Mobile, Fixed, Other Markets Face New Disruptions

Movement into adjacencies always is a key competitive issue within any ecosystem, as it turns former customers into competitors. That happens with chipsets, applications, access, transport, advertising and other support services.

Also, the most-dangerous competitors are those from “outside” the traditional domain. Skype,, Amazon, Alibaba, Netflix, Google Fiber, cable TV entry into voice and business services, XBox, PayPal, M-Pesa, Amazon Web Services and iTunes are among the obvious examples.

Some now think a big further move in the e-commerce business will happen, as logistics functions perhaps are internalized by the likes of Alibaba and Amazon.

source: Bloomberg

No ecosystem now seems safe from movement into adjacencies. In the U.S. mobile market, entry by Comcast and other cable TV operators will be an important example. In the high speed access, growing presence of Google Fiber and other third party Internet service providers is going to challenge prevailing notions of how many providers are sustainable, long term, in the fixed network business.

We once widely believed the answer was “one.” Over the last couple of decades, the number has become “two.” What Google Fiber and others pose is a new question. In some markets, is the viable number actually “three?”

That would represent a major business model challenge for the incumbent suppliers, as any major change in market structure always entails.

In addition to the urgency of creating new revenue sources, operating costs have to be taken down even more than had seemed possible in the past.

Liberty Global, Vodafone Combine Operations in Netherlands

Liberty Global and Vodafone will merge their operating businesses in the Netherlands to form a 50:50 joint venture creating a national communications provider in the Netherlands with video, broadband, mobile and business segment service capabilities.

The business will operate under both the Vodafone and Ziggo brands and will have over 15 million revenue generating units, of which 5.3 million are mobile, 4.2 million are video, 3.2 million are high-speed broadband and 2.6 million are fixed-line telephony.

The new venture will allow the partners to measure customer demand for quadruple-play packages combining fixed network video, high speed access and voice with mobile service, all as part of a single offer.

Compared to European operators, U.S. service providers have been much less convinced that most consumers want to buy all four services from a single provider.

Among other things, marketing challenges are an issue, since mobile service tends to be available nationwide, while the fixed services sold by any single provider are available, if at all, to less than a third of all U.S. homes. That complicates national advertising and marketing operations.

But U.S. cable TV operators are likely to test that assumption, as they tend to market locally, meaning national offers are not a practical issue.

Also, many tier-one European service providers do already operate nationally, for both fixed and mobile services. U.S. regulations are not likely to change, in that regard, in one respect. Though mobile operators can lawfully sell their services nationwide, regulatory authorities still have acted to keep any single provider’s installed base below about 33 percent.

source: Strategy Analytics

Eagles, Jackson Browne Tribute to Glenn Frey

Eagles and Jackson Browne tribute to Glenn Frey, a founding member of the Eagles who passed away recently.

source: Billboard

Singapore to Test "Three or Four" Market Structure

With the caveat that it is unnatural to expect market leaders to welcome new competition, even less to welcome fierce competition, Singapore Telecom says it is concerned that issuing a fourth mobile license for Singapore will damage supplier sustainability over the long term.

The reason is obvious: the new provider is expected to spark a “lower price” battle that will damage service provider gross revenues and profit margins.

Would-be licensee MyRepublic says it will focus on innovation, not price competition.

Few observers likely believe that will initially prove to be the case. Most attacks by upstart mobile carriers globally have involved “innovation” around price, even if other elements, such as a reliance on Wi-Fi access, device bundling, contracts or zero rating sometimes also are introduced.

There is yet no consensus on “ideal” mobile market structures that encourage rapid innovation and yet also produce enough revenue and profit that all the suppliers can exist on an on-going basis. Some believe the “best” number is three; others believe “four” is the optimal number.

Those beliefs are unlikely to be changed much as we move towards 5G, which will mix and match access methods in new ways that blur the differences between fixed and mobile operators.

As always, how one defines a particular market is key. Over time, various “mixes” of virtualized mobile access and retail packages will increase the number of potential competitors able to enter and compete in “mobile” markets.

Though the ultimate sustainable market might still entail a small number of share leaders, a larger number of smaller sustainable competitors might be conceivable. And, for shorter periods of time, a larger number of leading contestants might also exist, until market pressures force a few from the market.

In the U.S. fixed network market, as well as a growing number of European markets, there is a parallel development. Where it once was believed only a single operator was viable, it now is seen that, in some markets, at least two providers can sustain themselves.

The latest issue is whether, in some markets, the number might actually be “three.”

Maybe "More Moore" is No Longer the Issue

Perhaps the progress of Moore's Law, based on silicon technology, does end at some point rather near in time.

Perhaps no replacement substrates  (germanium, for example) can be commercially developed. Perhaps no replacement architectures  (optical, biological or quantum) can be commercialized soon, either.

Even in such a dire situation, how much will it matter? It is hard to say. Much computing these days takes place in huge data centers, where heat and energy consumption arguably are bigger problems than processor speed or the cost of memory.

Likewise, end user device preferences arguably are more centered on battery life, weight, device size and aesthetics than raw processing power.

We might be at a point where adapting processing to match the key apps actually will become more important (low power consumption already has become key).

And since today’s smartphones already process as fast as supercomputers used to, it is not clear how much “more value” faster processors provide. That has been true for quite some time in the personal computer space, for example.

