How Much Equity Value Does Spectrum Create for Mobile Operators?

How much of the total market value of a mobile service provider business is driven by the right to use scarce access spectrum, compared to all the other sources of value, including customer bases, revenues and profits from recurring services?

The answer seems to be that “quite a substantial amount” is driven by the scarcity value of spectrum licenses, as important as customer bases, brand equity and recurring revenues contribute to valuations.

The physical network likely accounts for relatively little of the total value.

There are several reasons for believing that is largely true, at least for wireless networks.

First, mobile operators have in the past shut down whole networks, but kept the customers, revenue and spectrum assets. That was the case when the analog network was shut down in favor of second generation networks, and undoubtedly will be the case when 2G networks or 3G networks are decommissioned as well.

Also, mobile operators rather frequently have taken steps that indicate the scarce assets are spectrum, not transmission infrastructure. Operators have not hesitated to cell towers and share radio infrastructure, for example.

There are other illustrative examples. Mobile virtual network operators, for example, also do not own towers and radios, but also do not own spectrum.

One should not overstate the comparison between a non-facilities-based MVNO and a facilities-based carrier, however, as most MVNOs sell prepaid accounts, not the more lucrative postpaid accounts.

Also, many MVNOs compete on price, meaning they can be expected to generate lower average revenue per account, or per device.

Still, a  valuation mismatch between facilities-based mobile customers and MVNO customers likewise suggests significant value rests in the rights to use spectrum.

But it is hard to generalize too much, since MVNOs do not represent much of the global subscriber base, in large part because the MVNO business is not lawful in many markets.

Globally, MVNOs might only have represented about two percent of active accounts.

source: Paul Wade

source: Paul Wade

Perhaps a more germane question is how much value is generated simply by the value of spectrum assets, irrespective of other tangible assets.

By some estimates, facilities-based U.S. mobile operators, plus Dish Network, own about $368 billion worth of spectrum licenses.

AT&T now holds spectrum licenses worth more than $91 billion, estimates Goldman Sachs analyst Brett Feldman, while the value of Verizon’s spectrum is $79.4 billion.

In all, AT&T now holds spectrum licenses worth more than $91 billion, estimates Goldman Sachs analyst Brett Feldman. He also estimates the value of Verizon's spectrum at $79.4 billion.

The current equity value of all AT&T stock is $176.5 billion, implying that spectrum alone represents 51.6 percent of AT&T’s total equity value.

Verizon’s market value is $207.9 billion, implying that Verizon’s spectrum represents 38 percent of total valuation.  

Bloomberg Intelligence, in fact, estimate the total value of Sprint’s 2.5-GHz spectrum alone at $115.1, about 2.4 times Sprint’s enterprise value of $48 billion.

In fact, some argue that T-Mobile US spectrum accounts for more than 100 percent of its total market value.

One can legitimately argue that such metrics overstate the value of spectrum. On the other hand, spectrum arguably represents quite a lot of th value of any one of the four leading national U.S. mobile operators, leaving surprisingly modest contributions for brand equity, recurring revenues and all physical plant.

source: Investors Business Daily

How Valuable are Access Assets in the Landline Networks Business?

To what extent is the value of an access network (telco, cable TV, satellite, fixed wireless or other ISP) driven by the revenues the network can generate, compared to the residual value of the physical assets used to deliver those services?

The other way of asking the question: how much of the total equity value of a fixed network communications business is driven by customer account mass, revenues, profit and brand equity, compared to the value of physical assets?

In other words, if a service provider has a chance to operate a big communications business using leased access, is that preferable to a facilities-based strategy? Does a wholesale strategy create equity value equal to, or close to, that of a facilities-based approach?

It is not an easy question to answer. Traditionally, there are relatively few cases where big and dominant telecom businesses have been built on leased assets.

Nor are we likely to get much additional insight as Google Fiber prepares to operate its first gigabit access market in Huntsville, Ala., where a citywide dark fiber network is being built by Huntsville Utilities.

Starting in mid-2017, Google Fiber will provide Internet access to to homes and small and medium businesses in Huntsville, going citywide in four years.

