Half of AT&T Net Adds in 2Q 2015 Were Connected Cars

Of AT&T’s 2.1 million net adds in the second quarter of 2015, 410,000 were postpaid accounts,  331,000 were prepaid and one million were from connected cars.

In other words, in the second quarter, connected cars drove AT&T net account adds.

AT&T also added 1.2 million branded (postpaid and prepaid) smartphones added to its base.

Amazon Posts Profit, AWS Hits $8 Billion Annual Run Rate

For some observers, the key take away from Amazon’s second quarter earnings report was not simply the profits Amazon posted, but the $1.8 billion in Amazon Web Services business for the quarter, implying an annual business generating about $8 billion.

Amazon second quarter 2015 operating cash flow increased 69 percent to $8.98 billion for the trailing twelve months, compared with $5.33 billion for the trailing twelve months ended June 30, 2014.

Free cash flow increased to $4.37 billion for the trailing twelve months, compared with $1.04 billion for the trailing twelve months ended June 30, 2014.

Operating income was $464 million in the second quarter, compared with operating loss of $15 million in second quarter 2014.

Net income was $92 million in the second quarter, or $0.19 per diluted share, compared with net loss of $126 million, or $0.27 per diluted share, in second quarter 2014.

Is Fixed Network Access Business Sustainable?

Sustainability is a fundamental issue for providing high speed Internet access, in any market. And though one never hears it said, the sustainability of the fixed network telecom business is questionable, using the present business model.

“The large incumbent telephone companies do not earn attractive returns in their wireline businesses,” said Craig Moffett Partner and Senior Analyst, MoffettNathanson. “For example, a decade after first undertaking their FiOS fiber-to-the-home buildout to eighteen million homes, Verizon has not yet come close to earning a return in excess of their cost of capital.”

AT&T also has earned poor returns on its fixed network.  AT&T return on invested capital has been declining for a decade and is, like Verizon’s, well below the cost of capital, Moffett said.

In 2014  aggregate fixed network  telecommunications businesses earned a paltry 1.2 percent return, against a cost of capital of roughly five percent.

“For the non-financial types in the room, that’s the equivalent of borrowing money at five-percent interest in order to earn interest of one percent,” said Moffett.

“That’s a good way to go bankrupt,” Moffett said. “No one would undertake to replicate those disastrous financial returns.”

The important implications are two-fold. First, the traditional telco fixed network business model essentially is broken. Cable operators, on the other hand, are earning returns of 13 percent to 33 percent, Moffett said.

The point is that financial returns to be had from overbuilding--being the second or third broadband provider in a given market--are generally poor.

“Broadband is an infrastructure that is very difficult to support two of, and in some case, even one of,” said Moffett.

“Infrastructure deployment requires the expectation of a healthy return on capital,” said Moffett.

“It is not a matter of whether a business is or isn’t profitable, it is instead a matter of whether it is sufficiently profitable to warrant the high levels of capital investment required for the deployment of infrastructure, Moffett said.

In that regard, the problem for telco fiber to home investment is the lack of sustainability.

Streaming Radio is Not Broadcasting, Austrian Court Rules

“If it walks like a duck, it’s a duck” is a colloquial way of describing the traditional way U.S. regulators have approached treatment of novel services or applications. In other words, irrespective of technology approach, a long distance call between two points is treated the same way, no matter what networks deliver the call.

That became a messier issue with the advent of Internet Protocol product substitutes that are not feature-for-feature replacements for traditional voice.

Now an Austrian court has ruled that online radio streaming does not actually constitute “broadcasting”, and therefore listeners do not need to pay a license fee.

The Verwaltungsgerichtshof (Federal Administrative Court) ruled that computers with an Internet connection, but without radio reception modules such as a TV card or radio card, are categorically “not radio-broadcast receivers”.

The court therefore concluded that GIS (Gebuehren Info Service), which collects Austria’s mandatory licence fee, could not collect a device fee.

Around 3.5 million Austrian households pay fees between €78 for radios and €260 for televisions used in the home.

The number of such anomalies, exceptions and exclusions are bound to grow. It is hard to squeeze new wine into old bottles, to use another aphorism.

Cisco Exits Cable TV Equipment Business

The historic concern U.S. cable TV operators have had is that, as a smallish industry, it would not gain support from a broad number of suppliers well placed to develop industry technology. In some ways, that remains a valid concern.

Consider what happened to the two major suppliers of set-top box technology, Jerrold and Scientific-Atlanta.

Jerrold became General Instrument, which was in turn purchased by Motorola, then briefly became part of Google, before being spun off to Arris Group itself a firm that had grown since about 2002 by buying companies in the cable TV infrastructure business.

Scientific-Atlanta, meanwhile, was sold to Cisco, which primarily wanted the set-top box business. Cisco now has sold the asset to French firm Technicolor, which now becomes a major supplier of customer premises equipment and network infrastructure  for the U.S. cable TV industry.

S-A originally was purchased for about $6.9 billion. One might argue that, over the last decade, the value of that business has plummeted by an order of magnitude.

Cisco is selling the business to the former Thomson for $600 million (or €550 million equivalent) in cash and stock.

In substantial part, the sale reflects Cisco’s move away from consumer businesses.

Cisco will continue to refocus our investments in service provider video towards cloud and software-based services businesses.

The Connected Devices business will end fiscal 2015 with revenue of approximately $1.8 billion.

Some things apparently have not changed over the last several decades. The extent and health of the industry supplier base remain important concerns for service providers. Where annual cable capital spending might be in the single digit billions, annual telco capital investment represents a market worth about $350 billion annually.

Mobile Operators Completely Fragmented on 5G

Mobile operators interviewed by IHS Infonetics do not generally understand what “5G” entails, for good reason. It doesn’t exist yet.

“The 5G debate has started with great fanfare, hype and confusion, but little substance about what it is exactly and what it is not,” said Stéphane Téral, IHS Infonetics research director for mobile infrastructure and carrier economics.

source: Infonetics

Survey Suggests New Mobile Revenue Opportunities

Few observers would disagree with the general situation most mobile operators globally now face.

Mobile average revenue per user (ARPU) remains under pressure from OTT voice and messaging competition.

Wi-Fi, though helping mobile operators in many ways, also is a substitute for mobile data.

Subscriber growth is slowing while markets often feature many competitors that struggle to differentiate themselves.

On the positive side, strong demand for mobile data and connections of secondary devices, such as tablets, partially offset the declines. But the next wave of growth remains a challenge.

But a survey of subscribers sponsored by Alcatel-Lucent and conducted by Penn Schoen Berland of 5,504 smartphone consumers in the United States, United Kingdom, Japan and Brazil suggests several opportunities, including:

• video calling
• Wi-Fi calling
• messaging and calling without data charges or data plan usage impact
• identity based on user names instead of phone numbers
• video calling for retail supplier customer services
• Internet of Things