Verizon Go90 "Off to a Slow Start," But it Doesn't Matter

The Verizon Wireless Go90 mobile video service is “off to a slow start,” says a UBS report, based on a study of app downloads at the Apple iOS store.

“Go90 appears to be off to a slow start, with its best showing around number 300 when ranked against all apps in the iTunes store and number 20 when ranked against other entertainment apps,” the UBS report says.

“We believe Go90 will be hard-pressed to mount a meaningful challenge to mobile video and social networking leaders YouTube, Facebook, Instagram, Snapchat, Netflix and Hulu,” says analyst John Hodulik.

Many observers would agree with all the initial assertions. Few telco applications or services ever get off to a fast start. Name one!

It likely also is the case that Go90 will not challenge Facebook, YouTube, Netflix, Snapchat, Instagram or Hulu. Few observers would disagree with that assessment, either.

To be fair to Verizon, even Verizon likely would agree that Go90 is not going to be bigger than those other consumer names. But Go90 still could be important for Verizon’s business and revenue model.

If Verizon Go90 only grabs a reasonable share of the developing mobile entertainment market, it is a big win.

It always is possible that Go90 in fact will drive more revenue, and more profit for Verizon, than linear video presently does.

But Go90 does not fundamentally have to represent a market as big as linear video is today. It does have to glue customers to Verizon, and drive a reasonable share of users to Verizon, instead of other providers.

The Go90 mobile video service currently is ad-supported and free to users. If you have tried it, you will clearly see that it is true to its mission, targeting millennials (adults ages 18 to 34) and gen Zers (teens).

Indian Mobile Operator Data Revenue Growth Forecast Gets Lowered

Analysts at Morgan Stanley have dropped estimates of Indian mobile market revenue for 2016 through 2018 by three percent, as the analysts expect competition and profit margin pressure to escalate as Reliance Jio enters the mobile market, and focuses on mobile data pricing and services.

Between 2015 and 2020, mobile industry revenue will grow at a seven percent compound annual growth rate, down from the eight percent previously forecast.

The report by Morgan Stanley said despite double-digit data volume growth, data revenues are now growing in the higher single-digits.

Price competition is a virtually-certain development in any market where big new firms get into the market for the first time, where the technology underpinning the market fundamentally changes, or where deregulation of a former monopoly market happens.

Margin pressure also is characteristic of mature markets as well, when new customers and accounts can only be gotten by taking them from another supplier.

Price competition occurs because it offers a simple value proposition consumers understand: “same product, same features, lower price.”

Some other characteristics often are seen, as well. Established industry ecosystems are disrupted, most often as new suppliers, with better products, better matched to the new value chains, displace legacy suppliers.

Note only what has happened to the legacy telco supplier base over the last several decades. Who are the leading suppliers? What are the lead products? What business problems do the technologies solve? How are those problems different from the legacy “problems.”

Also, industry boundaries also become porous. Market leaders find “companies from outside our industry” have entered, and often become major competitors. Those firms often offer consumers different products that satisfy older needs in a new way.

Three Decades of Telecom Disruption
From 1980	To 2015
Natural monopoly	Oligopoly
High margin	Moderate to low margin
Low to moderate adoption	High adoption
Low innovation	High innovation
Stable markets	Unstable markets
Compete on quality	Compete on price
Fixed network dominates	Mobile network dominates
Tightly integrated apps and network	Open network
Voice business model	Internet access, mobile business model
Similar business models globally	Growing diversity of business models
99.999% uptime	99.9% or “good enough” availability
Few lead apps	Many lead apps

source: IP Carrier

The point is that lower profit margins, expected in the wake of Reliance Jio’s market entry, are entirely within the realm of market impact we see in newly-competitive markets.

Big 2015 Change in U.S. Linear Video Market: Cable Gains, Telcos Lose

The 13 largest linear video providers, representing about 95 percent of the market lost a net 385,000 accounts in 2015, marginally worse than the net loss of about 150,000 subscribers in 2014 and a net loss of about 100,000 subscribers in 2013, Leichtman Research says.

