Consumer Revenues Propel Service Provider Revenue Growth

Among the big changes in the telecom business over the last three to four decades, one of the most prominent is the growing revenue contribution (and profit contribution, in many cases) made by consumer accounts, as opposed to business customers.

That was not always the case. In the past, super-high profits from business customers funded operation of networks also serving consumers.

These days, it is consumer revenues that lead growth for most service providers.

The other big shift is the relative contributions made by mobile, as opposed to fixed, revenues.

As I mentioned during a recent keynote address for Telegration business partners (a U.S.-based sales organization focusing on enterprise and mid-market customers), when conducting analyses of Internet adoption on a global basis, one can essentially ignore all fixed network access, look only at mobile Internet access, and still get the trend right, and the magnitudes of usage about right.

That is quite a change from historical patterns, where business user revenues accounted for about a half of total revenues in developed countries. But the direction of change is mostly towards greater consumer revenues (What EY calls “smart operator”).

A few service providers might opt for becoming “mostly” wholesale providers for retail partners, in which case the revenue contributors shift dramatically to “business” revenue (wholesale). So far, we see little evidence that service providers are willing to retrench as wholesale capacity suppliers, however.

And that means the percentage of revenue earned from consumers is going to dominate, in the future.

source: EY

Except for about 10.5 percent of Internet users in Asia, for example, who do get access using a fixed network, substantially all the rest of the Internet users do so using mobile networks.

In some Asian countries--such as the Philippines and Thailand--perhaps 20 percent to 25 percent of people use a fixed Internet connection (primarily urban residents). But in many other countries, usage of fixed Internet access can be in single digits, or less than one percent.

As we start to connect the half of people who do not presently use the Internet, the percentage of mobile or wireless users will climb, while the percentage of fixed network users shrinks. And we are talking about roughly two billion new Internet users, in Asia alone.

That is not to say other access methods will not emerge, but it is hard to ignore the fact that nearly 90 percent of Internet access in Asia now is provided by mobile networks.

Rural coverage, language relevance, device prices and recurring access costs all are issues. Still, mobile has to be reckoned the primary delivery vehicle.

As the 80/20 rule suggests, "20 percent of activities produce 80 percent of the results." For Internet access, the practical application is that only mobile really matters, where it comes to consumer Internet access.

Will that change in the future? It is possible. If Internet of Things develops as a key revenue driver, then enterprise or business revenue contributors will grow, again.

source: ITU

Bringing stakeholders together to understand changing supply and demand issues, and the business model for Internet access, is a key focus of the Spectrum Futures conference. Here’s a  fact sheet and Spectrum Futures schedule.

90% of Asia Internet access is Provided by Mobiles

Across Asia, about 58 percent of people still do not use the Internet, according to the International Telecommunications Union.

If you exclude China, Japan and Korea, plus the city-states of Singapore and island of Taiwan, the percentage of Internet non-users can, in some cases, range upwards of 76 percent.

Except for about 10.5 percent of Internet users in Asia, who do get access using a fixed network, substantially all the rest of the Internet users do so using mobile networks. That is not to say other access methods will not emerge, but it is hard to ignore the fact that nearly 90 percent of Internet access in Asia now is provided by mobile networks.

Rural coverage, language relevance, device prices and recurring access costs all are issues. Still, mobile has to be reckoned the primary delivery vehicle.

As I mentioned during a keynote address for Telegration business partners (a U.S.-based sales organization focusing on enterprise and mid-market customers), when conducting analyses of Internet adoption, one can essentially ignore all fixed network access, look only at mobile Internet access, and still get the trend right, and the magnitudes of usage about right.

As the 80/20 rule suggests, "20 percent of activities produce 80 percent of the results." For Internet access, the practical application is that only mobile really matters, where it comes to consumer Internet access.

Bringing stakeholders together to do something about that is the mission of the Spectrum Futures conference. Here’s a  fact sheet and Spectrum Futures schedule.

source: ITU

Why Bundling?

U.K. service provider bundled subscriptions will have grown by 20 percent from 2015 to 2020, with quadruple play revenues growing 300 percent, while total multiplay market revenues grow by 34 percent, Strategy Analytics predicts.

Dual-play subscriptions will peak in 2016 and begin to decline as customers move to triple and quad-play bundles, the firm estimates. By 2020, quadruple-play subscriptions will represent more than 21 percent of bundled subscriptions in the U.K. market.  

The bundled services trend--in any market--tells you quite a lot about the state of the telecommunications market. There are some advantages in terms of customer acquisition and retention.

Simply, most bundles are a form of discounting: “buy more, save money.” Once consumers have made those decisions, churn tends to drop, because dropping any one service means losing the cost savings of the whole bundle.

