Will Verizon Become a "Video Supplier?"

It might be aggressive to argue firms such as Verizon will one day be video suppliers on a major scale. 

But it would not be out of place to argue entertainment video will be key to revenues from services sold to humans, rather than machines. A shift to consumption of mobile Internet video is the reason why this is so. 

By definition, people consume lots more data when watching video. And so long as access providers can price in some relationship to consumption, that automatically drives revenue.

Already, 36 percent of smartphone video viewers surveyed say they watch long-form videos (5 minutes or longer) daily or more frequently, as compared to 58percent of respondents who say they watch short videos (under 5 minutes) at that level of frequency.

Mobile video consumption also is growing, as you would expect.  Some 35 percent of respondents report watching more video on their smartphone in 2015 than in 2014.

That especially was true in some markets, including the United States (50 percent), Canada (42 percent), New Zealand (42 percent), South Africa (42 percent), and the United Kingdom (40 percent).

Daily consumption of short videos is significantly higher than consumption of long videos, but retail packaging seems to have a clear impact on long-form video consumption.

Consumers with an “unlimited” data package are significantly more likely to be ‘frequent’ consumers of mobile video.

source: IAB

It's Hard to Say Which Provider Has the "Fastest" Network

Any Internet user’s perception of access speed is highly contingent. Though many users shift from mobile access to Wi-Fi in part because they expect better performance, that might not actually be the case, most of the time.

In early 2015, for example. global Long Term Evolution access speeds were faster than Wi-Fi by quite some measure, according to OpenSignal.

Speed also is highly contingent on network loading. A new network, lightly loaded, will be faster than that same network, over time, as more users are added. So possession of the marketing moniker “fastest network” always will be fleeting.

Results vary based on where the tests are conducted, which network (4G or 3G) is tested, the time of day, the specific cell tower, the test devices and the apps being used to test access speed.

Verizon often leads in measures of “speed” or coverage. But such rankings drift over time.

Sprint now is arguing it will, in a couple of years, have the fastest U.S. network.  

Global Messaging Market is Flat, in Terms of Revenue

The messaging market, including both carrier text messaging and over the top messaging, will decline from $113.5 billion in 2014 to $112.9 billion in 2019, a decline of $600 million, or less than half of one percent.

Volume growth is not the issue, as messaging traffic is predicted to double by 2019, according to Juniper Research. Most of the growth is driven by over-the-top messaging applications, which will see 300 percent growth in usage.

The number of messages sent will grow from 31 trillion in 2014 to 100 trillion by 2019, globally.

Revenue generated from each OTT message is forecast be less than one percent of revenue generated by text messaging (SMS) in 2019.

None of that will come as a surprise to anybody who follows the messaging market.

Revenue cannibalization is a problem for nearly every business confronting an Internet-based competitor. The phrase “analog dollars, digital dimes, mobile pennies” captures the sense of the dynamic.

So consider the position communications service providers face. The dollars to dimes to pennies dynamic now affects every one of their core revenue streams, fixed or mobile.

And there are other issues. As a Verizon executive said recently, “we are running out of people to sell service to.” In other words, the mobile market, for decades the industry growth driver, is rapidly maturing.

That explains the high interest in Internet of Things. Sheer opportunity explains it. Selling connections to billions of machines will be a crucial revenue substitute as services sold to people stalls or actually begins to go in reverse, in terms of revenue.

It might also be fair to offer a reflection on an old question. Fifteen years ago, one could have gotten a robust argument about the future of networking. Some would have argued the “Internet” was the next generation network.

Others would have argued vociferously against that notion. It might still be possible to draw a distinction between “Internet” apps and services and “carrier” apps and services.

But it would be quite a bit less controversial today to say the Internet represents the future of most networking, apps and services, even if managed services remain important.

For Dish Network, it is "Speak Now, or Forever Hold Your Peace"

If you buy the argument that the most logical buyer of Dish Network spectrum is Verizon Communications, then it would have crossed your mind that if Verizon wanted to acquire those assets, the time to do so might be before Dish Network has purchased T-Mobile US.

