When Will New Competitors Lead the Enterprise Services Market?

Verizon enterprise revenues, and to a lesser extent, AT&T enterprise segment earnings suggest how U.S. and other telecom markets have changed.

It might once have been illogical to believe that new providers--not the largest telcos--would eventually claim the majority of enterprise customer revenues.

Enterprise, after all, “always” had been a tier-one service provider area of strength, in terms of capabilities. But the Internet and competition have changed the landscape.

To the extent one can argue that tier-one telcos ever had been leading contenders in the broader information technology business, new providers such as Amazon Web Services, IBM, Microsoft, Google and others are challenging that notion.

On the transport side of the business, Level 3 Communications, Zayo  and many others are siphoning off long haul, high capacity business, while many major enterprises--especially those in the Internet app businesses, now operate their own data center and long haul networks.

Newer specialists long have been influential providers in the metro fiber network business, with competitive providers--lead now by cable TV companies--very important actors in the small and mid-size business customer segment.

That is not to say every tier-one service provider, across the globe, will have similar fortunes. Even in the U.S. market, AT&T seems to be doing better than Verizon in the enterprise customer segment.

AT&T “Business Solutions” revenues were up 1.2 percent year over year in the third quarter of 2015.

AT&T fixed network business data revenues also grew for the fourth consecutive quarter. Strategic business services revenues of $2.8 billion were up 12.6 percent and up 15.2 percent when adjusted for foreign exchange.

Verizon arguable did not fare as well, perhaps in part because 69 percent of Verizon revenue now is generated by mobility services. Consumer fixed network services now generate 12 percent of total revenue. So 81 percent of total revenues were earned from mobility and consumer services. Everything else amounted to 19 percent of total revenue.

In the third quarter of 2015, Verizon “Global Enterprise” revenue was down 4.9 percent year over year, while “Global Wholesale” revenue was down 5.1 percent year over year.

In other words, though AT&T arguably still is growing its enterprise revenues, Verizon is slipping.

For a firm with operations in key Northeast U.S. markets including business-rich New York city and Boston, as well as Washington, D.C., that might come as a bit of a shock.

Over time, it might be easy enough to predict, Verizon is going to lose more share to its competition. That is one reason why many contestants no longer fear competing against the tier one former incumbents.

Google to Build Metro Fiber Network Serving Accra, Ghana

In November 2013, Google announced a metro fiber network serving Kampala, Uganda, designed to support third-party Internet service providers.

Project Link connects ISP partners providers to long-distance networks that in turn reach Internet access points.

Now Google says it will build a similar network in Ghana, serving Accra. “While undersea cables reach the coasts, the challenge remains to bring abundant bandwidth closer to Internet users in Ghana’s largest cities,” Google says.

Across Accra, Tema, and Kumasi, Project Link will build more than 1,200 kilometers of optical fiber cables to connect local ISPs and mobile service provider access or trunking networks to the metro optical network.

“Since we launched Project Link in Kampala, we’ve built over 700 kilometers of fiber across the city,” said Estelle Akofio-Sowah, Google Ghana Country Manager. “Now, we are working with a dozen local ISPs and MNOs, such as Vodafone Uganda and One Solutions, to improve the quality of Internet access in Uganda’s capital.”

Moving "Up the Stack" and "Across the Value Chain" to Reduce Risk, Raise Margins

“Telecom” value chains are hard to envision these days as the market itself changes, and content and applications assume greater roles.

Historically, when the whole value chain was organized around voice services, matters were simpler, with infrastructure providers on one end and then service providers or consumers on the other.

These days, it is not so easy to illustrate the expanded value chain, since, with the advent of Internet apps and content, the value chain contains many more participants.

Add coming Internet of Things value chains and we might not be able to visualize the whole value chain with any degree of granularity.

But we can all agree that some portions of the value chain have higher profit margins than others. That is perhaps most obvious in the Internet application and content value chains, but likely also makes sense in the traditional communications value chains as well.

