Mobile Account Churn Drivers Vary, Globally

Though it is undoubtedly true that network performance is a significant churn driver, nothing is more important than price, for nearly a third of consumers who left one mobile service provider for another, according to 451 Research.

Other surveys show an even bigger price driver. “Price” was reported to be the churn rationale for 38 percent to 55 percent of polled consumers in Europe and the United States. Price was less an issue in Asia, the Middle East and Africa, where a variety of reasons other than price, service coverage or customer service contributed to churn decisions.

Yet other surveys suggest that mobile Internet access quality is a serious churn driver.

With the caveat that “why” consumers take actions can differ from the “reasons” they give for taking those actions, price seems always to be a paramount concern, if not the only concern, when consumers make a service provider switch.

By some measures, mobile churn rates, on an annual basis, are lower than for some other leading products. Mobile operator churn has recently been averaging about 14 percent or less for Verizon and as high as 16 percent for AT&T.

Churn has been about about 30 percent annually for T-Mobile US (T-Mobile US has significant numbers of prepaid accounts that churn at a higher rate than postpaid accounts) and possibly 33 percent annually for Sprint.

Recently, however, both T-Mobile US and Sprint have managed to get postpaid churn rates down to about 18 percent annually.

But churn rates vary significantly for different types of accounts. Multi-user or family accounts, for example, tend to have lower churn rates than single-user accounts.

American credit card companies typically have customer churn rates of around 20 percent annually. European cellular carriers experience churn of between 20 percent and 38 percent.

Many retail banks have annual churn rates of between 20 percent and 25 percent.

source: Analysys Mason

Regulators Cannot Halt OTT Trend, Though Some May Try and Slow It

Communications policy makers around the world have been grappling with thorny regulatory issues raised by over the top apps for more than a decade, with mixed results, one might argue.

In some cases, where IP-based alternatives function as full substitutes for legacy carrier services, many regulators have simply brought the new IP alternatives into the existing regulatory framework.

That is the “if it walks like a duck, and quacks like a duck, it is a duck” approach. It is not without merit.

The tougher issues are instances where over the top apps do not actually represent full substitutes for carrier services, as they often require opt in, and therefore cannot replicate the “any to any” communications typical of common carrier services.

"WhatsApp is competing with us, not only with messaging but with voice, too," Telefonica chief operating officer Jose Maria Alvarez-Pallete has said.  "The premise should be, same services, same rules."

It is possible to agree with those views, but also argue that WhatsApp is not an instance of “same service” as carrier voice and messaging.

The financial implications for service providers in most emerging markets are clear, since voice continues to represent as much as 80 percent of total revenue, where in developed markets data services already have taken the lead.

In December 2015 WhatsApp was temporarily suspended after telecom interests complained of unfair regulatory treatment. Egypt and India are other markets where restrictive measures have been taken.

Egypt has shut down several internet calling apps, while India has outlawed zero rating of Internet apps.

In South Africa, MTN and Vodacom contend that services such as WhatsApp, Skype, Google Hangouts and the Viber messaging app cost the country billions of rand in tax revenue and compromise security because their encryption makes it easier for criminals to avoid government surveillance.

South Africa's telecom regulator has begun an investigation into the impact of over-the-top services, and Nigeria is considering regulating them.

Most likely could agree that full substitutes should be regulated the same. The key issue is that many voice and messaging apps are, in fact, not full functional substitutes, but based on community membership.

It arguably is a losing battle, even if some would argue the rate of decline matters quite a lot.

Strategy Analytics, for example, predicts a 42 percent drop in carrier messaging revenue between 2001 and 2021.

“The weakening role of operators in the messaging value chain suggests that it is only a matter of time before SMS services are dislodged from their current default position on smartphones, analysts at Analysys Mason argue.

In a similar manner, voice revenue continues to drop as a percent of total fixed network revenue, as well.

source: Analysys Mason

That will happen, even as messaging volume grows dramatically, because most of the growth will happen using the OTT apps.

And though emerging market revenue continues to grow, as new accounts are added, the growth rate is slipping.

source: Analysys Mason

Concern about competition or substitution of carrier services from OTT apps is understandable. But nothing has halted the erosion so far.

More Amazon Moves into Ecosystem Adjacencies Shows Market Disruption Often Comes from "Outsiders"

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.

Movement into adjacencies within an ecosystem also is common in retailing, as when major retailers sell “house brands,” for example.

Now it appears Amazon could introduce its own clothing brands, to sell merchandise some brands will not allow to be sold using Amazon channels. And some argue Google, for example, should buy AIG, the giant insurance firm, to create the basis for a financial tech business.

Such potential moves illustrate one key principle of markets that are disrupted either by technology, new pro-competitive regulations, or both.

It often is the case that the most-dangerous competitors come 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.

They will not be the last entries into existing markets by “non-traditional” providers.

Some now think Amazon, for example, will make a big further move in the e-commerce business will happen, as logistics functions perhaps are internalized.

