Content Emerging as a Key Opportunity for Mobile Internet Service Providers?

It is easy to be too optimistic about how fast, and how well, former telcos can adapt their revenue and business models.

It is clear enough that both fixed and mobile access suppliers increasingly rely on Internet access revenues and content-related services.

Mobile operators in Asia tend to generate between 30 percent and 60 percent of revenue from data services, the former generally typical of less developed markets, the latter typical of more developed Asian markets.

In Australia, New Zealand, Japan, Hong Kong, Singapore, South Korea and Taiwan (“‘connected’ markets), data now drives 60 percent of telco revenues.

Malaysia, Thailand, the Philippines, Indonesia, Brunei, Vietnam, Cambodia and Sri Lanka (“connecting” markets) tend to see mobile operators earning 30 percent of revenue from data services.

Sometimes that content might be packaged directly by some of the larger access providers. In most cases, involvement is more likely to revolve around content delivery, caching or other services supporting content providers.

Still, data services and Internet access, in particular, “are rapidly replacing more traditional telecoms services such as telephony as a driver of revenue,” Analysys Mason analysts argue.

The issue is how access providers can create additional services in the “content” domain.

In developed markets, partnerships between access and content and application providers might take the form of deep caching and content delivery network services, Analysys Mason argues.

In emerging markets, it is more likely marketing, billing and customer care, as well as a content provider role, are possible, says Andrew Kloeden, Analysys Mason principal.

Mobile Data Access Reaches 400 Million More People in 2015

Though barriers clearly remain, progress towards the goal of making Internet access available to everyone has made substantial progress. For some observers who can remember a time when we were not sure we could actually enable voice communications for everyone, there are clear reasons for optimism.

At the end of 2014, there were 2.9 billion internet users globally. By the end of 2015, the base of users should have reached 3.2 billion people, representing 43 percent of the world’s population.

So far, mobility has played the same important role for Internet access as it did for voice access.

During 2014, lower prices for data and rising global incomes have made mobile data packages of 500 MB per month affordable to 500 million more people.

Although 1.6 billion people cannot get access to  mobile broadband for coverage reasons, that is an improvement. Some two billion people could not use mobile broadband at the end of 2014.

To be sure, an estimated 2.7 billion people did not have mobile phone subscriptions in 2015, so there remains work to do.

Barriers to use of the Internet by people in lesser-developed countries has both supply and demand dimensions.

On the supply side, networks often do not reach remote areas, in large part because infrastructure costs are too high to sustain access, at current cost levels.

Also, recurring access costs are too high, running in excess of the “no more than five percent” of income levels that many analysts suggest is a threshold for significant adoption. Others might argue that mass adoption will not happen until costs are lowered to two percent or less of income.

One important issue is whether Internet access has to be two percent of individual income, or only two percent of household income. In a world where mobile devices and mobile networks provide the access, the test might more accurately be “cost as a function of individual income” rather than “cost per household.”

But there are demand issues, including language. Content has to be relevant, and that often means in the local language. Literacy also is assumed for most Internet apps and services.

source: Facebook

AT&T to Launch 3 Streaming Services

Later in 2016,  AT&T will launch three different streaming services that will work “over the top,” on any fixed or mobile connection and any Internet-capable device.

“DirecTV Mobile” will be aimed at smartphones and is characterized by AT&T as "affordable," though pricing has not been announced.

The service will feature premium video and made-for-digital content directly on a smartphone, regardless of the wireless provider.

“DirecTV Now” likely will be the most like the current DirecTV service, offering a range of content packages, including much of what is available from DirecTV.

That includes on-demand and live programming from many networks, plus premium add-on options and is the closest proxy for the current linear DirecTV service delivered by satellite.

“DIRECTV Preview” will feature some of the quality programming available on DirecTV. The ad-supported service will showcase content from AT&T’s “Audience Network,” as well as other networks and content sources, and millennial-focused video from Otter Media, a joint venture of AT&T and The Chernin Group.

Some will position that as an offer akin to Verizon’s Go90 service.

There will be a lot of TV shows, but not necessarily everything will be available as soon as it goes live. While this service is "mobile-first," AT&T confirms you'll be able to access it from any streaming device.

Among the broader implications is the “OTT” approach, which allows AT&T to sell to all domestic users, not just its own customers. That is a key development, as, up to this point, AT&T has largely been restricted to selling services to customers reached by its “owned” access networks (enterprise and global services being the salient exception).

Service Providers are Getting Less Share of Ecosystem Revenue Growth

Figuring out “where” the communications business is going requires knowing “how” the ecosystem is changing. Since the rise of the Internet, the ecosystem has added new participants.

And, as you might well guess, adding more “mouths to feed” in any ecosystem can mean that revenue, not simply “value,” shifts to those new participants.

Though there are other reasons for changes in business models (new competition, technology, regulations), a shift of value and revenue within the new ecosystem explains, in part, why revenue is shifting away from traditional telecom providers.