Many would likely agree that in the coming mobile content business, profit margins will be relatively high on the content owner part of the value chain (“content is king”). There will be more disagreement about profit margin at the mobile operator portion of the value chain, though some would argue “distribution” is among the more-profitable parts of the value chain (“distribution is king”).

Some also would argue that profit margins are lower, and risk is higher, in many intermediate parts of the value chain. And it is getting harder to distinguish between roles within the value chain, and the actual positions of actors in the value chain.

Netflix provides a good example of the former issue, Comcast a good example of the latter.

Is Netflix a content developer, content management provider, rights owner or distributor. “Yes,” is the answer, as Netflix increasingly participates in all of those roles, even if its direct revenue comes mostly from “distribution.”

Comcast is even more evenly-balanced in terms of roles, generating huge amounts of direct revenue in distribution (cable TV), aggregation (NBC networks) and content rights (Universal Studios).

Such divergences between risk and profit margin might become more important drivers of actor behavior in the future, as rational managers and firms will try to reduce risk and increase profit margin. In many cases, those objectives can best be met only by creating new roles that come with higher value and therefore profit margins.

Those of you familiar with the mobile virtual network operator and competitive local exchange carrier businesses know the dilemma. As capital intensive and expensive as owned access networks are, it is no simple matter to use wholesale access as the platform for a business model.

Simply put, any business model reliant on wholesale access is going to be margin challenged from the outset. The economics of wholesale transport often are a different matter, as anyone immersed in the undersea or long haul transport business will attest.

On the other hand, many business models overcome such obstacles by combining operations in multiple roles, some with high margins, some with lower margins. Some roles might arguably come with less risk, while other roles carry more inherent risk.

But it might nearly always make sense to consider how operating in multiple roles can reduce risk and raise margins. That is why one always hears so much talk of “moving up the stack.” Quite frequently, such moves also require moving “across the value chain.”

source: Consultant Value Added

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source: MVNO Africa

2016 Might be the Year Half of U.S. Households are "Mobile Only"

Some trends--such as abandonment of fixed network voice connections--has happened in slow motion, which has a useful thing for service providers coping with the negative trends.

More than 47 percent of U.S. homes were “mobile only” for voice service in the first half of 2015, up 3.4 percentage points since the first half of 2014, according to the U.S. National Center for Health Statistics.

At current growth rates, it is conceivable that half of U.S. homes will have "cut the cord" by the end of 2016.

Fully 71 percent of  adults aged 25 to 29, and 68 percent of adults 30 to 34 were mobile mobile only.

In the 18 to 24 bracket, 59 percent are mobile only, while in the 35 to 44 age bracket, 57 percent were mobile only.

In the 45 to 64 age cohort, 41 percent were mobile only and even in the 65 or older cohort some 19 percent were mobile only.

Perhaps the only unanswered question is whether such behaviors will change as younger cohorts age. Once upon a time, some observers argued that younger consumers who did not buy cable TV subscriptions would do so as they got older and had children.

There is less certainty about that change, anymore. So it is unclear whether present habits will change as younger consumers get older.

Also, fully 85 percent of adults living only with unrelated adult roommates were mobile only. And 67 percent of renters were mobile only. Some 37 percent of homeowners also were mobile only.

As you might also guess, 59 percent of adults living in poverty and 54 percent of adults living in near poverty were mobile only. But even 46 percent of higher income adults were mobile only.

One might argue that, were it not for triple play packages, fixed network voice adoption would be even lower than it is.

The good news is that the steady and long-standing declining trend has occurred so predictably slowly that service providers have had time to create replacement revenue streams, an effort that continues as the remaining “legacy services (entertainment video and high speed access) remain under pressure.

The former suffers from declining demand, the latter from higher levels of competition, despite a slow upward trend in revenues primarily driven by a shift of demand to higher-speed services.

Even When They Don't Know Their Internet Access Speed, They Know When the Experience Requires More Bandwidth

Some nine percent of U.S. broadband households switched service providers in the past 12 months, according to Parks Associates. 

