Between 2003 and 2015, Revenue Per Sub for 15 Biggest Telcos Dropped 69%

Globally, average revenue per subscriber for the largest 15 service providers has declined since 2003 to 2013 by about 69 percent, according to IBM.

Globally, average profit margins for the largest 15 service providers--operating in at least 10 countries each--has declined by four percent in the 2003 to 2013 period. For single-country operators, margin has declined 22 percent.

source: IBM

source: IBM

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Mobile Data Could Represent 57% of Total U.S. Service Provider "Service" Revenue

If total U.S. telecom service revenue is about $309 billion in 2019, and mobile data is $176 billion, then mobile data will represent fully 57 percent of total industry revenue.

It might be worth noting that over the top revenues might be as much as $292 billion in 2019, by some estimates.

If so, then OTT revenue might represent 38 percent of total ecosystem revenues, with service provider revenues amounting to about 40 percent of total ecosystem revenues. Device revenue might be about 21 percent of total.

source: S. Saravanan

source: S. Saravanan

Is Asymmetric Regulation "Unfair?"

Asymmetric regulation of like services, provided by competing industries or segments,  tends to cause problems, sooner or later, as different rules applied to different providers is “unfair.”

Think only of the arguments some make about “network neutrality” and you get the picture: “all bits and apps and providers should be treated the same.”

Leaving aside for the moment the issue of whether that makes sense, or is possible or desirable, the principle of “like treatment” for apps, services and providers is, at some important level, a “desirable” principle, in terms of fairness.

The problem is that industries with entirely-different regulatory frameworks now find themselves competing head to head, and some industries are far less regulated than others.

At least in the U.S. market, the traditional frameworks have varied from “no regulation” (magazines and newspapers) to “some regulation” (TV and radio broadcasting), “a bit more regulation than broadcast” (cable TV) and common carrier regulation (telcos). In addition, “dominant” telco providers have obligations small providers do not.

The situation screams for “harmonization,” some would argue. That always is more difficult than might be thought to be the case, as participants often will fiercely resist reclassification and new rules, especially when the new rules are deemed harmful to the basic business model.

Beyond that, policymakers face another fundamental choice: ease regulations on the more-regulated industry, or tighten regulations on the less-regulated industry. Recently, the U.S. Federal Communications Commission has chosen the latter path.

Others might argue the better path is to lessen regulations on the more-regulated industry, especially if “dominance” has eroded, and competing industries have grown both more powerful and influential, while “value” shifts away from the regulated industries and towards the unregulated industries.

To make the basic argument, value and profitability have shifted towards app providers and cable TV companies, and away from telcos. That can be seen in the dramatic changes in market share for high speed Internet access, arguably now the foundation service for any fixed network.

In 2015, for example, cable TV companies not only continued to add more net accounts than telcos, in several quarters cable TV had more than 100 percent of net additions.

source: American Consumer Institute

Also, from 2009 to 2015, telco share of high speed access lines has steadily dropped from more than 90 percent share to less than 40 percent share.

source: American Consumer Institute

One might argue "equal treatment of like services and providers," which is supposed to be a good thing where it comes to apps, might also be thought to be a good thing were it comes to access providers that most certainly are treated unequally.

U.S. Mobile Payment Suppliers Shift Focus

In one sense, “mobile payment” always was about using mobile devices as a substitute for credit and debit cards. But after several years of experimentation, at least in the U.S. market, it seems as though much of the adoption has shifted to “online” payment using mobile devices.

The size of the opportunity explains why that is happening.

The number of consumers who have used Apple Pay, Google Wallet or Samsung Pay remains relatively small.

Android Pay has been more focused on enabling e-commerce than retail checkout.

Even PayPal, long a leader in online payments, has shifted a bit.  “Already for many people, it is sometimes difficult to see clear lines between online, in-app or in-store experiences,” said Dan Schulman, PayPal CEO. “As we help create this new world in which all commerce is digital commerce, our opportunity will be the entire $25 trillion universe of global retail spending, an addressable market that is 10 times larger than the one we have traditionally targeted.”

MasterCard now talks about the “MasterPass” ecosystem, not so much a “wallet.” Visa, for its part, launched Checkout in July 2014, replacing V.me, Visa’s mobile. As does MasterCard, Visa now focuses on creating an ecosystem for e-commerce.

Chase Pay, which was built on the Merchant Customer Exchange (MCX), might need to refocus on that MCX itself seems to be foundering, as founding member Walmart now is creating its own branded mobile wallet, with Target, another MCX founder, also said to be planning its own mobile wallet.

And even the Starbucks card now focused on “Mobile Order and Pay,” not just mobile payment.

The shifts are not so surprising, as retail mobile payments remain a work in progress, causing contestants to look for roles that can grow faster.

Compared to retail checkout e-commerce growing four times as fast, while mobile commerce is growing at eight times the rate of traditional commerce.

Starbucks, Walgreens, NFL Shop, HSN and Match are among the latest merchants to sign up for Visa Checkout, while Walmart.com will do so as well.

According to new research from comScore, Visa Checkout is more effective than other checkout options at driving conversion, which means that shoppers who start a checkout process are more likely to complete it, when using Visa Checkout.

