Messaging Revenue to Drop 42% by 2021

Mobile service provider messaging revenue will decline 42 percent to less than $53 billion by 2021 as over the top alternatives displace the need for texting.  

The global base of active over-the-top (OTT) messaging users increased by over 40 percent during 2014 with the average user sending over 900 messages per user per month, over eight times more than the average user of text messaging services, Strategy Analytics said.

At the same time, predictions for OTT messaging revenue, at least in terms of subscription revenue, show that OTT messaging cannibalizes some amount of activity, but in other ways simply destroys the revenue source.

“By 2021 we forecast global revenue for OTT messaging services to approach $13 billion  in revenue,”  said David Kerr, Strategy Analytics SVP.

Can Internet of Things Make Telcos "Platforms?"

However one assesses the possibility of succeeding, some argue major telcos have to become platforms.

That would be a profound challenge under any circumstances.

A computing platform is, in the most general sense, the environment within which computer software is designed to run within, obeying its constraints, and making use of its facilities.

The notion of “platform” therefore is a shortened form of the complete term “computing platform.”

Conceptually, there are different levels of abstraction. Hardware architecture, operating system or runtime libraries provide examples.

You see the problem. Historically, computing has been one business and set of functions, communications a separate business. Becoming a platform” necessarily means moving “up the protocol stack” and into a different industry, fundamentally.

Platforms can include pure hardware such as embedded systems, browsers, applications, software frameworks, cloud computing, virtual machines or virtualized version of a complete system, including virtualized hardware, OS, software and storage.

Internet of Things could well be a place where a former “telco” could create a new role, as a platform for development. Whether “telcos” can become generalized “platforms” might be another matter.

Some might argue that, to the extent it is possible, mobile service providers already are moving in that direction. Connected car and connected healthcare provide examples.

“As the US market focuses on the next stage of its evolution--from voice to text to data and now to constant connectivity and what you do with it—competition for market share and retention of subscribers takes center stage,” said Susan Welsh de Grimaldo, Strategy Analytics director of  wireless operator strategies.

The U.S. mobile business has entered into a new phase, evolving from voice to text to data and now to constant connectivity and what you do with it, according to Strategy Analytics Wireless.

With fewer new subscribers to sign up for mobile service for the first time, carriers have focused on transitioning consumers to smartphones, 4G LTE and monetizing their data use. Now carriers are focusing on adding value and content.

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The reasons are simple enough: by 2020, adoption will have reached 128 percent. Growth will be hard to manage based solely on adding new “human” accounts and customers.

That is why mobile service revenue will grow just 0.2 percent to reach US$197 billion in 2020, up slightly from $195 billion in 2015.

Mobile data revenue might grow only  3.3 percent.

Dept. of Justice Will Not Block AT&T Purchase of DirecTV or Impose Conditiions

AT&T’s $48.5 billion acquisition of DirecTV has not raised antitrust issues, and is expected to receive Department of Justice clearance, Bloomberg reports.

The merger still needs approval from the Federal Communications Commission, which could demand concessions of its own, however.

AT&T already has publicly committed to expanded investments in rural high speed access as part of the deal. Beyond that, it would not be unusual for AT&T and FCC staffers to have informally discussed some voluntary concessions with FCC staff, were they deemed necessary by either party.

In substantial part, that clearance is structural. DirecTV is a satellite-TV provider and AT&T is telecommunications and mobile company. DirecTV is a leading video entertainment supplier.

But DirecTV has about 21 percent market share. AT&T has about six percent share. So the combined company should have about 27 percent share. That degree of concentration is not typically an issue. Once a firm reaches 30 percent, thinking tends to change.

In the past, no firm has been allowed to garner more than 30 percent share in the linear video, telephone or mobile business. 

DirecTV has virtually no high speed access customers, though it co-markets satellite high speed access provided by third parties.

Nor does DirecTV compete in the voice or mobile services businesses.