Keep in mind that those 13 suppliers have a collective 94.2 million subscribers, so even a loss of 385,000 net accounts represents just four-tenths of one percent of the base of customers.   

The big net change: cable TV providers did much better, telcos did much worse.

The top nine cable companies lost about 345,000 video subscribers in 2015, compared to a loss of about 1,215,000 subscribers in 2014.

Satellite TV providers added 86,000 subscribers in 2015 (including Dish Network OTT subscriptions). In 2014 the satellite providers gained 20,000 subscribers.

Excluding the Sling TV gains, DBS providers lost about 450,000 linear subscribers in 2015.

The top telephone providers lost 125,000 video subscribers in 2015, compared to a gain of about 1,050,000 net additions in 2014.

In the fourth quarter of  2015, the top linear TV providers added about 110,000 subscribers, more than the 90,000 added in the in fourth quarter of 2014.

The largest cable companies added about 125,000 subscribers in the quarter, the first quarter for net additions since the first quarter of 2008.

DirecTV net adds of 214,000 subscribers in the quarter were higher than in any quarter since the fourth quarter of 2010.

AT&T U-verse lost 240,000 subscribers in the quarter, compared to a gain of 73,000 subscribers in the same quarter of 2014.

Providers	Subscribers at End of 2015	Net Adds in 2015
Cable Companies
Comcast	22,347,000	(36,000)
Time Warner Cable	11,035,000	43,000
Charter*	4,430,000	11,000
Cablevision	2,594,000	(87,000)
Mediacom	855,000	(35,000)
Cable ONE	364,150	(87,067)
Other major private companies**	7,435,000	(153,400)
Total Top Cable	49,060,150	(344,467)
Satellite TV Companies (DBS)
DirecTV	19,784,000	167,000
DISH^	13,897,000	(81,000)
Total DBS	33,681,000	86,000
Telephone Companies
AT&T U-verse	5,640,000	(303,000)
Verizon FiOS	5,827,000	178,000
Total Top Phone	11,467,000	(125,000)
Total Top Pay-TV Providers	94,208,150	(383,467)

source: Leichtman Research

80% of U.S. Industries Have Yet to Reap Advantages of IT

source: Progressive Policy Institute

Machine-to-machine communications related to “Internet of Things” processes will account for roughly 35 percent to 47 percent of mobile data communications by 2030, argues Michael Mandel, Progressive Policy Institute chief economic strategist and a senior fellow at Wharton’s Mack Institute for Innovation Management.

By 2030, more than 1900 MHz of spectrum in the sub-mmW bands (three times the current availability) and at least 1.2 million cell sites (four times the current level) will be necessary, Mandel argues.

That forecast assumes dramatic increases in application of information technology to the 80 percent of private sector industries that have not yet reaped the gains of IT. 

Though “causation” arguably is difficult to establish, digital industries have had triple the productivity growth of the physical industries in recent years.

For the 14-year period between 2000 and 2014, productivity growth for digital industries has averaged 2.8 percent per year, compared to 0.9 percent for the physical industries.

“Today, tech/telecom spending per worker in the digital industries is almost seven times that of the physical industries,” Mandel says.

The gap matters, Mandel argues, because  physical industries make up roughly 80 percent of the private sector. In other words, only 20 percent of private sector industries have fully taken advantage of information technology.

Much information technology investment over the last several decades has mostly occurred in segments of work that involve “digital” products or output, such as such as professional services, finance, entertainment, or that involve digital buying, even if fulfillment is quite physical, such as retailing or other commerce.

Likewise, parts of life such as education, game playing and communication.

The perhaps-obvious corollary is that the benefits of information technology have yet to transform “physical” industries to the same extent as “digital output” industries.

Slow productivity growth is correlated with the failure of “physical” industries such as manufacturing, healthcare, and construction to make good use of digital technologies, Mandel argues. “Successfully digitizing physical industries will require a vast increase in remote sensors and remote-controlled devices such as cars, drones, and construction equipment,” he argues.

Those sensors and processes will monitor and control construction drones, self-driving snow plows, industrial processes and micro-pumps to precisely control insulin and other hormones in the body, for example.

Are Households Spending More, or the Same, On Communications, as a Percentage of Income?

