"Unprecedented" Change in TV Viewing Behavior

Younger users are abandoning linear TV, Nielsen reports in its first quarter 2015 report on linear TV viewing, even as they increase their mobile video consumption.

Some say the abandonment is unprecedented. Traditional TV usage has been falling among viewers ages 18 to 34 at around four percent a year since 2012.

But TV watching fell 10.6 percent between September 2014 and January 2015.

“I’ve never seen that kind of change in behavior,” said Alan Wurtzel, NBCUniversal’s audience research chief.

The other finding of note is over-indexing of smartphone usage among Asian American, Hispanic and Black households.

To the extent that some consumers are making rational choices about Internet access, preferring mobile access to fixed, or substituting mobile for fixed, that trend is pronounced in some segments.

In some real sense, some consumers are choosing mobile Internet access as their preferred form of access, analogous to the way most consumers prefer mobile voice to fixed voice.

The point is that end user demand for linear TV is dropping, while use of mobile Internet arguably has become a preferred form of Internet access in many customer segments.

Telcos Look to Enterprise for Revenue Growth

Telecom service providers will grow their revenues from global services to enterprise customers to more than US$297 billion by 2020. If so, enterprise services might well represent the fastest-growing part of the business.

The biggest contribution will come from new strategic ICT services revenues at nearly US$173 billion, which will increase at a CAGR of 9.9 percent over the period 2015 to 2020.

By some estimates, that would mean enterprise revenue grows exactly as fast as consumer revenue.

But those growth projections might be optimistic. Recent mobile revenue growth rates have been sluggish, and far less than nine percent annually, drastically less, in the case of mobile revenue, which has been the global revenue driver for more than a decade.

In fact, two percent global revenue growth likely will be the case in 2015, year over year.

Strategic ICT services include business IT and IP applications, compute and hosting, enterprise mobility, managed networks, professional services, and unified communications.

They represent the new generation of dedicated IT and IP communications services that telecoms service providers are able to offer under contracts with enterprise customers, Ovum says.

Regionally, the growth areas for telco strategic services are in Latin America (17.8 percent CAGR), Africa (17.5 percent), the Middle East (16.4 percent), and Central Asia (13.0 percent). The big markets of 2015 – Europe and North America – will grow more slowly, but will still be the largest in 2020.

“Telcos have taken more than 14 percent of the global ICT services market in the last couple of years,” Ovum said.  “We expect that share to reach more than 18 percent by 2020.”

SDN Likely Means Lower Capital Spending, AT&T Says

If one agrees the fixed network business models are growing more difficult, with a growing mismatch between revenue and cost, the only logical imperative is to align expected revenues with expected cost.

Furthermore, if one believes revenue gains will be tougher than in the past, then it likewise makes sense to look at all other ways to lower capital investment and operating costs.

And that appears to be among the things AT&T is signaling, with its moves to create a core network operating on software defined network (virtualized) principles.

One might expect that trend to deepen as we move towards fifth generation mobile networks that also will heavily rely on virtualized cores, virtual access and services that are supplied using cloud mechanisms.

Commenting about AT&T’s moves towards a software-optimized network that, at the same time, relies more on generic and lower-cost network elements, John Stephens, AT&T CFO said “we see a real opportunity to actually strive to bring investments, if you will, lower or more efficient from historical levels.”

“I think there is a real opportunity with some of the activities are going on in software defined networks, on a longer term basis, to actually bring that in capital intensity to a more modest level,” Stephens said.

Some of us would argue that virtually every fixed network operator will face similar challenges, and for several reasons. Some national governments will simply take the position that Internet access is a public service so important that retail prices must be controlled.

In China, for example, the Ministry of Industry and Information Technology has ordered retail high speed access price cuts.

It is expected that prices for broadband speeds between 50 and 100 Mbps will be reduced about 30 percent, and the price cut for 20 Mbps will be about 20 percent.

Beyond that, marginal cost pricing and competition pose growing risks to commercial Internet service providers and communications providers. Marginal cost pricing is the practice of selling incremental new units of a product near actual production cost.

In a business with scale, and especially any business selling digital products, the marginal cost is very close to zero.

That especially is the case since a time-tested tactic for new entrants into any market is to sell “same product, lower cost.”

That further tends to reduce overall gross revenues in any market. Some disruptors take the model further, literally pricing at levels guaranteed to reduce the size of the overall market, while simultaneously allowing the new entrant to take a dominant position in the new, if smaller market.

Let us be clear: what that all means is that there is a growing risk to the sustainability of traditional telco, satellite, fixed wireless and perhaps cable TV business models.

Hence the urgency of creating business models able to survive and thrive at lower cost levels. That means more self service, automated provisioning and lower overall capital and operating costs, generally.

That especially is crucial when key competitors operate at lower costs. And one might argue that Google Fiber, cable TV companies and independent ISPs across the United States already have a cost advantage.

One example: “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.”

In other words, Verizon FiOS has actually lost money.

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, Moffett argues.

“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.