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.

The broad point is that market disruption, in the Internet era, typically is a result of entry by non-traditional entities into domains dominated by others.

That is why service provider executives, when asked about their key competitors, often say “Google,” rather than “other telcos” or even “cable TV competitors.” The perception is warranted.

India Start-Ups See Regulation, Taxation are Key Challenges, International Expansion a Key Opportunity

Indian startups cite regulation, taxation and human capital as their greatest challenges, according to InnoVen Capital.

The size of the internal Indian market is viewed as quite appealing. But some 27 percent also see “international expansion” as a key opportunity.

source: InnoVen Capital

App Developers Aren't in it for the Money

Developers often are quite different from Internet service provider or telecom executives, and that has implications for how ISPs work with developers.

Only about 34 percent of survey respondents say “money” is the primary motivation for developing. Non-material motivation accounts for fully 66 percent of the primary motivations for developing.

So, in working with developers, it might often be the case that the desire to be rich takes a back seat to creativity, peer recognition and fun. Unless ISPs emphasize recognition, fun and ability to be creative, they often will face cultural issues when trying to work with and woo developers.

Almost 75 percent of the developers surveyed by inMobi have been in the industry for less than three years. And most work solely or very small firms.

Just eight percent of firms have more than 20 employees. In fact, some 47 percent of respondents work by themselves. the inMobi survey suggests.

Games and entertainment are the two largest categories of developer interest, across all regions (Asia, North America, Europe).

Some 42 percent of app developers have one to three apps on Google Play, while 28 percent of have one to three apps in the Apple App Store.

Java, JavaScript, HTML5 are the most preferred languages for designing and developing apps.

And few make significant money developing apps. Some 55 percent of developers make $1000 per month.

Monthly average mobile app revenue globally is under $6,000.  

About 63 percent of developers say advertising is the revenue model for their apps, while a third say in-app purchases are the revenue model.

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Reliance Jio Market Entry Will Drive Revenue-Per-Megabyte Lower by 30% to 40%

Reliance Jio's launch of 4G services could disrupt data pricing in the Indian mobile service provider market, causing revenue-per-megabyte prices to tumble 30 percent to 40 percent this year, according to the India Ratings and Research (Ind-Ra).

At the same time, given expected lower prices, data services average revenue per user also will decline, although the number of accounts should increase, while data consumption also climbs, over time.

Revenue per megabyte declined by 4.5 percent to 5.5 percent, sequentially, in the third quarter, for Bharti Airtel and Idea Cellular.

Ind-Ra believes expects a further softening of data tariffs in the current year of perhaps negative eight percent to 10 percent.

Those are among the least controversial observations that could be made about Reliance Jio’s entry into the Indian mobile services market.

India Ratings and Research (Ind-Ra) “expects the launch of Reliance Jio Infocomm Limited (RJio) to intensify competition which will squeeze the market share, EBITDA margins and credit metrics of incumbents.”

At the same time, debt burdens will increase, as competitors and Reliance Jio itself invest heavily in their networks and spectrum.

Ind-Ra also expects voice revenue to decline. Airtel and Idea reduced voice tariffs by eight percent to 10 percent last year.

source: Brookings

In addition to price drops over time, price-per-megabyte also drops with volume purchased.

source: GSMA

Open Cable Boxes? Less Impact Than You Might Think

The recent move by the U.S. Federal Communications Commission to “open up” set top box information flows to third parties ostensibly leads to consumer ability to buy and use third party boxes instead of renting such decoders from their linear video suppliers.

The three information flows include service discovery (information about what programming is available to the consumer, such as the channel listing and video-on-demand lineup, and what is on those channels).

Information on customer entitlements (information about what a device is allowed to do with content, such as record it) also would be provided to third parties.

Finally, content delivery information (the video programming itself, along with information necessary to make the programming accessible to persons with disabilities) would be available to third party devices.

On its face, the move creates more potential competition for the conditional access function, which also represents perhaps $20 billion in annual rental fees paid by consumers to their video providers.

At one level, it is hard to argue that authorizing more competition is a bad thing. But the move might also not be so consequential, long term, much as the Telecom Act of 1996, in defining competition as “competition in voice services” missed the mark.

Over time, more consumers are going to use services and appliances that are Internet based, obviating the use of any such decoders. In the interim, however, as the FCC earlier had tried (and failed) to create a third party market for decoders, there could be some opening for use of existing devices (game players, mobile phones or dongles) as functional substitutes for the “cable box.”

Scale always is an issue, as the actual market for decoder hardware is fairly small, by consumer electronics standards. So it is unlikely many new suppliers really would want to enter the market for stand-alone decoders.

One reason existing decoders are relatively costly, compared to many other consumer devices, is that volume is limited.

The upside might come for app providers who could leverage existing mass market devices such as smartphones or cheap dongles to provide the tuning and access functions, while also garnering more information about consumer behavior.

That is one reason why Google supports the rule change.