The December 2015 comScore survey found that enrolled Visa Checkout customers completed 86 percent of transactions from the online shopping cart, with a 51 percent higher conversion rate when compared to customers using a merchant’s traditional online checkout.

Some 45 percent of Visa Checkout shoppers used a smartphone, tablet, or other mobile device in making an online purchase during the 2015 holiday period, up from about 33 percent a year earlier.

Between July and November, the share of Visa Checkout customers using a mobile device grew by 10 percent.

The ability to use a mobile device as a payment mechanism remains. But many suppliers have shifted their efforts from retail payment to platform or ecosystem; to online in addition to retail; or online almost in place of retail.

Cox Communications Finds CDN Improves Page Loading 9 to 15 Percent, on Average

As more of the value of the Internet shifts to apps with video content, content delivery networks become more important for end user experience and content provider revenues.

Amazon has estimated that a 100-millisecond increase in webpage load time can decrease sales by one percent.

Google has found that faster-loading pages mean more ad inventory can be displayed. When the average page load time increases from 400 ms to 900 ms, reduced traffic has meant ad revenue lower by 20 percent.

Linkedin, for its part, argues that a one-second increase in median latency causes a 15 percent engagement drop and a five-percent bounce rate increase.

Facebook pages that are 500-ms slower result in a three-percent drop-off in traffic, and a delay of one second causes a six percent drop-off in user activity.

A SamKnows study of EdgeConneX connections designed to reduce latency was conducted in Norfolk, Virginia and San Diego, California.

In Norfolk, Cox Communications, established connectivity with a leading content provider in early February 2015, supported by a CDN service, and resulted in page load time for a major search engine improved by an average of 15.4 percent.

Some users saw page load time improvements of more than 40 percent.

In San Diego, Cox moved to an Akamai CDN service and saw a 9.2 percent improvement in page load time.

Extrapolated to the entire base of website requests, performance improvements could be as high as 65 percent.

How Video Changes Peering and Transit Demand

Consumers ultimately drive demand for all communication and content services, it goes without saying. The corollary is that a relatively limited number of “content stores” will aggregate and deliver the bandwidth-intensive apps (entertainment video, largely) consumers demand.

That is not to say entertainment video is the “most important” type of app people want to use. They want to use many. But as a driver of bandwidth, video is everything.

IP video will account for 80 percent of all IP traffic by 2019, up from 67 percent in 2014, according to the Cisco Visual Networking Index.

With the caveat that IP traffic is not 100 percent of data traffic, the fact remains that IP networks will, by virtue of traffic volume, become content delivery networks.

Another corollary is that global bandwidth is driven from a relatively limited number of locations, including major video app provider data centers. If that is true, then the economics of “owning” rather than “leasing” long haul bandwidth are changed.

That is likely one reason IP transit volumes are dropping. It simply is easier for bandwidth-dependent content stores to create their own facilities. That, in turn, is one reason why peering represents more of the total amount of global network interconnections.

source: TeleGeography

source: TeleGeography

For Mobile Operators, Remittances Yes, Retail Payments, Not so Much

At least so far, it is safe to say that mobile operator value in the “payments” ecosystem has been most clear for remittances and other retail payments in developing regions and least successful in retail mobile payments.

In fact, mobile remittances might be just at the beginning of their growth curve. Already, the volume of existing mobile banking transactions for remittances is an order of magnitude higher than any other application, according to the GSMA.

source: GSMA

The reason many are optimistic is that remittances by any means represent over $1 trillion in value annually, and only about $5 billion is transferred annually in the United States, for example, using a mobile phone.   

For mobile operators in some markets, revenue contributed by M-Pesa, the mobile payments system, already is greater than revenue earned from mobile data, for example. Some 18 percent of mobile operators polled by GSMA in 2014 reported that mobile money revenues represented more than 10 percent of total revenue, for example.

M-PESA represented just under 20 percent of total revenues for Safaricom in 2014, for example.

MTN Uganda’s mobile money services generated about 15 percent of total revenue in mid-2014.

Tanzania’s M-Pesa service represented 21.3 percent of the operator’s total service revenue in 2014.

source: GSMA

source: GSMA

By 2014, 255 mobile money services operated in 89 countries and is now available in 61 percent of developing markets.

source: Maris Strategies

source: GSMA

source: GSMA

Retail mobile payments in developed markets have, to this point, been another story. Though In 2015 mobile payments might have represented $8.71 billion in mobile retail transaction volume, very little of that activity flowed through mobile operator services.

The SoftCard initiative lead by AT&T, Verizon and T-Mobile US was quietly folded into Google Wallet, not that Google Wallet has fared better.

The space has been tough for many others, as well. The Merchant Customer Exchange, branded as CurrentC, and representing major mass market retailers, faces a splintering.

Walmart was a lead backer of MCX, but now plans to introduce its own mobile payments service, Walmart Pay. Target, another early MCX supporter, appears to be mulling its own payments system as well.

It remains to be seen whether retail mobile payments will, in the future, be a significant revenue driver for mobile service providers.