Clashes Over Regulation of IP Voice in India Escalate

The Cellular Operators Association of India wants BSNL to stop offering a calling service that allows international travelers to link their mobiles and domestic fixed line voice accounts, allowing them to make calls cheaper than would otherwise be the case if they called using billing based on their roaming-connected mobile phones.

COAI earlier had raised concerns about the Ringo service that appears to work using “dial-around” principles, and offering domestic calling rates that Credit Suisse analysts say are 69 percent cheaper than voice calls on the mobile network and even 24 percent cheaper than voice over IP services in India.

Such disputes seem to be an inevitable development whenever IP-based calling starts to compete directly with older forms of telephony that do not offer such flexibility. COAI argues such dial-around programs are unlawful under existing rules on public network calling.

Similar issues have been raised in other markets as well where IP-enabled virtual numbers and virtual devices can be used in a variety of ways related to messaging, notifications, call or message origination and termination.

Such features always are a challenge to regulatory regimes that essentially rely on  “if it walks like a duck and quacks like a duck, it is a duck” principles.

The problem is simply a clash between what is possible using Internet Protocol and what is possible using legacy technology and regulatory frameworks.

In India, VoIP origination and PSTN device termination have not, in the past, been lawful.

Is "Artificial Intelligence" S Curve Going to Affect Telecom?

One recurring pattern in modern technology and for most products, including communications technology, is its nonlinear character. Many call that an “S curve.” The principle also is highly similar to the product life cycle.

Experientially, the S curve is important because it plays a part in human expectations about disruptive new technology. We often expect more change early on, do not see it, and conclude that the trend will not happen. Instead, there is a gestation period, and then an inflection point.

After that, the new trend takes hold rapidly, producing far more change than one might have expected if the process of technology adoption were linear.

That might be worth keeping in mind over the next decade as we make more advances in machine learning, often popularly known as "artificial intelligence." In fact, one might argue that machine intelligence is part of the earlier hype about "big data analytics." The whole point of machine learning is that programs can autonomously "learn" to behave differently, based on new data.

Driverless cars perhaps provide one obvious example of applied big data analytics and machine learning.

Artificial intelligence might be increasingly important for some parts of the telecom business in the future as well.

Much "value" in the sales process traditionally comes from "expert advice" supplied by sales personnel. What happens if much of the expert advice can be supplied by machines, delivering advice over Internet mechanisms?

How might enterprise sales processes change if expert advice can be obtained from smart software, circumventling human channels?

We have seen glimmers of this in other industries, especially industries whose products are amenable to digital substitutiion. 

“Time and again, we have seen digital disruption fundamentally erode value across many industries including: music sales, video rentals, travel booking, and newspapers,” says the Citi Digital Strategy Team.

“In each of these cases, incumbents either transformed or became marginalized,” a Citi report says.

“Digital disruption in these industries resulted on average in a 44 percent share-shift from physical to digital business models over a 10-year period,” according to Citi’s Digital Strategy team.

Market share shifts gradually (1.6 percent per year) until an inflection point around year four when traditional share declines rapidly accelerate to about six percent per year, Citi says.

To say the global telecom business is “different” now since a wave of worldwide deregulation, privatization, investment and emergence of the Internet is a vast understatement. But consider just a few of the biggest changes.

Pre-1980, most national telecom infrastructures were dominated by a single monopoly provider, often owned by the government. In fact, telecommunications was widely believed to be a natural monopoly.

So prices were high, profit margins were high, innovation was low, revenue growth very limited, and the size of the market quite stable.

After deregulation and privatization, prices dropped dramatically, investment increased, total revenue increased, profit margins dropped and rates of innovation climbed dramatically.

In 1991, state-owned telcos numbered about 150. By 2008, that number had dropped to about 70, according to the International Telecommunications Union. By 2008, some 125 nations had fully or partially privatized former state-owned telecom companies, lead especially by mobile operations.

At the same time, the emergence of the Internet and mobility reshaped platforms, the way applications are developed, the power and influence wielded within the ecosystem, business models and value drivers.

At the same time, communications capabilities were rapidly extended to those who previously had no access, rather suddenly transforming a market where perhaps half the world’s people could not “make a phone call” to a world where most adults now have such access, after just a few decades.

And while a similar change, allowing everyone Internet access, is only now underway, it is reasonable to expect that challenge also will be solved, more rapidly than anyone originally might have believed possible.

Three Decades of Disruption
1980	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
Owned app creation	3rd-party app creation
Sell app, use network access	Sell network access (dumb pipe)
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
IT adoption: enterprise; SMB; consumer	IT adoption: consumer/SMB to enterprise

source: IP Carrier

The basic idea is that innovations tend to start slow, but hit an inflection point, then grow rapidly, until hitting a mature and then a declining phase.