U.S. regulators would in all likelihood not allow Verizon to acquire a Dish Network that owned T-Mobile US. On the other hand, many would argue Verizon does not want to increase its debt profile, as it is paying down borrowing for the purchase of the Vodafone stake in Verizon Wireless.

Of course, some might see a remedy: a sale of Verizon Communications landline assets, in a big deal, to Altice, which is buying U.S fixed network assets. Okay, that is a lot of moving parts. And it is hard to see to whom Verizon would, in turn, spin off the legacy Dish Network assets.

Verizon is not a believer in the linear video business in the long term, and the company cultures would clash. Verizon arguably would have been more interesting in Dish Network video assets 10 years ago, before thinking about prospects for over the top streaming had changed so much.

So some of us would be surprised, indeed, were Verizon to purchase Dish Network. A more logical scenario, if the fixed network business were divested, is that Verizon would use the liquidity to acquire spectrum the old-fashioned way, in an auction.

Dish Network likely would not want to divest the spectrum assets that now largely define the value of the whole company.

How 5G is Different from All Prior Generations

It perhaps already is clear that fifth generation mobile networks (5G) will be quite different from fourth generation networks, in fact quite different from all prior mobile network generations.

All earlier generations were built on distinct radio interfaces. But 5G, though it might incorporate new radio interfaces, will not be distinctively characterized by new interfaces.

New spectrum will be used, as has been the case for prior generations. But even use of new spectrum will not be the distinctive 5G feature.

At least as presently envisioned, 5G will be an ecosystem, not primarily a matter of radio interfaces, spectrum assignments or offered bandwidth and latency.

In fact, 5G will “be more than a new wireless access technology”  according to Susan Miller, ATIS CEO and president.

“5G is an ecosystem, not an air interface,” said Brian Daly, AT&T core network and government regulatory standards. In fact, 5G is more an integration effort than earlier generations, he said.

Joking that 5G is “one more G than four, ” 5G is different. It is not based mainly on new technology, but will mostly allow all technologies to work together, better, according to Scott Migaldi, Sprint senior research scientist.  

“5G will not be a single standard that supports everything,” said Jim Ragsdale, Ericsson executive and ATIS WTSC RAN chairman. That’s true.”

That’s different. And much more challenging.

Mobile Customer Satisfaction in South Africa Falls in 2014

South African consumers’ satisfaction with mobile network service providers has declined since 2014, with consumers giving the mobile networks industry a satisfaction score of 75.4 out of 100, according to South African Customer Satisfaction Index (SAcsi).

Still, that performance is among the world’s “best,” in a product category that nevertheless ranks near the very bottom of industries.

Relative to scores in other nations, South Africa is in line with “best” scoring mobile industries in other countries such as Portugal (75), Turkey and the United Kingdom (74), South Korea (73) and the United States at 72.

But customer satisfaction with virtually every communications service is low to quite low in the latest American Customer Satisfaction Index survey, for example.

Customer satisfaction scores for subscription TV, Internet, mobile and fixed line telephone service, plus computer software, collectively dipped 3.4 percent to an ACSI score of 68.8 on a 0 to 100 scale, the lowest level in seven years.

Some segments fared worse than others. Customer satisfaction with subscription TV service dropped to 63, the absolute worst score among 43 industries covered by the Index.

But Internet access service, which one might think would fare better, had the same score of 63, at the bottom of the index, across industries.

The SAcsi surveyed 2 195 randomly selected customers of Vodacom, MTN, Cell C and a category called “other” (that includes Telkom Mobile and smaller carriers. With the exception of Cell C which showed a small improvement, each of the brands received lower scores than last year.

Vodacom emerged as industry leader with a score of 76.7 out of 100; MTN was on par with the industry average at a score of 75.6. Both Cell C and “other” scored below par at 72.9 and 69.4 respectively.

