T-Mobile US Upgrades its VoLTE Service

T-Mobile US says its new “Enhanced Voice Services” (EVS) will improve voice call reliability in areas of weaker signal, while providing voice quality even higher than HD Voice.

EVS works whether on Wi-Fi and the T-Mobile LTE network, providing audio quality benefits when customers are talking to other parties that do not have EVS-compatible devices.

EVS appears to use a different and new codec than T-Mobile US orginially introduced to support Voice over LTE services.

The LG G5  is EVS-capable right out of the box. The Samsung Galaxy S7 and S7 edge support EVS through a software update happening the week of April 3, 2016.

EVS also should be available on seven T-Mobile smartphones by the end of 2016.

Will Marginal Cost Pricing Kill the Telecom Business?

Marginal cost pricing is an important principle in many markets, including some parts of the telecom business, from time to time.

Products that are "services," and perishable, are particularly important settings for such pricing. Airline seats and hotel room stays provide clear examples.

Seats or rooms not sold are highly "perishable." They cannot ever be sold as a flight leaves or a day passes.

Whether marginal cost pricing is “good” for traditional telecom services suppliers is a good question, as the marginal cost of supplying one more megabyte of Internet access, voice or text messaging might well be very close to zero.

Such “near zero pricing” is pretty much what we see with major VoIP services such as Skype. Whether the traditional telecom business can survive such pricing is a big question.

That is hard to square with the capital intensity of building any big network, which mandates a cost quite a lot higher than “zero.”

In principle, marginal cost pricing assumes that a seller recoups the cost of selling the incremental units in the short term and recovers sunk cost eventually. The growing question is how to eventually recover all the capital invested in next generation networks.

Indeed, some already argue that tier one telcos do not recover their cost of capital, perhaps an indication that marginal cost pricing is dangerous to the long term health of the industry. .

Of course, it is easy to see why marginal cost pricing has developed. It is enabled to a greater degree by Internet mechanisms.

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.

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.

The question therefore remains: will marginal cost pricing eventually destroy the economics of the tier one telco business, unless telcos massively replace “access” revenues priced that way with big new revenue sources not priced at marginal cost, or at least not requiring huge sunk investments before revenue can be earned.

That is the argument about why Verizon’s FiOS investment is problematic.

Will Netflix Price Increase Lead to a Little Churn, or a Lot?

Consumers cannot always be relied upon to behave as they say they will. They often do what they say they will not and fail to do what they say they will do. The old joke about “do you watch public broadcasting?” Provides an example.

The percentage of people who say they do so rarely matches the Nielsen and other viewing data.

That has business implications. Some would argue that “consumer opinions” therefore are not a reliable predictor of ultimate behavior. Few companies ever were as as committed to that principle as Apple under Steve Jobs.

"We do no market research. We don't hire consultants,” Jobs said. That perhaps highly unusual attitude was motivated by the idea that consumers cannot give you reliable feedback about products they never have seen and used.

In other cases, such as consumer opinions about linear video service, even when there arguably are alternatives, far fewer consumers switch providers than say they will switch.

One sees the same pattern in consumer mobile service, as expressed dissatisfaction is much higher than actual churn behavior. Often, attitudes do not match behavior.

We might see a similar development as price increases for Netflix standard streaming plans of $2 per month are coming in May 2016.

About 17 million consumers will see the price hikes analysts at UBS have estimated.

Predictably, 41 percent of respondents to a UBS survey said they would accept no price increase for Netflix. Recall that similar questions about price increases for linear TV have shown opposition to paying “any increase at all” for the service as high as 68 percent of respondents, UBS notes.

Despite those attitudes, linear TV subscription costs have been rising three percent to five percent annually every year, while only about one percent of consumers actually desert.

Steaming service churn, however, is normally quite high in “normal” times. Some researchers have found annual churn for Hulu Plus to near 50 percent annually. Netflix, on the other hand, has relatively low churn, perhaps 10 percent annually.

source: Parks Associates

Will churn rates climb, at least initially? Probably. The issue is by how much.

UBS estimates three to four percent of customers facing the $2 a month increase will cancel service.

One reason: Netflix costs nine cents per hour of viewing. Linear video costs 30 cents per hour, according to UBS.