Facebook Scales Up Internet.Org Initiative

Facebook’s Internet.org initiative has worked with mobile operators in 17 countries over the past year to provide people access to relevant basic internet services without data charges, and now is available to more than a billion people, with more than nine million people getting online as part of the program.

People now have access to basic internet services including tools and resources for communication, health, education and local news.

Over the past 30 days, for example, people have used Internet.org health services more than a million times.

Facebook says Internet.org brings new users onto mobile networks 50 percent faster after launching free basic services/

Also, within thre first 30 days, more than half of the people who come online through Internet.org become mobile data subscribers.

To scale operations, Facebook has created a partner portal that includes technical tools and best practices, improving the process to offer free basic services to the unconnected.

As nearly as outside observers can tell, Facebook remains committed to the program, despite opposition in some quarters about creation of a two-tier Internet, walled gardens or network neutrality concerns.

In some ways, those concerns are hard to understand, unless one takes the position that network neutrality must extend beyond consumer right to use any lawful app (“no blocking”) to other practices including app performance optimization, any type of bit “discrimination” (“treat all bits exactly the same”) that arguably have end user experience benefits, direct cost benefits or provide additional value.

In other words, some might argue, the important principle that people should have unrestricted access to lawful apps is conflated with many other issues not directly related to lawful app access, and instead restrict entirely normal and lawful business practices.

Retailers routinely run promotions, offer discounts, use coupons, sales and other product offers to get new customers. Internet.org only encourages sampling of Internet apps, creating awareness of the value of the full Internet.

Some might object to Internet.org apps being optimized for low-bandwidth environments.

That simply is a practical requirement for users in areas where the only data bandwidth available is 2G.

The zero rating of Internet.org apps does not happen because Facebook pays mobile operators.

In fact, Facebook pays nothing to mobile operators who are part of the program, and ultimately succeeds only if new users who sample Internet.org also sign up for mobile data plans in numbers sufficient to compensate mobile operators for allowing the free access.

Also, no company pays Facebook to be part of Internet.org.

For Facebook, there also is no direct revenue stream, as no ads are allowed in Internet.org apps.

Internet.org offers more than 100 free basic services globally and gives people choice over the services that they want to use.

A key guideline for developer participation is to encourage the exploration of the entire internet, Facebook says.

How Many Accounts Does Netflix Lose Because of Login Sharing?

A recent survey by GlobalWebIndex survey of 5,721 Netflix users in the United States and United Kingdom found that 65 percent of people watch on a shared account, meaning they are not the registered account owner.

That might suggest an awful lot of people are watching “for free,” and not paying. Of course, some of that shared viewing is intentional. Netflix allows members of an account household to do so.

Of course, at least some people not in an account household also share a login password. The issue is how many might be doing so.

In fact, 19 percent of respondents who have an account report sharing login credentials with three or more other people.

But Citi Research analyst Mark May does not think that is a problem, because most of the sharing occurs within single households.

As there are an estimated 45.6 million subscribers in the United States, May applied the percentages found in the GlobalWebIndex survey.

That suggests there are 15.9 million single-user accounts, 27.3 million two-user accounts, 21.9 million three user accounts and 34.6 million four-user accounts.

So May estimates that there are actually 99.8 Netflix users, compared to the just 45.6 million subscribers.

In principle, that might suggest Netflix is “losing” 54.2 million potential accounts because of login sharing.

But the average U.S. household has 3.1 members, which multiplied by Citi's estimate for Netflix subscribers means that about 143 million people in the United States are permitted to use a Netflix account.

In other words, most of the login sharing likely happens within account households.

Verizon Mobile Video Service Go90 to Launch Summer of 2015

Verizon’s new mobile video service  will be called Go90 when it launches in the summer of 2015, Variety reports. has learned.

Go90 reportedly will provide full episodes of TV shows from some networks as well as music videos and other short form content including sports and web content.

The service also will be provided entirely free of charge.

What is not clear is whether the over the top service will be restricted to Verizon customers, Verizon mobile subscribers or will be available to all as a mobile app.

Vodafone Questions "Wholesale-Based" Access Competition

It is an unwavering strategic belief within the U.S. cable TV industry that the business can not, and should not, be based on use of leased facilities. Among the chief reasons is that costs cannot be controlled when relying on a third party’s facilities under lease.

The other reason is that the ability to differentiate is lost when buying wholesale access. That has not generally been seen as a viable option in many other markets, where the assumption is that there is only room for a single facilities-based network.

Singapore might be the fortunate market where there are multiple facilities-based providers as well as a universal wholesale regime. New Zealand and Australia have chosen to go the wholesale route.

That has become less true in the United Kingdom and other markets where cable TV operators have established themselves, creating a facilities-based option, in large part, even if coverage is not completely universal.

Vodafone might be leaning towards a facilities-based approach, working in cooperation, in some form, with Virgin Media.

In recent years, the advantages of such an approach have become clear. Cable operators have been able to scale access speeds faster, at lower cost, than telcos. Vodafone might want to exploit that advantage in the U.K. market.