2.5% of U.K. Household Spending is for Communications, Mostly for Mobile Services

About 2.5 percent of U.K. household spending each month goes to purchases of communication services, Ofcom, the U.K. communications regulator, says. Of that spending, nearly two percent is for mobile services, with combined fixed network voice and Internet access accounting for about a half percent of monthly spending.

That suggests total communication spending is less than 2.5 percent of household income, and could be as low as one percent of household income.

Since 2010, spending on fixed voice and mobility services have dipped slightly, while spending on Internet access has grown.

source: Ofcom

Average monthly household spend on communication services has decreased in real terms over the past five years (adjusted for inflation), Ofcom says, from £121.15 in 2010 to £118.90 in 2015, representing a monthly decrease of £2.25, or £27 per year.

At the same time, the average U.K. fixed broadband connection speed has climbed from 6.2 Mbps to 28.9 Mbps from 2010 to 2015, an order of magnitude increase.

However, monthly household spend rose between 2014 and 2015, with telecoms spending rising £2.52 per month, driven by a 12% increase in fixed internet spending: from £13.44 to £15.05 in 2015.

This is largely a result of consumers switching to faster high speed access services.

There also has been  a steep increase in the proportion of adults going online on a mobile phone: with 66 percent of users 16 or older saying they used their mobile phone in 2016 to access the internet, up from 61 percent in 2015.

But U.K. mobile users increasingly are shifting their messaging activity to Instant messaging (IM), and away from text messaging.

The proportion of people using IM services such as WhatsApp is up from 28 percent to 43 percent, and photo or video messaging (MMS) has risen to more than 20 percent of adults in a given week. Both SMS text messaging and email use are dropping.

Still, 70 percent of mobile users use email every week, while 63 percent use text messaging.

Why IoT is Directly Related to Rural Internet Access

It might not be self evident that there is a direct relationship between Internet of Things revenues and profits earned by mobile and other service providers, and rural Internet access services. Simply, one day IoT revenues will be necessary to support rural Internet and other communications services.

The reason is simple enough. At some point, after voice, texting and mobile data revenue growth has ended, some big new sources, likely including IoT, will be needed to generate financial surplus that can be tapped to provide rural Internet access.

How to subsidize rural communication networks is a problem for service providers, regulators and policymakers in most countries, except for some small city-states that essentially have no rural areas. .

In developed or developing nations, mobile or communications network rural coverage is an issue. In the United Kingdom, for example, two percent of road miles have zero 2G network coverage, while 12 percent of road miles have only partial 2G coverage, the RAC Foundation says.

On six percent of road mileage, there is no 3G coverage, while 45 percent of road miles have only partial 3G coverage.

Some 56 percent of road miles have no 4G coverage, while 27 percent of road miles have only partial 4G coverage.

	Miles (%) of road in Britain with…
	Full network coverage	Partial network coverage	No network coverage
2G	211,753 (86%)	28,975 (12%)	4,561 (2%)
3G	119,057 (48%)	111,679 (45%)	14,554 (6%)
4G	43,070 (18%)	65,950 (27%)	136,271 (56%)

source: RAC Foundation

As a general rule, networks serving such areas are not sustainable on their own, meaning that potential revenues never will justify building facilities. Instead, such investments must be subsidized either from surplus generated elsewhere on the network, or by direct government subsidies.

In the past, rural service has been subsidized both by profits earned from customers in urban areas, by business users and by government support programs. That will continue to be necessary.

But profits from sales of voice services or text messaging services are becoming more difficult. Mobile data services are the current driver of surpluses in most developed nations, and will become the key drivers in most developing nations, eventually.

But what happens when mobile data revenues have reached saturation? What comes next?

Internet of Things is the big answer many believe will develop. In other words, revenues and profits earned from IoT will drive supplier business models, generating enough surplus to keep extending service to rural areas.

That is one reason why IoT is a key focus of the Spectrum Futures conference this year. Here’s a  fact sheet and Spectrum Futures schedule.

At some point, after mobile data access has reached saturation, IoT services and revenues will be required to sustain the mobile business model in general, and pay for money-losing services in rural areas.

That is why work on new platforms, more affordable and therefore potentially able to close the business model gap between revenues and cost, are so important.

Put simply, costs must drop much more, consumers must perceive the value of Internet services and be able to pay for such services, or alternative methods of subsidizing end users must be created.

Some of us would argue all of those developments are required. That is why developments such as Telecom Infra Project, Free Basics, Project Loon, unmanned aerial vehicles, unlicensed and shared spectrum, use of millimeter wave radio and creation of new apps and services that drive value are so important.

Without serious innovation in the access networks business, it might literally not be possible for many service providers to continue operating.

Spectrum Fees, High Incremental Capex, Lower Value in Ecosystem Mean Historic Changes Might be Necessary

Mobile operators in India pay fees for use of spectrum. For spectrum acquired in the upcoming 2016 auctions, the spectrum usage charge will be three percent of of service provider adjusted gross revenue (AGR) on spectrum acquired in forthcoming auction in 700, 800, 900, 1800, 2100, 2300 and 2500 MHz band.

Bharti Airtel, India’s largest telecom operator will pay 3.8 percent. Reliance Jio Infocomm will pay about 3.05 percent.