It is hard to tell exactly what percentage of household or personal income U.S. residents now spend on communications services, including entertainment video, mobile, fixed voice and Internet access.

One issue is that U.S. statistics collected by government agencies often do not break out “Internet access” as a category, though “mobile” and “fixed network voice” are counted. So there always is the possibility that Internet access should be added to estimates of “telecommunications spending as a percent of income” (household or individual).

Likewise, spending on “entertainment” often includes movie theater tickets, spending on pets and other amusements, not just linear or OTT video subscriptions.

Historically, one might have argued that U.S. households spent about two percent of income on communications (exclusive of video entertainment).

By about 2008, 2.5 percent of income was a reasonable description of consumer spending on communications.

Since then, it might be reasonable to argue that spending on mobility and Internet access services has grown. The caveat is that mobile average revenue per user likely has fallen, even if the number of users and connected devices has grown.

Internet access (fixed network) average revenue per account probably has been relatively flat. But some estimate Time Warner Cable has been able to obtain higher ARPU, growing from $40 a month in 2009 to over $54 per month in 2014, as users have migrated to faster tiers of service that cost more.

source: nScreen Media

All that noted, there likely is a bias towards a slightly-higher consumer spending percentage for fixed network communications services, since at least 1990.

But it is complicated. Much-higher spending on mobile services is countered by widespread abandonment of fixed network voice services.

Competition in the high speed access market is fierce, which arguably limits revenue increases, but higher-speed services costing more money also are gaining traction.

Video account prices tend to climb every year, but take rates also are dropping.

And, overall, most triple-play providers are bundling services, and offering consumers effective price discounts when buying such packages.

source: Bureau of Economic Analysis

A study by iYogi in indicated in 2012 that U.S. consumers spend as much as four percent of income on phone and Internet services, and certainly more than they spend on utilities. That math is not hard.

Utilities are “whole household” services, while mobile services are “per person.” Any household with multiple mobile users is likely going to spend more on mobility than utilities (electricity, gas, water).

source: iYogi

source: Michael Mandel

The main point is that it is very hard to tell whether the percent of income U.S. residents spend on communication services is growing or flat. The only unlikely trend is that aggregate spending is declining.

The other imponderable: is typical household income growing, flat or shrinking? Holding everything else constant, growing income reduces the percentage spend on communications. Shrinking income boosts the spending percentage.

Most of you would likely agree that there is only so much incrementally higher spending any household or individual will undertake, no matter how much more income grows.

On the other hand, most of you also would tend to agree that declining househld or personal income will likely lead to less spending on communications. That might, or might not, change the "percentage of income" metrics.

The bottom line is that upside spending growth is limited, while downside spending is more linearly related to income drops.

Mobile Represents 73% to 80% of U.S. Household Spending on Communications

In most U.S households, and definitely for households with more than the “mean” number of household members (2.5), spending on mobile services virtually certainly outpaces spending on all other services, as well as topping spending on component subscriptions (high speed access, all entertainment video and fixed network voice).

From 2007 to 2014, expenditures for mobile phone services increased from a range of 38.7 percent for one-person consumer units to 70.9 percent for consumer units of five or more persons, according to the U.S. Bureau of Labor Statistics.

One-person consumer units have the lowest share of cellular expenditures compared with telephone service expenditures for all household size groups, but the share increased from 49 percent in 2007 to 64.3 percent in 2014.

In contrast, fixed network voice accounted in 2014 for just about 27 percent of household spending. The perhaps-obvious question is how much is spent on high speed Internet access, something hard to glean from Bureau of Labor Statistics data.

source: Bureau of Labor Statistics

In households with five or more people, mobile accounts for about 80 percent of spending on “telecommunications.”

source: Bureau of Labor Statistics

source: Bureau of Labor Statistics

From 2007 to 2014, expenditures for mobile phone services increased from a range of 38.7 percent for one-person consumer units to 70.9 percent for consumer units of five or more persons.

One-person consumer units have the lowest share of cellular expenditures compared with telephone service expenditures for all household size groups, but the share increased from 49 percent in 2007 to 64.3 percent in 2014.