Smartphones Now the Top Content Download Device

The smartphone has displaced the PC as the dominant device for the download and consumption of content, a new study by Limelight Networks suggests.

On a zero to four scale, with lower scores representing more-frequent activity, the mobile phone is the device used most often, followed by the PC, and then the tablet.

source: Limelight Networks

Beyond operating system updates, consumers are leaning mostly toward entertainment: new apps (33 percent), videogames (18 percent), and movies and TV shows (13 percent).

The bulk of downloading occurs at night. So content downloading has the same “prime time” as does television viewing: 6 p.m. to midnight.

More than 40 percent of that activity involves movies and TV shows, while 35 percent download video games and music.

Smartphones Now the Top Content Download Device

The smartphone has displaced the PC as the dominant device for the download and consumption of content, a new study by Limelight Networks suggests.

On a zero to four scale, with lower scores representing more-frequent activity, the mobile phone is the device used most often, followed by the PC, and then the tablet.

source: Limelight Networks

Beyond operating system updates, consumers are leaning mostly toward entertainment: new apps (33 percent), videogames (18 percent), and movies and TV shows (13 percent).

The bulk of downloading occurs at night. So content downloading has the same “prime time” as does television viewing: 6 p.m. to midnight.

More than 40 percent of that activity involves movies and TV shows, while 35 percent download video games and music.

Investment in Internet Requires Incentives for Investment, ITU Official Says

source: ITU

It sometimes is helpful to remember that serious investment in Internet access infrastructure hinges in large part on incentives for providers to do so. Access to spectrum, reasonable but not burdensome regulations, lower taxes and fees are key enablers in many cases.

An overall regulatory approach that recognizes the dependence of investment on regulation also can make a difference.

Transparency, Consumer Expectations, Behavior All Play Role in Service Plan Choices

Transparency--and consumer knowledge--always is something of an issue with smartphone and Internet access products. Rare is the consumer who actually understands how much data he or she uses, how a change in behavior might affect usage, or how using a new network and device might lead to changes in consumption.

And then there are the other ancillary charges that cause friction (taxes, fees, rental charges).

The Federal Communications Commission, for example, announced new voluntary broadband labels to provide consumers of mobile and fixed broadband Internet service with easy-to-understand information about price and performance.

Transparency might be a bigger problem for smartphone customers in markets where plan changes are happening. In the United Kingdom, for example, mobile service providers are moving to entice customers to switch from prepaid to contract plans, the reverse of mobile service provider preferences in the U.S. market.

source: Western Europe mobile operator example, Techneconomy blog

A “mystery shopper” study, for example, suggests that mobile phone firms are selling U.K customers contracts which cost on average 130 percent more than they “need to,” a report says. The study does suggest that is not the result of deception, but a combination of customer desire for top-end phones that are bundled with more-capacious service plans.

Some might argue that consumers gradually wind up spending more for devices and service plans “because they want to.” More-capable devices, faster networks and mobile apps that auto-play video combine with the actual specifics of retail plans to boost usage, which leads to purchase of higher-price plans.

The study by Citizens Advice points out that high-end, top of the line devices are often only available with high-cost tariffs which have extensive inclusive allowances and long minimum contract terms.

“In and of itself this is not necessarily unfair or detrimental to consumers,” Citizens Advice says.

Mystery shoppers posed as “typical” consumers seeking service that included average use of 250 voice minutes, 250 text messages and around 200MB of data per month.

Some might immediately take issue with the data usage profile, as U.S. consumers generally consume far more data than that. That should raise the possibility that users adopting new contract plans, and upgrading from prepaid, might not accurately understand how their usage might change.

That assumption might also be at work when service provider retail staff recommend new plans.

An average smartphone user in the United States now consumes nearly two gigabytes of cellular data every month, Frost and Sullivan has estimated.

The point is that the “right” plan for any consumer upgrading from a prepaid to a postpaid plan, especially those customers using advanced smartphones, might well consume vastly more data than they used to, on prepaid plans.

The point is that it is not nefarious that mobile sales staffs recommend usage plans that include much more mobile data than customers might have been using when they were on prepaid plans.

source: Frost and Sullivan