Those charges might be seen as a small part of a much larger problem: high capital investment and regulatory risk that makes the business model unsustainable.

And at least some now question whether there is truly enough potential revenue in at least some emerging markets to sustain robust investment in traditional mobile network bandwidth. An open question: whether a dramatic reduction in access network costs is feasible.

By the same token, one might question whether there is enough demand to support gigabit Internet access in many countries without key subsidies from government.

Nearly 40 percent of South Korea’s broadband network build between 2005-2014 was provided by the government, for example.

Few countries are able to support--or even consider--that level of support to create high-performing Internet access facilities for their citizens.

It gets worse.

To a large extent, one might argue, access providers are capturing a smaller share of overall ecosystem value. Bluntly, one might say, access providers really are becoming commodity dumb pipe providers while value and revenue shift to app providers, device suppliers and others.

“Even after accounting for Wi-Fi and new technologies and alternate business models, there will be still significant global wireless data demand that is not economically possible to serve,” says James Sullivan, J.P. Morgan head of Asia equity research. .

Declining value capture is paired with a significant, and ongoing, increase in capital intensity. In at least some cases, that will mean possible nationalizing of networks. In other cases, competitors might be forced to consider sharing network facilities, to stave off such intervention.

That would overturn nearly a half century of moves to privatize assets and introduce competition.

“Emerging market telcos have no choice but to fundamentally change the structure of industry assets through the unification of networks via nationalization, centralization under a regulated return utility, or more aggressive commercial network sharing,” argues James Sullivan, J.P. Morgan Chase Head of Asia Equity Research.

Simply, between now and 2024, telco capital investment and operating expense will climb, while revenue growth lags. But there also is regulatory risk. India, the Philippines, Thailand, Malaysia, Indonesia and Turkey are countries where capex pressures are the big problem.

Regulatory risks exist in Indonesia, Brazil, South Africa and Malaysia, he argues.

Markets with the potential for the most extreme margin compression include the Philippines, India and South Africa; while more defensive margin markets are Nigeria and China, says Sullivan.

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. Sullivan will be sharing his perspective at the event.

Comcast Isn't the Biggest "Cable" Company Anymore

The largest U.S. “cable” company is not cable company, anymore. Counting firms the old way, Comcast is the biggest “cable TV” company.

1. Comcast: 22,400,000
2. Charter Communications: 18,421,145
3. Cox Communications: 4,540,280
4. Altice: 3,948,000
5. Mediacom: 862,000

But it long has been the case that there are several ways to deliver linear entertainment video: cable TV networks, satellite and now telco networks. Using a “linear video entertainment” definition, rather than counting by access network technology, the market shares are different.

1. AT&T U-Verse and DirecTV: 26,000,000
2. Comcast: 22,400,000
3. Charter Communications: 18,421,145
4. Dish Network: 13,909,000
5. Verizon FiOS: 4,700,000

Cloud Services Leaders Growing at 53% to 162% Annual Rates

Amazon Web Services (AWS), Microsoft, IBM and Google combined control well over half of the worldwide cloud infrastructure service market, and are growing briskly. Google’s cloud infrastructure grew at a 162 percent annual rate, while Microsoft’s cloud services business grew at a 100-percent rate, from the second quarter of 2015 to the second quarter of 2016, according to Synergy Research Group.

Amazon, the market leader, grew at a 53 percent rate, while IBM’s business grew at a 57 percent rate.

In aggregate the big four grew their cloud infrastructure service revenues 68 percent in the second quarter of 2016, while the next 20 largest cloud providers grew by 41 percent and all other smaller providers grew by 27 percent.

The market as a whole grew by 51 percent. Amazon’s business is almost three times the size of its nearest competitor and has a clear lead in all major regions and most segments of the market.

source: Synergy Research Group

For Verizon, Being #3 to Google and Facebook Might Not be a Bad Outcome

Few--if any--observers seem to think Verizon will gain market share against Google and Facebook with its combined AOL-Yahoo business.

“Verizon Communications Inc.'s planned purchase of Yahoo! Inc. for $4.83 billion in cash would make the telecom giant the clear number-three player in the U.S. digital ad market,” says Seth Shafer, SNL Kagan research analyst. “However, gaining ground on Google Inc. and Facebook Inc. could prove difficult.”

Some might argue that being third, and even lagging Google and Facebook by quite some measure is not such a bad outcome for Verizon.

Challenging either Google or Facebook in a serious way might seem fanciful to most observers. But, at a minimum, the new Verizon unit is likely a $4 billion or bigger annual revenues business, which is sort of a minimum for Verizon to bother with.

Also, a market positioning of “we offer an alternative to Google and Facebook” would seem to be sustainable.

source: SNL Kagan

Automation, Machine Learning are Issues in Developing and Developed Nations

Automation, including use of artificial intelligence and machine learning, might boost productivity, but also cause job loss, in developing as well as developed countries. That is not a new problem.

The advent of the industrial revolution caused similar stresses two hundred years ago. But as a growing number of us might say, high productivity gains that lead to job stresses have to be coupled with high efforts to ameliorate those stresses.

An increase in inequality seems to be a byproduct of technology revolution, and therefore creates a challenging new problem to solve.

source: World Bank

source: World Bank