But bundling also tells you how hard it is (perhaps how “nearly impossible” it is) to build a modern fixed network and build a business model on any single service.

Competition, more than anything, is the cause. Assume a single-purpose network (voice, and entertainment video being the historical examples). Under monopoly conditions, the addressable market is nearly 100 percent of locations. The actual take rates were above 80 percent for video and above 90 percent for voice.

But add competition and the business model is unsustainable. Even if only two competitors split a market, neither is likely to gain more than half the available market. That means actual subscribers are gotten from about 40 percent to 45 percent of locations.

In other words, subscription gross revenue--all other things being equal--is cut in half. Add more competitors and the numbers get worse. And things never are equal. New competition also leads to price cuts. So gross revenue falls more than half.

Bundling allows any single provider to create a new revenue model based on smaller shares of bigger markets. Even if no single provider has more than half the market share in any product segment, any successful provider can maintain gross revenue by selling multiple products to the same customer.

A simple illustration: a supplier that formerly had 100 percent of the market for one product might instead have 33 percent of the market for each of three products. In such a case, the total number of sold units remains the same as under monopoly conditions.

Gross revenue per unit,and profit margins, are issues, but you see the logic.

The most important observation might be that bundling now is necessary because no fixed network can survive on revenues from a single product.

More change is coming, since virtually all existing legacy products in the bundle face product substitution or outright abandonment.

AT&T, Comcast Boost Usage Caps for Internet Access Customers

As with virtually everything else connected with Internet access, speeds keep getting faster, and usage (where there are any limits at all) allocations keep getting bigger, for U.S. customers of leading fixed network Internet service providers.

AT&T has used a variety of usage caps for customers of its U-verse Internet access service, with caps based on user access speed. Users at 768 Kbps to 6 Mbps had a 300 GB cap.

U-verse users on connections of 12 Mbps to 75 Mbps had 600 GB caps. Customers on anything between 100 Mbps and 1 Gbps had a terabyte (1,000 Gb) monthly usage cap.

But AT&T has bumped usage caps usage caps higher. But AT&T now appears to have bumped usage allowances up to 1,000 Gb for all customers on access connections of 768 kbps or faster.

As a practical matter, that means all U-verse customers, and customers of AT&T’s gigabit service have no caps at all.

source: AT&T

Charter Communications, as a condition of the approval of its purchase of Time Warner Cable, will not be allowed to impose any usage caps for seven years.

In markets where it is testing usage caps for its Internet access customers, Comcast has raised the monthly usage from 300 Gb to 1,000 Gb (a terabyte).

Comcast says its typical customer uses about 60 gigabytes of data in a month.

To be sure, some advocate no caps or any kind, ever, arguing that there actually are not cost implications for unlimited use. ISPs would disagree, of course. All networks are dimensioned for some amount of expected usage, and further designed to support peak loads.

Capital has to be invested when peak loads grow substantially. So the amount of usage by typical and the heaviest users does matter.

The terabyte cap allows for viewing of 700 hours of high-definition video, or about 23 hours at is each day. No single person watches that much video, and even if shared between four people, that amounts to nearly six hours per day, per person.

Power users (less than one percent of Comcast’s high speed access customer base) who want more than a terabyte can sign up for an unlimited plan for an additional $50 a month, or they have the option to purchase additional buckets of 50 gigabytes of data for $10 each.

As a practical matter, nearly all of you who actually have kept track of data usage under both “unlimited” and data plans with large buckets of usage, would likely agree that, as a practical, a reasonably-sized usage bucket is virtually indistinguishable from an “unlimited” plan, as a practical matter.

Usage limits vary on U.S. mobile services as well. Sprint and T-Mobile US have been bigger proponents of unlimited usage than have Verizon and AT&T.

But AT&T recently has been offering unlimited mobile data usage for mobile customers who bundle their service with AT&T’s DirecTV service.

Comcast Boosts Usage Caps to a Terabyte

In markets where it is testing usage caps for its Internet access customers, Comcast has raised the monthly usage from 300 Gb to 1,000 Gb (a terabyte).

Comcast says its typical customer uses about 60 gigabytes of data in a month.

To be sure, some advocate no caps or any kind, ever, arguing that there actually are not cost implications for unlimited use. ISPs would disagree, of course. All networks are dimensioned for some amount of expected usage, and further designed to support peak loads.

Capital has to be invested when peak loads grow substantially. So the amount of usage by typical and the heaviest users does matter.

The terabyte cap allows for viewing of 700 hours of high-definition video, or about 23 hours at is each day. No single person watches that much video, and even if shared between four people, that amounts to nearly six hours per day, per person.

Power users (less than one percent of Comcast’s high speed access customer base) who want more than a terabyte can sign up for an unlimited plan for an additional $50 a month, or they have the option to purchase additional buckets of 50 gigabytes of data for $10 each.