Most business and technology developments in the telecommunications business, especially those related to applications and products related to the Internet, seem to follow the S curve.

https://strategicthinker.wordpress.com/s-curve/

Adoption now tends to occur very fast. Mobile phones and smartphones provide excellent examples, compared to “earlier” technology such as personal computers.

Adoption of social apps such as WhatsApp show the same pattern.

source: Your Story

source: Your Story

The point is that most trends have less impact initially than you might expect, but then hit an inflection point and have much more impact than you might expect, were change a linear function.

The implication is that many important changes will seem to go for some period of time where the impact is not seen, but then can gain acceptance very quickly.

“Technology does not just change distribution models and service patterns,” a report by Citi says.  

“The definition of financial products themselves may need to be rethought.”

”We’ll probably be the last generation to use the term credit card and debit card,” said John Stumpf, Wells Fargo CEO. “It will probably be debit access and credit access and it will be likely loaded onto a mobile device.”

Why OTT "Zero Billion Dollar" Markets are Rational

What has the Internet done to markets over the last 20 years, including telecommunications markets?

Impact has been most pronounced in industries or processes whose output or character is “intangible,” rather than “tangible.”

Voice services and text messaging are examples of such intangible products, including other products susceptible to digital delivery, especially all content products. Though we might disagree about the degree of displacement, OTT voice and messaging products increasingly are substitutes for carrier voice and messaging products.

source: Ovum

To be sure, "usage" is not the same as "revenue." Increased use of OTT messaging does not mean a linear reduction in carrier messaging, just as increased use of Skype does not translate linearly to less use of carrier voice. 

On the other hand, in addition to spurring more use of messaging and calling overall, OTT arguably does lead fairly directly to lower profit margins for operator voice and messaging services. 

source: Analysys Mason

As a rule, any industry touched by Internet distribution tends to see a trimming of supplier profit margins. In fact, that is an important strategy for digital disruptors, where the strategy literally is to destroy profit margins in a traditional business, gaining share and then dominating the new business, with permanently lower profit margins, and possible lower gross revenues.

source: Telco 2.0

That is the theory that underpins the pursuit of “zero billion dollar markets.” One sense of the word is that big markets get created when whole new industries are founded. But one other use is more ominous for incumbents.

That is reliance on marginal cost pricing to literally “destroy” the pricing regime in an existing market, allowing a new competitor with radically lower cost structure to displace the current leaders. That is the essence of the phrase “analog dollars, digital dimes and mobile pennies.”

It is a rational strategy for a new provider to attack a market with much-lower prices, shrinking markets but gaining leadership in the process.

Also, there is a third meaning of the term: any market not large enough for a provider to maintain a direct sales force. Paradoxically, opportunities for channel partners could grow as product categories contract, though that trend will conflict with the effort to market using mass market channels.

Overall, over the top apps--one clear manifestation of the Internet impact--boost usage, but attack profit margins. Telcos sell more data capacity, but lose value and revenue in their traditional revenue streams.

Internet has Become the Next Generation Network

There was a time, early in the 21st century, when there were serious debates about whether the Internet would emerge as the global "next generation network," or whether some other "telecom" network would assume that role.

That we no longer debate the matter seems to be a reflection of the fact that the argument is settled. Even as new managed services networks are created (LTE, 5G), much of the global business does now, in fact, rely upon Internet Protocol and the Internet as the "network."

One can see that in the shift of revenue shares within the mobile and other ecosystems.

Looking only at the mobile business, about 39 percent of ecosystem revenue is earned by mobile operators, and about 34 percent by third party app providers. Nearly 20 percent of revenue is earned by device suppliers and others supporting use of devices.

Among the many contextual issues surrounding the telecom business are:

• overall price, revenue per account, profit margin trends in the communications business
• Marginal cost pricing (near zero pricing, in some cases)
• Exhaustion of legacy product growth
• Value shifts within the ecosystem (OTT, devices)

Taken altogether, the “telecommunications” industry now is part of a larger Internet ecosystem. Managed services and managed networks will continue to exist. But the Internet has become, in many tangible ways, the next generation network.

source: BCG

Are U.S. Businesses Spending More, or Less, on Communications?

source: Gartner

Are U.S. businesses spending more, or less, on “telecommunications” services, and what does that mean for various market participants?

Arriving at a clear answer is harder than you might think, for all sorts of reasons.

Gone are the days when just a handful of companies accounted for most such spending. So any full accounting would have to include lots of smaller private firms whose actual sales cannot be verified.

Also gone are the days when everybody agreed on what “communications” spending includes. These days, mobile devices are a significant portion of “mobile” spending, but the “incidence” (which participants actually make the money) might vary.