The nine-percent churn rate is significantly less than one percent a month, a low churn rate for a consumer service, one might argue, suggesting that consumers have not been massively unhappy with their current providers and the value-price relationship.

The reasons for the churn behavior tend to boil down to a switch driven by buyer perceptions of a better price-value relationships. 

About 35 percent of the changes were to get a faster service. Some 18 percent of the switchers switched providers to get the same speed at a lower price.

The study suggests that more than 25 percent of U.S. broadband households believe that their present broadband speed is faster than needed, while 10 percent plan to upgrade to a more expensive but faster service.

The study suggests 43 percent of subscribers do not know their current broadband speed. What they do seem to understand is the experience that they have online, particularly as it relates to use of digital media.

As you might guess, multi-person households sharing a connection, especially those where respondents own multiple connected entertainment devices are more likely than others to plan to upgrade their broadband service, Parks Associates says.

Survey Finds 39% of Respondents Have Never Bought Linear Video

You might not be too surprised if a survey finds 19 percent of respondents to a survey on video entertainment usage say they cut linear video service within the last year. You might be more surprised to learn that nearly 39 percent have never purchased a linear video service.

That suggests the long term problem linear video providers face: there is dwindling demand for the current product, as well as the near term problem, namely churn and abandonment.

The survey of 3150 consumers on behalf of Digitalsmiths in the United States and Canada, sponsored by Digitalsmiths, also found churn behavior increasing. In the third quarter of 2015, eight percent of respondents said they had switched service providers in the last three months, about a 2.7 percent monthly rate, and higher than most major triple play providers have been reporting.

Asked what they might do over the next six months, 46.5 percent of respondents said they would either cut linear service altogether (4.8 percent), change to another linear provider (7.2 percent), switch to an online app or rental service (2.7 percent). Some 32 percent said they “might” change services.

The survey found 82.5 percent of respondents watch between one and 10 channels, an increase of 2.1 percent year over year and 2.3 percent over two years. That is generally consistent with historical findings, but shows a slight increase over time as more channels have been added to channel lineups.

Respondents who watch 11 or more channels decreased 2.1 percent year over year and decreased 2.3 percent over two years.

Fully 56.3 percent of respondents have over-the-top subscription services, an increase of 3.6 percent, year over year, and 8.1 percent over two years.

Of those respondents who are cord-cutters or cord-nevers, 74.5 percent buy  a monthly subscription service, compared to 55.1 percent of linear TV subscribers. Netflix and Hulu are the top OTT services used by respondents who do not subscribe to linear TV.

Some 36.1 percent of respondents use pay-per-rental services such as Redbox Kiosks, iTunes, Amazon Prime Instant Video or similar services.

While there was a slight 2.2 percent decrease in usage quarter over quarter, these services did experience increases of 7.1 percent year over year.

Some 41 percent of respondents spend between $3 and $11 a month on pay-per-rental services.

However, across the board overall spend on these services decreased 2.5 percent quarter over quarter and , 5.3 percent year over year.

Perhaps nobody is much surprised by any of those trends, though some might disagree with the magnitude of the reported behavior.

source: Digitalsmiths

Supporters Hope Carrier Wi-Fi Will Create New Business Models

In the near term, hotspot network business models will be driven by existing business models--faster access, advertising, location and venue services, according to Maravedis. For the most part, business models rely on indirect value--such as churn reduction or data offload--rather than direct subscription revenue or advertising, for example.

The search for new business models, at the moment, centers on the ability to create seamless carrier quality connections, to support voice subscription revenue or enterprise services.

The installed base of carrier-grade hotspots will rise at a compound annual rate of growth between four percent and 14 percent,  depending on the region.

Asia-Pacific will still account for 66 percent of the total world base in 2020, despite the expansion in other regions.

On average, each country  has over 200,000 hotspots (excluding homespots) deployed under its direct control and one million available to its subscribers by roaming or wholesale deals. The figurs are skewed by a few larger telcos.

source: Maravedis