As a practical matter, nearly all of you who actually have kept track of data usage under both “unlimited” and data plans with large buckets of usage, would likely agree that, as a practical, a reasonably-sized usage bucket is virtually indistinguishable from an “unlimited” plan, as a practical matter.

U.S. Mobile Customers More Satisfied, AT&T Leads, But Billing Issues Still Drive 44% of Inbound Customer Service Traffic

In its latest study of mobile service provider customer care satisfaction, J.D. Power found U.S. consumers were more satisfied with customer care experiences.

But some things do not seem to change. Questions about billing are huge drivers of in-bound customer service activity.

Among wireless customers contacting their carrier by telephone, billing (44 percent) is the most frequently reported reason for contact.

The same is true for customers contacting using the online channel (52 percent).

On the other hand, the majority of mobile customers visiting a retail facility for customer service purposes do so with questions about service options and equipment (40 percent).

AT&T ranks highest among  full-service carriers, with an overall score of 820. So some things change, in the mobile consumer satisfaction area.

AT&T performs particularly well in the walk-in (retail stores) and online channels, and performs above the full-service average in all four service channels, J.D. Power said.

Consumer Cellular ranks highest for the first time among wireless non-contract carriers, scoring 878.

Consumer Cellular performs above the non-contract average in all four service channels, especially in the automated response system channel, followed by the customer service representative  channel.

AT&T ranks highest among wireless full-service carriers, with an overall score of 820. AT&T performs particularly well in the walk-in (retail stores) and online channels, and performs above the full-service average in all four service channels.

Consumer Cellular ranks highest for the first time among wireless non-contract carriers, scoring 878. Consumer Cellular performs above the non-contract average in all four service channels, especially in the ARS, then CSR channel.

Overall satisfaction among mobile full-service customers is 804, an improvement of 16 points from the 2016 Full-Service Study—Vol 1, J.D. Power said.

Satisfaction among non-contract wireless customers is 761, a significant 23-point increase from the 2016 Non-Contract Study—Vol 1, J.D. Power aded.

Overall satisfaction is highest among customers whose online contact was via a user forum (838), followed by social media (836), email (827), carrier website (826) and online chat (813).

Researching information on the carrier's website (51%) is the most common activity via online contact, followed by online chat (44%), email (26%), user forums (23%), and social media (7%).

One More Proposed Low Earth Orbit Satellite Constellation Ultimately Featuring 2,956 Satellites

Boeing Co. has applied for a license from the U.S. Federal Communications Commission to launch and operate a network of thousands of satellites in low earth orbit, enabling  high speed Internet access and communication services that likely will reach every inch of the earth’s surface.

That, of course, would help maritime applications, but also could bring high speed access to isolated areas at new, and lower, price points.

Mariah Shuman, O3B Networks

Of course, Boeing is not alone. SpaceX and OneWeb also plan to launch LEO constellations, and O3b (using a medium earth orbit constellation) already is in commercial service.

Boeing said it planned to initially deploy 1,396 satellites into low-earth orbit within six years of the license approval.

Eventually, the aerospace giant said its system would total 2,956 satellites designed to provide Internet and communications services for commercial and government users around the globe.

There still is some possibility Boeing--if successful--might take a wholesale approach, launching the constellation but then leasing capacity to third parties.

And, as was the case in the 1990s, the business models might not work, for some or even most of the potential contestants. How extensive demand will be is the issue. With mobile operators expected to step up their Internet access efforts, and with new backhaul methods, using balloons or unmanned aerial vehicles, and with new options based on use of either 5G mobile or fixed wireless, there will be many options for supplying high speed Internet access to isolated places.

So the LEO constellations are racing all the other would-be providers. The biggest areas of natural advantage for the LEO providers are the traditional maritime, government and commercial users, as well as isolated areas such as South Pacific islands and island archipelagos including Indonesia and the Philippines.

As always, we are likely to overshoot on investment, meaning there will not be commercially viable niches for all of the would-be suppliers. It might also be reasonable to suggest that, eventually, all of the surviving LEO constellations will be sold to incumbent satellite services companies, who themselves are looking to move beyond legacy video backhaul services that are threatened by the rise of over the top video consumption ill suited to satellite delivery.

Still, some idea of the value of the advances are clear enough. O3b, for example, is the backhaul for mobile operator Digicel’s service in Samoa, providing significantly higher retail end user speeds than possible in the past using geostationary satellites, and better latency performance for applications such as voice.

Mariah Shuman, O3b Networks maritime and international regulatory affairs director, will speak about such constellations, and their value, at the Spectrum Futures conference. Here’s a  fact sheet and Spectrum Futures schedule.