 

There were no changes in the overall level of expectations for the large network providers compared to last year’s results.

Perceived value, which describes the perception of price given the quality and the perceived quality given the price, is four points lower at 74.8 out of 100.

The net promoter score which indicates the likelihood of customers to recommend a particular brand, has decreased significantly across the industry, from 38 percent in 2013 to 31 percent at the end of 2014.

Will LInear Video Follow Voice and DSL Patterns?

Are telco voice and high speed access the future model for what happens to the linear video business model? Some might argue that is reasonable.

It just stands to reason that an eventual shift to video streaming could have negative repercussions for some entertainment video distributors, the model and precedent being the replacement of digital subscriber line accounts with fiber to home or fiber to neighborhood replacement services, and the earlier switch out of fixed voice to mobile voice.

In the first switch, fixed line voice customers stopped using fixed voice, and started using mobile instead. Also, the suppliers that got the replacement product revenue often were not the same firms selling the legacy products.

So revenue recipients shifted as the legacy market shrank. But it is a complicated transition.

Where the consumer fixed voice product involved just one or a couple of lines per location (in the days of dial-up Internet access), the advent of mobile voice actually expanded the addressable market to "people, instead of places."

So where a three-person household bought one fixed voice line, it now buys three mobile accounts. "So units sold" grew substantially.

On the other hand, revenue per account arguably is lower for mobile products, compared to fixed products. Where a fixed voice line might cost $50 a month, a mobile account might represent $20 a month, for the voice portion of the service.

But won't linear video distributors also begin to offer OTT alternatives? Yes, Dish Network, for example, already does so. But there is some amount of cannibalization of existing accounts, in addition to net subscriber gains.

We have seen this pattern before, when telcos replaced DSL with fiber connections for Internet access, and earlier when customers switched from dial-up to broadband.

On one hand, a supplier gains a new fiber-based high speed access account. On the other hand, that same supplier also loses a copper-based access account when a customer switches from legacy to optical access service.

PwC’s annual five-year forecast for global entertainment and media shows slower advertising growth rates.

In 2014, PwC predicted advertising would increase 5.5 percent annually over the next five years; now PwC says that rate will slow to just four percent annually through 2019.

In the United States, TV ad spending is growing by just a little more than three percent annually on average, compared to five percent growth rates between 2013 and 2014.

Those dips are happening because OTT services are siphoning off viewers, and ad rates are set by the size of audiences.

That is one example of how the advent of over the top video streaming will act to lower gross revenue and profit margins in the TV business, as has happened in other businesses faced with replacement of legacy products by Internet-enabled products.

Since we are early in the transition from linear to over the top, it is hard to predict the revenue impact on legacy distributors. But it already would be reasonable to argue that Netflix has capped the growth of linear video subscriptions, at the very least, siphoning off growth that otherwise might have gone to pay per view and premium channel spending. In other words, Netflix is a substitute for HBO and Showtime.

Gross revenue might be an issue as well. A Sling TV subscription costs $20 a month. Netflix might cost $8 to $16 a month. A typical basic linear TV subscription easily can run $80 a month. So gross revenue compression is a clear issue for any linear video provider moving to OTT distribution.

And as telcos have found, what one gains can easily be offset by accounts replaced. So far, the displacement in linear video has not proven so large. In 2012, 80 percent of Americans bought subscription linear video. By 2016, 77 percent will do so, PwC forecasts.

But what happens if the mainstream consumer begins to replace linear subscriptions with OTT subscriptions? Perhaps nobody really knows, yet

What percentage of $80 a month accounts drop to $40 a month or are abandoned? Keep in mind that both happened with voice services: a majority of consumers simply stopped buying, switching to mobile voice.

Many consumers pay less because they buy discounted triple play services. If past proves to be precedent, linear video will suffer subscriber losses, gross revenue decline and margin compression. even if some amount of new OTT business is gained.