Next Century Cities Initiative: One More Push Toward Marginal Cost Pricing

The Next Century Cities initiative was launched in October 2014 by 32 communities to speed up deployment of gigabit high speed Internet access. By July 2015, the member roster has grown to 151 members.

Though most of the group’s emphasis is on policy, the group does note the potential value of city involvement in directly building and operating middle mile networks.

Many states have regions where one or a small number of ISPs dominate the backhaul market. Building middle mile connections, most notably open access approaches that ensure multiple providers can use the infrastructure, will allow ISPs (particularly small private and community networks) to offer higher capacity connections at reasonable prices.

Replacing leased lines with state-owned fiber (the need for which will only increase) and adding extra capacity to lease to others may even be less expensive than continuing to lease lines from incumbent providers, Next Century Cities argues.

The point is that if a growing number of communities view Internet transport and access services as a form infrastructure like schools and roads, the way is opened for new forms of supply that necessarily affect access provider and app provider business prospects.

It is one more element of the marginal cost pricing dilemma that seems to pose a growing risk in the telecommunications business.

Simply put, if more and more providers price at marginal cost, not full cost, retail prices will tend to move, over time, towards zero.

T-Mobile US Adds 2.1 Million Net New Accounts in 2Q 2015

T-Mobile US continues to pile on net new customer additions, adding 2.1 million total net customer accounts--up 41 percent year-over-year--in the second quarter of 2015.

The only issue is whether that performance will be good enough to move T-Mobile US past Sprint as the third-largest U.S. mobile service provider, ranked by subscribers.

That is the ninth consecutive quarter when T-Mobile US has added more than one million net new accounts.

The important branded postpaid category grew 11 percent year-over-year, adding more than one million net accounts (phone, tablet and other devices).

T-Mobile US says that marks the fourth consecutive quarter when more than one million branded postpaid accounts were gained.

T-Mobile US sys it added 760,000 branded postpaid phone net additions, up 31 percent year-over-year.

The 178,000 branded prepaid net customer additions represented net gains up 75 percent year-over-year.

Postpaid phone churn was a record low 1.3 percent.

Total net customer additions were up 41 percent year-over-year and 14 percent sequentially.

The following table sets forth the number of net customer additions (losses):

NM - Not meaningful.

The following table sets forth the churn:

source: T-Mobile US

IP Transit Market Shrinking

More Internet domain peering deals means a smaller market for IP transit services.

According to TeleGeography’s IP Transit Forecast Service, global IP transit revenues will fall six percent annually between 2014 and 2021.

That will reduce the size of the market from $4.9 billion to $3.2 billion.

IP Transit Market Forecast

source: TeleGeography

As often is the case, trends vary by region, and the biggest shifts will occur in emerging nations and regions.

While revenues in more developed markets will remain relatively static over the next seven years, those in developing regions will fall significantly.

IP transit revenues in North America will increase one percent annually, while IP transit revenues in  Europe will fall by one percent per year.

In contrast, revenues in Africa will fall nine percent, while revenues in the Middle East will decline 11 percent a year.

Although overall Internet traffic is growing fastest in emerging markets, Internet service providers in these areas are migrating from purchasing transit to establishing mostly free peering arrangements more quickly than those in Europe and North America, where peering is already common, TeleGeography argues.

TeleGeography forecasts that the share of African Internet traffic exchanged using IP transit will fall from 84 percent in 2015 to 62 percent by 2021.

IP Transit Revenue Change by Region, 2014-2021

Source: TeleGeography

Infrastructure costs also play a role. IP transit is much cheaper in the more developed markets of North America and Europe, and it often makes economic sense for ISPs in these regions to pay for transit rather than incur the cost of building infrastructure required to peer.

The share of U.S. Internet traffic exchanged using IP transit is expected to fall only moderately over the longer term, from 44 percent in 2015 to 39 percent in 2021.

Price declines also play a role. Developing countries will see steeper price reductions than more mature markets.

The monthly price per megatbit per second  for a 10 gigabit per second Ethernet (10 GigE) port in Africa, Latin America, and the Middle East is projected to fall between 27 and 29 percent compounded annually through 2021, while declines in North America and Europe will be more modest, at 20 percent compounded annually.

Transit and Peering Growth

Speed Fetch Tries to Build a New Business Based on Content Downloading

Speed Fetch provides an example of a specialized approach to mobility apps and access. Operating in India with public access provided by Ozone, the Wi-Fi hotspot operator, Speed Fetch positions itself as a content service heavy on TV and games.

One might be tempted to say Speed Fetch is a sort of Netflix: its business is content delivery. Like Netflix, Speed Fetch, which advertises lightning-fast downloads, has had to create a distribution mechanism. That is where Ozone comes in, as its public Wi-Fi hotspots can support downloads as fast as 300 Mbps in principle, 60 Mbps sometimes, and actual speeds can vary between 15 and 30 Mbps.