Comcast and AT&T also have said they will sell gigabit service in Huntsville, but it is doubtful those suppliers will use the dark fiber network. Neither firm has had a strategic belief in operating its core business on leased facilities.

But that does raise an intriguing question: how much of the value of either AT&T’s fixed network business, or Comcast’s business, resides in its control of owned access assets?

In other words, if AT&T or Comcast could decommission their existing networks, and operate using the dark fiber network, how would the valuation of the businesses, not to mention capital or operating costs, change? Some analysts think physical assets might equal current debt.

Google Fiber will have some idea of how the use of the dark fiber network affects its own business model, since Google Fiber will have many other owned networks to compare with Huntsville.

To what extent might Google Fiber’s valuation--were it a stand alone business--vary, using either owned facilities or leased dark fiber?

Other ISPs might not relish the thought of competing against Google Fiber, Comcast and AT&T, all at the same time, so we likely will not see any significant market entry by other Internet service providers who might relish the thought of leasing, rather than buildings and owning, their own access infrastructure.

It might seem obvious that a good portion of the equity value of any access network is its sheer rarity. But precisely how much of the total valuation is driven by the physical assets?

That is hard to say, although we might gain better insight as more retailers come to market using wholesale networks.

To be sure, scarcity value has played an important part in underpinning fixed network valuations. But how much value should reasonably be inferred?

Big telcos and big cable are unlikely to build their future businesses on leased physical assets, so the question largelyis moot. Google Fiber will do so in Huntsville, Ala., but Google Fiber will not likely disclose any savings, so it will be impossible to determine what impact a "lease the network" strategy has, compared to Google Fiber's own "facilities-based" approach in other markets.

From Voice to Web to Content Optimized Networks

To the extent we can say legacy telephone and mobile networks were optimized for voice as a lead application, as radio, TV and cable TV networks were optimized for delivery of video or aural content, then we might also say that Internet Protocol networks were less optimized than traditional networks.

That is to say, IP networks were designed as general purpose networks. With the advent of broadband transport and access, IP networks began to function better for all media types: narrowband wideband and broadband.

However, it now seems possible to argue that future iterations of the IP networks will again begin to focus on “lead apps.”

ATIS has launched an “Evolution to Content Optimized Networks (eCON) Initiative,” a to create an evolutionary path from today's IP-based routing network to a future network that leverages the increasingly important role of content.

We already have seen the growth of solutions to optimize content delivery and improve user experience, including edge-caching, end-to-end encryption and proxies.

In the future, further changes are necessary, ATIS believes, including moves to embrace content naming.

Basically, that means embracing content as a primitive, an approach that promises greater scalability, security and performance for users retrieving content over IP networks.

In other words, instead of network routing organized around endpoint locations, routing and network layer functions could be additionally optimized around specific content identifiers.

That is expected to make easier location-independent retrieval (so edge caching is more efficient), allow better load balancing and support multicast in a more native way.

Phoenix Suns Tickets Earn Free Gigabytes from Verizon Wireless

The Phoenix Suns have partnered with Verizon to offer mobile data usage when customers buy tickets to attend games. That use of sponsored data sheds even more light on the many ways brands can take advantage of sponsored data for promotions, even if some do not want apps to be able to do so.

Fans can earn up to 11 GB of data during the current season, Verizon says. Ticket buyers earn 1 GB of data for the first game purchased, and 2 GB for the second game. Each ticket for a subsequent game earns 3 GB, up to a maximum of 11 GB under the promotion.

Fans who are not Verizon customers can “gift” the data to someone else who is a Verizon Wireless customer.

For 28% of Australian Consumers, Hybrid Fiber Coax Will Be the Only Fixed Network

How much access platforms have changed, and will change, is illustrated by the Australian National Broadband Network, a wholesale-only next-generation network.

As planned about 28 percent of total locations (about 3.5 million homes) will use the hybrid fiber coax platform used by cable TV operators, not fiber to the home or fiber to the neighborhood or curb.