77% of Mobile Data Growth Driven by Emerging Markets

As has been the case for use of mobile services generally, emerging markets now are driving incremental mobile data revenue, with emerging markets contributing 77 percent of mobile data traffic growth in the first quarter of 2015, according to Strategy Analytics.

Affordable data plans such as micro-bundles, device and data plan combinations, and affordable smartphones have been key enablers.

The leading mobile operators in terms of traffic growth in the first quarter of 2015 were AIS Thailand (192 percent), Geocell Georgia (176 percent), Play Poland (163 percent), Indosat Indonesia (159 percent) and China Mobile (158 percent).

In India, 2G traffic growth is still strong. In the first quarter, 2G accounted for 44 percent of total data traffic at Idea Cellular and grew 68 percent annually.

On Idea’s 3G network, by way of comparison, traffic grew 135 percent in the first quarter.

Developed markets tend to see 4G supporting most of the traffic. Verizon Wireless saw 86 percent of its data traffic on the LTE network.

In  South Korea, 96 percent of data traffic is carried on 4G networks.

In Singapore mobile data consumption grew 25 percent in the first quarter. In Hong Kong mobile data consumption grew 34 percent. U.S. mobile data consumption grew 26 percent growth in  2014.

Of course, traffic is not revenue, and revenue growth lags behind consumption. Data revenue growth fell below 20 percent globally for the first time, said Susan Welsh de Grimaldo, Strategy Analytics director, wireless operator strategies.

source: Strategy Analytics

Among Barriers to 4G in Africa, 3G Looms Large

It typically goes unsaid that a vibrant mobile Internet ecosystem allowing nearly anybody who wants to use the services to do so requires ecosystem alignment. In other words, every part of the value chain has to align to produce outcomes that allow virtually all citizens and residents to use mobile Internet.

And that emphasis on ecosystem alignment has to be foremost, if Africa is to experience widespread Long Term Evolution service, according to Ovum analyst Thecla Mbongue.

In early June 2015  there were 42 live LTE networks across Africa, spread across 21 countries, serving three million accounts, said Mbongue. That represents about one percent adoption.

The high cost of terminals and a fragmented, regional approach to spectrum allocation are the main factors impeding faster LTE growth, Mbongue notes.

So African stakeholders--ranging from governments, regulators, service providers, app providers and infrastructure and device suppliers--will be needed.

Device taxation and spectrum harmonization are two notable areas where work is required.

Import duties on handsets--which raise the cost for potential users, vary across the continent.

Exemption policies help, and are more frequent in East and Southern Africa, but most West and Central African countries are yet to follow suit, Mbongue said.

The government of Ghana recently announced a smartphone import tax reduction to 20 percent.

Until now, taxes could account for up to 35 percent of the cost of a smartphone.

Import duty for handsets are set at 20 percent in Senegal as well. In 2013, Nigeria moved to eliminate  import duties on devices by the end of 2014. Rates now are at about five percent.

Aligning regional spectrum allocations also would lead to handset economies of scale, and help reduce device prices.

The 1800MHz band is the most common because operators often re-farm spectrum initially allocated for GSM.

But slow adoption of 3G, which means service providers have not yet recovered their investments, also likely is a factor retarding investment by mobile operators.

In West Africa, where LTE is available in only four countries out of 15, there are seven networks, of which four are based in Nigeria.

Only one of those networks was activated by a traditional mobile network operator). The other six were started by ISPs. That suggests some of the sluggish LTE adoption on the part of mobile service providers is voluntary: they might be hoping to profit from their 3G investments before moving rapidly to 4G. .

That, in fact, is what Mbongue suggests. “3G is yet to be fully monetized,” she said.

So when will 4G become a higher priority? About 2019, Ovum’s surveys suggest. By 2019 LTE subscriptions should grow by two orders of magnitude to 318 million accounts.

“Operators must work with regulators to discuss and formulate a coordinated approach to tackling the barriers that prevent 4G uptake,” she argues. “Lower handset taxes, harmonized spectrum allocation, and a framework for network-sharing” can help.