Speed Fetch is available at Aurobindo Market in Hauz Khas, Apollo Hospital in Jasola, Ambience Mall, Food Court, Gurgaon, Mumbai Airport, PVR Cinema in Gurgaon, Tehkhand, Okhla, Barista, Gurgaon.

Speed Fetch also offers free content ranging from games, movies, Hollywood and Bollywood gossip, cookery shows and religious videos.

"Speed and free content set Speed Fetch apart," said founder Dipank Sharma. Speed Fetch uses content caching to speed delivery, as well.

Speed Fetch expects to generate revenue from video advertising, ad engines and advertising space on the Speed Fetch app.

Ozone's WiFi zones allow users to download the content provided by Speed Fetch for free for a day regardless of the usage.

However, consumers will have to pick up hourly, daily or weekly data usage packs after the first 20 minutes, in case they want to use the internet.

Speed Fetch wants to build out coveraget to 20,000 locations with access to 50 million consumers, eventually.

In the near term, it plans to expand operations to 5,000 locations across India by the year end and reach a customer base of two million.

Some might say the novelty here is the creation of a new niche or market segment within the access and content ecosystem, specifically “content downolading to support offline use.”

"Pay Only for What You Use" Aligns User, MVNO Interests

“Pay only for what you use” is the latest innovation in mobile data packaging, pioneered by Google Fi and now being adopted also by Republic Wireless.

Republic Wireless is shifting from “unlimited data” as a primary selling point to pay only for what you use as an alternate value proposition, as Google Fi has pioneered.

Under the plan, consumers get a refund for using less data than they paid for in the prior billing period.

The new plans represent an effort to create even more incentives for customers to rely on Wi-Fi access, rather than using a mobile network.

Presumably, users quickly will grasp that by relying more on Wi-Fi, their mobile data charges will be limited and they will pay less for mobile data, literally getting a refund.

So even if “pay only for what you use” is a usage-based charging system, the policy aligns end user and service provider interests. When more Wi-Fi is used, both consumers and the mobile operator save money.

The service providers offering the program are mobile virtual network operators.

MVNOs have to pay underlying carriers for wholesale services. So if MVNO customers use less mobile data, the service providers pay their suppliers less.

The trend is significant, with  some profound potential implications for retail Internet pricing. Up to this point, Internet service providers have tried to move away from “unlimited use” for a flat fee.

Instead, ISPs would prefer a consumption-based or “rated” system where customers pay based on how much they consume.

In other words, consumers who use more, pay more.

Oddly, consumer advocates generally have argued that unlimited usage for a flat fee is the fair approach, and have opposed rated usage.

Others argue that “paying for what you use” is the fairer approach, since heavy users pay for what they use, and are not subsidized by light users.

The new twist is the “refund” users get if they do not use all of their purchased data allotment. At the same time, such refund plans also are metered, rated or consumption-based plans.

In some ways, “pay only for what you use” mobile data plans are straightforward: giving users a refund when they do not use all of their data allotments is a marketing platform with clear advantages.

China to Order 30% Cut in Internet Access Prices

China’s Ministry of Industry and Information Technology (MIIT) Ministry of Industry and Information Technology (MIIT) has ordered the country’s biggest Internet service providers to  lower average prices of broadband and mobile Internet services by 30 percent by the end of 2015.

The move is aimed at providing a better environment for start-ups, according to MIIT spokesman Zhang Feng. "The Internet is becoming a basic supply for startups."

So lower Internet access service fees are required to boost the economy.

Republic Wireless Shifts to "Pay Only for What You Use"

Republic Wireless is shifting from “unlimited data” as a primary selling point to pay only for what you use as an alternate value proposition, as Google Fi has pioneered.

Under the plan, consumers get a refund for using less data than they paid for in the prior billing period.

The trend is significant, with  some profound potential implications for retail Internet pricing. Up to this point, Internet service providers have tried to move away from “unlimited use” for a flat fee.

Instead, ISPs would prefer a consumption-based or “rated” system where customers pay based on how much they consume.

In other words, consumers who use more, pay more.

Oddly, consumer advocates generally have argued that unlimited usage for a flat fee is the fair approach, and have opposed rated usage.

Others argue that “paying for what you use” is the fairer approach, since heavy users pay for what they use, and are not subsidized by light users.

The new twist is the “refund” users get if they do not use all of their purchased data allotment. At the same time, such refund plans also are metered, rated or consumption-based plans.

Of course, there are other important effects. Both Republic Wireless and Google Fi are banking on rational behavior by users who now have incentives to switch usage to Wi-Fi even more than they had been doing.

If they use less carrier capacity, they get a refund. That aligns incentives in a way that will encourage even higher use of Wi-Fi than already happens. And that helps mobile virtual network operators reduce their costs, since lower mobile network usage means lower payments to the underlying carriers.