In many markets, HFC exists as a full functional substitute for the “telecom” network.

Ovum researchers estimate there are approximately 150 million cable broadband connections globally, representing 20 percent of the global high speed access market.  

Rarely, if ever, has HFC been the “ubiquitous” and primary communications network.

For 28 percent of Australian residential locations, HFC will be the primary network, with no rival telecom network available.

In recent tests, layer-3 peak speeds speeds at up to 100 Mbps downstream and up to 40 Mbps upstream were recorded.

End user speeds, on average, were about 84 Mbps downstream and 33 Mbps upstream.

source: NBN

Orange VoLTE, Wi-Fi Launch" What's the Upside?

Orange is launching voice over Long Term Evolution (VoLTE) as well as Wi-Fi calling across its European operations, “to enrich the voice experience for all its customers.”

The launch illustrates a key business model challenge for telecom service providers launching some next generation networks and features.  The emphasis of the launch is supplying the “very best voice experience available today,” not “new revenue” or “new markets.”

As with some other investments, next generation technology and features essentially is a “cost of being in business,” not a direct enabler of new revenue sources and new markets.

Much the same business model problem was encountered by fixed network operators looking at upgrades from digital subscriber line to fiber access technology.  And some would say high definition voice is the same sort of investment.

All those investments bring “better performance,” but not necessarily much incremental revenue.

Orange VoLTE will provide better experience, reducing connection times from approximately eight to two seconds. Use of VoLTE also will enable simultaneous use of voice and high speed data.

Orange will launch VoLTE beyond its existing Romanian market in 2016 and early 2017.

Orange also is launching Wi-Fi calling to ensure improved indoor coverage. Wi-Fi calling will be launched across Orange’s remaining European footprint in 2016 and early 2017 as well.

Note that the advantage there is a way to support voice connectivity indoors, where mobile signals are weak. Again, we see that an investment is made not to enable pursuit of a new market, but to support basic existing services, customers and markets.

That is one key difference between investments in Internet of Things platforms and services, and much of VoLTE, Wi-Fi calling, and even some portion of the value of access upgrades.

Platforms to support IoT, investors hope and expect, will support big new markets and new services to provide payback from the investments.

Still, as has been clear for decades now, investments sometimes must be made so competitors do not take away markets, and not for traditional reasons (invest X, gain Y revenue).

Such investments are strategic in nature. The investments must be made, as defensive measures, even if incremental revenue is quite slight.

The rationale is not “you make more money, from new services.” The rationale is “you get to keep most of your business.” Or, to be blunt, the upside is “you do not go bankrupt, in the near term.”

GSMA Launches "Connected Women" Initiative

The GSMA today announced the launch of the Connected Women Commitment Initiative, aimed at reducing the mobile gender gap and connecting millions more women in low- and middle-income countries by 2020.

Dialog Axiata PLC in Sri Lanka, Digi Telecommunications Sdn Bhd (Digi) in Malaysia, Indosat Ooredoo in Indonesia, Ooredoo Maldives, Ooredoo Myanmar, Robi Axiata Limited in Bangladesh, Tigo Rwanda and Turkcell in Turkey are initial supporters.

GSMA estimates there are 200 million fewer women than men who own a mobile phone in low- and middle-income countries.

In a study conducted by the GSMA, across 11 countries studied, the top five barriers to mobile phone ownership and use by women are:

• High cost of mobile handsets and credit
• Poor network quality and coverage
• Security concerns and harassment over mobile phones
• Lack of trust in agents and operators
• Low technical literacy and confidence  

But even when women do own a mobile device, they are far less likely to use it for more sophisticated services, such as mobile internet and mobile money, and therefore miss out on key socio-economic opportunities.

Existing and potential commitments amongst the mobile operators include, for example: increasing the number of female agents; improving the data top-up process to be safer and more appealing to women; and improving digital literacy among women through educational programmes and interactive content.

Closing the gender gap in mobile phone ownership and usage in the developing world could unlock an estimated US$170 billion market opportunity for the mobile industry in the period 2015-2020.

source: GSMA