Chicago Levies 9% Tax on Netflix, Spotify, Other Cloud Services

Chicago appears to be the first U.S. city to levy a new  "cloud tax" of nine percent that affects use of cloud-based services such as Netflix, Spotify and other video and music streaming services, or use of any cloud-based computing service as well.

The Amusement Tax ruling specifically taxes charges paid for:

• “watching electronically delivered television shows, movies, or videos”
• “listening to electronically delivered music”
• “participating in games, on-line or otherwise”

As a consequence, streaming a movie, listening to streaming music, or playing a game on a smartphone or tablet will now trigger a nine-percent tax on the subscription charge for those services if those activities are done at a location in Chicago.

Furthermore, the ruling addresses “bundled” transactions, by providing that “unless it is clearly proven that at least 50 percent of the price” is not for the amusement, the entire charge, except for any separately stated non-amusement charges, is subject to the Amusement Tax.

All other forms of content appear to be covered as well, including news, current events, sports, movies, music or other types of television programming.

In principle, new taxes also are incurred by consumers who pay for cloud-based real estate listings, car prices, stock prices, economic statistics, and “similar information or data that has been compiled, entered and stored on the provider’s computer.”

In addition, under the ruling, the Lease Transaction Tax will apply to the online sourcing of “word processing, calculations, data processing, tax preparation” and “other applications available to a customer through access to a provider’s computer and its software.”

In other words, the tax applies to SaaS (software as a service), PaaS (Platform as a Service) and streaming media services.

In the ruling, the Department expressly notes that these “examples are sometimes referred to as cloud computing, cloud services, hosted environment, software as a service, platform as a service, or infrastructure as a service.”

And some even think the new tax will apply to satellite TV services received by customers who live in Chicago. The new tax appears to apply to streamed content only, not downloaded content.

That presumably means consumers using web services providers such as Amazon Web Services will owe the nine percent tax on their usage.

It isn’t immediately clear how tax collection will take place. But Netflix apparently is preparing to act as tax collector on behalf of its customers, and already is said to be making arrangements to add the tax to the bills of its Chicago subscribers.

But customers of any number of other cloud services could find themselves taxed as well.

Chicago's new tax results from two recent rulings made by the city's Department of Finance. A new interpretation of amusements taxes now has been extended to cover "electronically delivered amusements."

The other ruling extends an existing computer lease tax. Each extension takes an existing tax law and extends it to levy an extra nine percent tax on certain types of online services.

The first ruling presumably covers streaming media services like Netflix and Spotify, while the second would cover remote database or computing platforms like Amazon Web Services or Lexis Nexis.

As a result of the two rulings, each effective July 1, 2015, the city of Chicago will attempt to tax the “cloud” more directly and comprehensibly than any other U.S. jurisdiction.

Chicago apparently will determine whether the customer is within the city of Chicago for purposes of the Amusement Tax and the Lease Transaction Tax rulings by looking at the service or credit card billing address.

Having a Chicago billing address and engaging in the activities covered by the two rulings will incur the tax, even if the actual place of use or access was outside of Chicago.

Whether the new rules are lawful or not is the issue. Lawsuits are anticipated.

Telmex to Face Mandatory Wholesale Obligations

Though the precise details are unclear at the moment, Mexico's telecoms regulator will open wholesale access to the "last mile" of Telmex telephone networks to competitors, Reuters reports.

Mexico’s telecom regulator, the Federal Telecommunications Institute (IFT), had made clear its desire for such wholesale access in 2014.

At that time, IFT asked specifically for leased line access, access and passive infrastructure sharing in fixed networks, access and passive infrastructure sharing in mobile networks and mobile virtual network operators (MVNO) support.

Both Telefonos de Mexico (Telmex) and mobile market leader Telcel (Radiomovil Dipsa), both subsidiaries of America Movil, would be affected.