In 2015, for example, consultants at EY argued that traditional service providers earn about 55 percent of revenues within the broader communications ecosystem. Infrastructure and platform providers earn about five percent, while device suppliers earn about 20 percent.

source: EY

Retail and distribution represents about 10 percent of ecosystem revenues. The other new wrinkle is that over the top content, app and service providers earn about 10 percent of ecosystem revenue.

Not all those shares are “new.” Infrastructure providers always have earned some part of the total ecosystem revenue. Service providers and others have sold customer premises equipment. But the 20 percent share, largely accounted for by the value of smartphones and mobile handsets, arguably is higher than ever.

The spread of revenue within the ecosystem matters, in one sense. Consumers and households have only so much money to spend on all “non-essential” purchases. Whether communications represents one percent or five percent of disposable income, that spending is not completely flexible.

So while consumer communications spending is not completely fixed, nor is it highly expandable. To the extent that a relatively fixed amount of communications spending is spread among more participants, the share earned by legacy providers is reduced.

Add that to the list of reasons why “communications industry” revenues are under pressure, and likely to continue to be under pressure, in more markets.

By 2020, service providers will earn less than 50 percent of ecosystem revenue, where they earned 59 percent in 2013.

Google Reshaping ISP Business Model

Fewer observers these days believe “what Google wants” from Google Fiber is solely to put pressure on the largest U.S. Internet service providers to upgrade networks faster. That has benefits for Google (Alphabet), but might be only one of several potential benefits.

Quite simply, every incremental user, every incremental increase in access speed and every incremental increase in coverage increases ad inventory and ad impressions, which underpin the core Google revenue model.

Beyond that, every move that "commoditizes" other ecosystem costs likewise raises end user value.

Some think the growing range of deployment models (build and own; leased access; buildings) is part of a deliberate exploration of access economics that might lead to a fuller commitment to an ISP role within the ecosystem.

Certainly, other developments at Google suggest that role is inevitable. That is why Google is testing millimeter wave access for 5G, is testing unmanned aerial vehicles, plans to launch a fleet of balloons to support Internet access, has launched municipal Wi-Fi networks, supplies mobile service, supplies the mobile operating systems with the largest global installed base, builds at least some smartphones and has purchased mobile spectrum.

The full pattern of behavior suggests that, at the very least, Google will act as an ISP if it determines it must do so.

Beyond that, some might argue Google also is engaged in an extensive campaign to reshape regulations that directly affect the cost of the ISP business. To the extent Google Fiber succeeds, all ISPs potentially benefit.

source: Vision Mobile

source: Vision Mobile  

Google also has a vested interest in reshaping public policy in ways that benefit application providers (network neutrality perhaps being the best example).

That might be value enough to justify all the access provider initiatives. Whether there might be other value--beyond reshaping the ISP business model--is the question.

Practices such as ad blocking, for example, directly affect Google’s biggest business model, as traffic shaping might have done. By acting both in the policy and access provider domains, Google works to ensure a favorable climate.

The range of domains across which Google has to act arguably are growing, as well. Tax policy and antitrust are other fronts upon which Google is fighting against efforts that could reshape its own business model.

2015 Inflection Point in U.S. Fixed Network Business?

It looks as though 2015 could have been an inflection point, where it comes to installed base and market share in the U.S. fixed network high speed Internet access business. Cable TV operators have had the largest market share, and have been steadily taking market share, since at least 2008 or so.

A logical question is “why” the shift is happening, and the logical answers are several. Cable TV has simply been able to upgrade its speeds faster than telcos have been able to do, in large part because the DOCSIS platform largely allows upgrades without full rebuild of the access network, where telcos generally have to rebuild plant (fiber deeper into neighborhoods or all the way to the customer premises) to match cable TV speeds.

The corollary question might be “why” most telcos have not invested more heavily into next generation access infrastructure.

That is a more complicated question. In some cases, requisite capital is not obtainable. In most cases, the business model is questionable or at least difficult.

One might well argue that the telco fixed network business is post-peak and declining. Voice take rates are close to 50 percent, meaning that telcos have lost nearly half their former voice customers.

Linear TV has helped, but now net linear video customer account additions are dropping. And telcos have been losing the high speed access market share battle as well.

Some might argue a rational executive would harvest returns in the fixed network segment to the greatest  extent possible, and simply invest elsewhere for revenue growth.

That is not to say the business cannot be sustainable, only that it is not sustainable in the current circumstances, with high fixed costs and declining revenue.

In fact, some would argue, cable TV companies are on a growth path that makes them the dominant “communication” providers in the fixed network segment. Whether telcos or newer providers are the number-two providers in at least some markets is a growing question.

source: BTIG

10 Gbps in Singapore

Singapore's M1 has joined SingTel in offering 10 Gbps residential high speed access service, illustrating the difference in “developed” and “developing” Asia, where it comes to high speed access.

M1 is offering the service for S$189 (US$124) per month on a 24-month contract. Residential service at 1 Gbps costs $39 (US$26).

SingTel launched 10 Gbps residential Internet access Internet access  services earlier in February 2016, at the same price now offered by M1.

China is expected to introduce 10 Gbps service in 2018.

source: We Are Social