Some products (hosted products, for example) can include bandwidth charges within the cost of buying a service. And which entity sells a particular product can vary: a cloud storage contract might be in a “communications” or an “IT” bucket for reporting purposes.

Also impossible to capture metric is “value,” as most IT products now cost less per unit of performance.

Also, some spending might now be avoided because consumers use their own tools and apps, and such spending is not captured in business accounts, or applications have no retail price (consumer versions of Google Docs, Sheets or Slides, for example).

The other issue is that it is easier to quantify large “enterprise” spending than small business spending, since much small business spending is virtually indistinguishable from “consumer” spending.”

All that noted, Gartner forecasts suggest that U.S. businesses are spending less money on telecommunications than they used to, or perhaps, will spend less in the future than they do today.

According to Gartner, less money will be spent in 2019 than was spent in 2013, for example, on a global basis. But that is not granular enough to highlight “U.S. spending.”

Consultants at Deloitte, though, working from tier one service provider annual reports, estimate that U.S. business spending on telecommunications services sold by the tier-one service providers actually is dropping substantially.

That is not the whole story, though, as some business spending on telecommunications, or on services that could be provided by telecom service providers, is shifting to newer and non-traditional suppliers such as Amazon Web Services and Google, Zayo and others.

The other issues are price declines and profit margin compression. In most markets, legacy products such as T1 lines and D-3 lines arguably have dropped substantially in price, because of competition and product substitution (Ethernet access).

source: US Telecom

That said, customers are buying more “next generation” products.

source: US Telecom

Still, it remains unclear whether the shift to buying of new products grows or shrinks demand.

Though it is not completely clear, it is possible that a shift of business and consumer computing to “cloud” delivery cuts spending on information technology for a mid-sized business.

BCG analysts suggest a medium-size retailer, for example,  could reduce baseline IT costs by 47 percent after replicating its existing IT stack in the cloud.

source: BCG

The bottom line is that it remains difficult to ascertain whether U.S businesses actually are spending more on telecommunications than they used to, or what the trend might be in the future.

Curious, in a way, is it not?

As Orange Bid Collapses, France Mobile Market Will Not Consolidate From 4 to 3

For the moment, the French mobile market will continue to be lead by four companies, as the

proposed Orange acquisition of Bouygues has been abandoned, apparently because the government and Bouygues could not agree on all terms and conditions.

The collapse of the proposed 10 billion euro ($11.4 billion) deal probably means the difficult (for mobile operators) retail pricing environment will continue.

Regulators globally disagree about the minimum number of suppliers required to maintain vigorous competition in any mobile market. French regulators traditionally have emphasized “competition,” but seem to have shifted views, now arguing that consolidation would be better, long term, as it would enable more investment in next generation networks.

French regulators seem to be comfortable with three providers. European Commission regulators seem to prefer four.

In a direct sense, those views lean one way or the other on a key question: what is better, lower prices for consumers or stronger firms able to invest more?

French regulators seem to believe investment now is the bigger issue, so three providers is better, as fewer competitors likely means higher prices, and therefore more ability to invest in next-generation networks.

EC regulators seem more focused on the traditional concern, namely lower prices for consumers, at the risk of less investment.

FCC Revises "Lifleline" Program to Stimulate High Speed Access

The Federal Communications Commission has refocused its “Lifeline” program to emphasize support for high speed Internet access.

For the first time, the Lifeline program will support stand-alone broadband service as well as bundled voice and data service packages.

The revised program provides support for stand-alone mobile or fixed broadband Internet access service, as well as bundles including fixed or mobile voice and broadband.

Citizens and residents in rural areas already have been opting for mobile Internet access at significant rates.

The top five mobile-only household states are Arkansas (35.2 percent), Mississippi (35.1 percent), Texas (32.5 percent), North Dakota (32.3 percent) and Idaho (31.7 percent of households are wireless broadband only).

All of states are largely rural.

The bottom five mobile-only household states are New Hampshire (16.0 percent), South Dakota (15.6 percent), Connecticut (13.6 percent), New Jersey (12.8 percent) and Rhode Island (12.0 percent), states that are mostly urban.

The results suggest that rural households appear to value wireless access more highly than urban areas. Across the United States, about 25 percent of households use only mobile  broadband.

source: websiteoptimization.com

The new rules set a minimum of 10 Mbps downloads/1 Mbps uploads. Minimum monthly fixed broadband usage starts at 150 GB.

The new rules phase in minimum standards for mobile broadband service, starting at 500 MB per month of 3G data by Dec. 1, 2016, 1 GB by Dec. 1, 2017, and increasing to 2 GB per month by the end of 2018  

Mobile voice monthly standards are set at 500 min/mo., beginning on Dec. 1, 2016; 750 min/mo. on Dec. 1, 2017; and 1,000 min/mo., starting on Dec. 1, 2018.