Faster connections arguably improve experience and capability more than processor speed or locally-resident memory.

Some of us would still bet on human ingenuity to reignite another round of Moore’s Law advances, though. Still, the fact remains: raw processing speed is no longer the chief constraint on application or device value. Instead, it is human creativity which now is the gate.

App Partnerships Might Not Move ISP Revenue Needle

Most valuable and useful apps are no longer created internally by service or device providers, a fact with huge business implications.

Devices and Internet access, for example, are most valuable when people derive high usefulness from a huge multitude of apps and services. But few ecosystem participants are able to directly create and then control the value of their apps.

But that is not to say every part of the ecosystem benefits directly and incrementally from each incremental addition of most apps. Instead, it is the broad alignment of the whole ecosystem that creates the most value for each participant.

It would be accurate to say that a huge app ecosystem is what makes Apple and Android devices and Internet access services so valuable.

At the same time, revenue upside largely is indirect, with the clear exceptions of Google Play, iTunes and the Apple App Store, which get a 30-percent cut of app sales revenue (apps,  advertising and in-app transactions).

In that regard, at least some fixed network service providers in the United Kingdom believe business deals with Netflix have had positive financial impact, even if the impact remains relatively slight. “Netflix plays at least some--likely small--role as an upsell driver for some operators, whose customers can only access the app via their most advanced set-top boxes,” said Ted Hall, Research Director at IHS Technology.

Virgin Media and BT TV, for example, are paid when consumers activate Netflix subscriptions from the operator set-tops.

As you also would expect, other service providers remain wary, in large part because of concern that Netflix will reduce demand for premium movie packages and video-on-demand (VoD) offerings.

As always, the potential benefit from app provider partnerships hinges in part on service provider strategy, in part to partnership terms and in part on the perceived end user perception of value.

IHS analysts believe the number of service providers agreeing to partner with Netflix will grow beyond the 25 linear video providers who already work with Netflix.

“Many of the operators working with Netflix have seen customer satisfaction ratings improve under the partnerships, which have helped foster positive operational performances,” said Ted Hall, Research Director at IHS Technology.

Distributor partners typically receive a share of the ongoing subscription fees for customers that sign up using the operator’s set-top box. Generally, that means Netflix functions as one more premium service, or a substitute for operator video on demand services.

The downside of cannibalization is balanced by the upside of some incremental revenue. Strategically, working with Netflix might help linear video suppliers retain their “one stop shop” positioning.

That should become increasingly important as new competitors such as Apple TV, Google’s Chromecast and Amazon Fire Stick become more popular, and essentially themselves bundle over the top content sources. Indeed, in the U.S. market, Amazon already sells subscriptions to services such as Showtime and other traditional linear video premium services.

There likely is yet room for matters to change, in ways that do not benefit the linear video suppliers.

Recall that similar thinking once prevailed among telcos facing competition from Voice over IP services. Then, as with Netflix, the issue was whether to partner, create an owned alternative, or simply ignore the challenge.

That third option sounds silly, but experience has tended to suggest that partnering helps only marginally, while creating owned alternatives is not viable. Strategic indifference is not so dumb.

There might be little an incumbent can do but try and harvest legacy revenues as long as possible.

The other obvious implication is that it increasingly is hard for any single app partnership to "move the revenue needle" for any ISP.

CenturyLink to Test Metered Internet Access Plans

As do some leading cable TV operators, CenturyLink will test metered data plans in the second half of 2016. Such moves are contentious in some quarters, though an argument can be made that metered usage actually is a useful practice.

Few “for fee” products actually are sold on an “unlimited use” basis, with a flat fee, although usage of most Internet apps tends to occur on an “unlimited usage, no fee” basis.

For-fee products typically sold on an unlimited use, flat-fee basis typically are those for which incrementally-higher usage does not incur direct additional costs. Linear TV subscriptions provide one obvious example.

In other instances, even where historical practice has featured "unlimited" usage, such as mobile Internet access, there are quantifiable costs to supply incrementally-higher consumption, at peak hours. 

Though it often is missed, all communication networks are sized for peak usage, even if most networks are "underused" most of the time. So it is true that most networks have spare capacity most hours of the day.

None of that is relevant for network sizing. All networks are sized to handle the expected peak load, on any given day.

But most for-fee products do have substantial incremental costs for higher consumption, ranging from retail consumer products to taxi cab rides to electricity, natural gas, drinking water or bridge or expressway tolls.

Consumer Internet access is harder to classify, as it is harder to understand direct incremental costs for higher consumption created by unlimited usage policies. Nor is retail price directly proportional to wholesale cost.

But indirect costs (capital investments, energy consumption, interconnection costs) to support rapidly-growing consumption are substantial, at a time when revenue is flat or declining, overall.

CenturyLink anticipates slightly-lower operating revenues and core revenues in full-year 2016 compared to full-year 2015, for example. Operating cash flow also is expected to decline from full-year 2015, primarily driven by the continued decline in legacy and low-bandwidth data services revenues.

Beyond all that, unlimited consumption often has undesirable social impact. The whole point of carbon reduction is to “use less.” When consumers pay no extra costs to consume more, they tend to consume more.

source: CenturyLink