of app from access. In essence, there is no “value chain” to be “climbed.” There are apps, and there is access.

An alternative way of phrasing matters is that access providers need to be in the “apps” business. Apps occupy different positions in the value chain.

Yes, it is possible, conceptually and in practice, for an app to be used in a walled garden or closed manner. Apps can be bundled with access.

But the notion of “climbing the stack” might not be the most apt way of describing the change. Occupying a different part of the value chain might be the better generic description, and better describe the business framework and mindset needed to succeed.

Apps can be bundled. Apps can be designed to work collaboratively with access services. But that might not be the “usual” way. Instead, apps are designed to work on any access and any device.

Having a big pipe and running the access business at lower costs will always be important. That function must be provided. So will “owning some of the content delivered over the pipe.”

What isn’t yet so clear is “who” the access providers will be, what the revenue models will be, and what former access giants will have done to recreate themselves. And, sometimes, it cannot be done, by most.

So “moving up the stack” might be a dangerous notion, in one respect. It implies doing “something else,” in addition to what one already is doing. Sometimes, better decisions are obtained by pursuing a  clean “do something else” strategy.

For major telcos, that might mean divesting first some, then possibly “all” fixed network assets. That isn’t as crazy as it sounds. In most of the world, “mobile” is the primary access platform, and service providers basically view fixed access as a niche platform.

That is not an instance of moving up or down the stack, but simply choosing a more relevant and sustainable platform and business model. It is “doing something else,” not “moving up the stack.”

In some cases, divesting fixed assets might be dictated by market conditions. In some cases, other providers will prove more successful (Google Fiber, cable TV companies, Wi-Fi), destroying the business case. In such cases, firms might do better by “doing something else” rather than trying to “move up the stack.”

Some might point out that over the top apps are examples of moving up the stack. That’s correct. The business issue is whether an embrace of OTT voice, messaging or video is “doing something else” or “protecting the existing business.”

Most of us might agree OTT voice, messaging and video is a clearer case of “doing something else” than “protecting the existing business.”

So the point is that sometimes, all that can be done is to harvest what is dying, to nurture what might grow.