Google Creates New "Alphabet" Holding Company

As part of a major reorganization, Google will become part of Alphabet, a new entity a bit like a holding company that provides greater transparency for investors.

Alphabet will be a collection of companies, the largest of which is Google, and ABC.xyz will be parent's new web address.

The more speculative entities--moonshots--will be housed separately in Alphabet.

Life Sciences (that works on the glucose-sensing contact lens), and Calico (focused on longevity) are examples.

Android One Aims for $30 to $50 Smartphone Prices

Among other issues, smartphone costs are a barrier to widespread adoption of Internet access services in India and other South Asia and Southeast Asia countries. That is why Google is making Android One--its low cost Android operating system--a priority for India.

Phones made by manufacturers under the standard were priced at about $100 in 2014 and early 2015.

But the desired price targets are much lower. The “sweet spot” is a price between Rs2,000 and Rs3,000 ($31-$47).

Facebook and Twitter already count India as their second and third largest market by users respectively.

Lower Mobile Tariffs Across ASEAN Region by 2016?

Will mobile rates be harmonized across the ASEAN region. Quite likely. By early 2016, telecom regulators across the ASEAN region are expected to use a rate harmonization as a way of reducing mobile rates across the region.

Video Drip, Drip, Drip. For How Long?

With the exception of Internet access, it would be fair to say that the other legacy applications sold by cable TV and telcos, such as linear video subscriptions, are in a decelerating mode. In fact, voice, texting and video revenues are declining.

Including market share shifts, cable TV still sees growth in high speed access and business services, while mobile operators seen growth in subscriptions, lead by internet access revenues, and some fixed line telcos see revenue growth in business segments, even if revenue or subscription numbers from the consumer segment are waning.

Many observers in the linear TV business continue to say the transition to over the top video will be gradual, shifting only a portion of the audience from linear to OTT over five to 10 years.

That's possible. It also is possible that OTT hits an inflection point and just zooms. New technologiesl do that. 

Video Streaming Might Anchor 80% of Global Bandwidth Demand by 2019

Nothing shapes mobile, fixed or global undersea traffic like video. In fact, by about 2019, perhaps 80 percent of all traffic on global networks will be video, and as much as 85 percent of traffic on U.S. networks, for example.

In Latin America about 60 percent of all mobile traffic is driven by Facebook and Google. Overall, a majority of Facebook traffic is generated from mobile devices.

That is driving Facebook’s revenue growth (mobile advertising), and also illustrates why bandwidth demand in the mobile realm keeps growing so fast. Consumers simply are using more video.

According to Ooyala, 38 percent of online video plays in the fourth quarter of 2014 happened on a tablet or smartphone, double the activity of the same quarter of 2013.

source: Global Web Index

Two Polar Opposite Views of Incumbent Market Power

There arguably are two polar opposite views about large incumbent service providers of all types. One view is that they are unrepentant monopolists retaining their market power.

The other view: maturation or decline of every key revenue segment, plus growing competition and new digital product substitutes, are hollowing out many, if not most of the leading contenders.

The proper approach to policy obviously hinges on which general view one holds. Some argue the major telco business model, for example, is under high stress.

The truth is probably someplace in between. The old model is slipping away. Large incumbents still have lots of market power, because they lead their markets. But challenges have emerged at every turn.

“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.

Former Rural Telcos Now Drive Revenue from Business Customers

Of $4.4 billion in CenturyLink second quarter 2015 revenue, business revenues represented $2.7 billion while consumer revenues were about $1.5 billion. In other words, the business segment represents 61 percent of company revenue.

That is a huge transformation for a firm that once mostly got its revenue from subsidies and consumers.

What is interesting in that regard is the transformation of revenue sources at CenturyLink, Windstream and Frontier Communications, all legacy rural telecom service providers who have turned to business customer segments to drive growth.

Since about 2010, both Windstream and Frontier have earned most of their money in the business segment, despite the continuing preponderance of consumer accounts.

In its second quarter of 2015, Windstream had revenues of $1.4 billion. Consumer revenues  represented just $314 million--about 22 percent--of total revenues.

Frontier Communications total revenue of about $1.4 billion as well, with consumer revenue of about Total residential revenue was stable at $615 million for the second quarter of 2015, while total business revenue was $621 million. So a bit more than half of revenue was generated by business customers.