Few U.S. Business ISP Customers Would Recommend That Others Buy Their Chosen Services

source: PC Magazine

“Value” is what buyers say it is, despite all efforts by suppliers to define and shape perceptions of product value. So customer surveys often are important measures of value perceptions. One recent survey of business customers of Internet service providers found RCN and Verizon FiOS at the top of the rankings, Charter Communications ranked above average but all other surveyed major providers below average among business customers.

For those who rely on “net promoter scores” (a measure of customer loyalty based on the answer to a single question: “How likely is it that you would recommend our company/product/service to a friend or colleague?”), the results are consistent with overall rankings.

RCN and Verizon are at the top; Charter and Cox Communications are in positive territory, but all others have negative net promoter scores.

The “likelihood to recommend” scores for U-Verse, TWC, Comcast, and CenturyLink are all so low that the resulting Net Promoter Scores are all negative numbers.

Broadly, those rankings are consistent with polls of consumer satisfaction with U.S. Internet service providers. According to the American Consumer Satisfaction Index, Verizon is significantly ahead of other providers.

So far, no major entity seems to track Google Fiber performance as a routine part of such indices, so it impossible to say how consumers rank Google Fiber.

But the ISP industry is the lowest-ranked industry studied as part of the ACSI program. Linear TV fares only slightly better than the ISP industry.

U.S. Internet Speeds up 42% Year Over Year

The internet in the United States has gotten significantly faster in 2016, according to Speedtest.

But speeds should grow even more over the next couple of years, as more consumers are able to buy services at gigabit speeds from a number of providers, and more consumers opt to buy services operating at several hundred megabits per second.

The typical U.S. fixed broadband consumer saw average download speeds greater than 50 Mbps for the first time ever during the first six months of 2016, topping out at 54.97 Mbps in June 2016.

That represents a 42 percent increase in download speed year-over-year. Upload speed improved by over 50 percent since last year, with the average consumer having upload speed of 18.88 Mbps.

Mobile Internet customers have also seen performance gains, improving by more than 30 percent since 2015 with an average download speed of 19.27 Mbps in the first six months of 2016.

Also, access medium is becoming less directly connected with speed. Cable TV hybrid fiber coax networks, for example, lead most other networks, including some fiber to home networks, for speed. Over time, mobile and fixed wireless networks also will reach into gigabit ranges, further severing the connection between physical media and top speeds.

source: Speedtest

Moving up the Stack, or Across the Value Chain: Difficult, but Perhaps Not Impossible for Telcos

The telecommunications business is harder than it used to be, but not only because competition now is the rule. The emergence of the Internet means the access and transport functions are only a part of a bigger ecosystem. That is as true for the “smart cities” ecosystem as for the content ecosystem.

As consultants at PwC point out, in the smart cities as in content or other Internet ecosystems, telcos and access providers operate in the “network” part of the full value chain. But most of the value will come elsewhere, from services and apps able to provide the intelligence and control for processes that modify real-world activities.

That is why moving up the value chain is so important, and why many access providers are investing in Internet of Things, machine-to-machine communications and industrial Internet, if rather cautiously.

That might not be a bad thing. As crucial as IoT appears to be for future revenue growth, telcos do not have stellar records where it comes to buying their way into new lines of business, with a few clear exceptions.

Not all telcos were bullish about mobile services from the start. In fact, one can argue that the large U.S. telcos bought their way in to a mobile business lead by other firms.

Perhaps we already can say, or will say in the future, that movement into video entertainment was one of the obvious successes.

Not an immediate success, however. Most do not now remember that AT&T once owned the biggest U.S. cable TV firm, Tele-communications Inc. as well as MediaOne, the cable TV unit once owned by USWest (now part of CenturyLink), before selling the assets to Comcast.

Even longer ago, almost nobody remembers that AT&T own owned NCR, a computing firm, as well as the assets of Teradata, a data warehouse specialist.

More recently, many telcos have moved into the data center business, with mixed results.

source: PwC

The point is that very-large firms tend to have trouble “innovating.” Tier-one telcos are large firms.

But even telcos--despite many failures--managed to create significant new businesses in mobile and video entertainment.

There are no guarantees. But success--even huge success--cannot be ruled out where it comes to IoT, M2M, connected cars or other lines of business.

In both mobile and entertainment video businesses, telcos operate at the app layer, with “access” simply an input to the business. It is not impossible that could happen in other new lines of business.

Mobile Supply and Demand Changes: Incremental Now, But Watch Out

If greater supply of a ny product tends to produce lower prices, and lower prices tend to lead to greater consumption, then one can predict that mobile prices are headed lower, and mobile data and voice consumption is headed up, as vast new changes in the supply chain take place.

South Asia and Southeast Asia will be affected more than the U.S. market, initially. Eventually, the U.S. market will face greater disruption than seen in South Asia and Southeast Asia, though.

Those greater supply will come from  the issuance of additional spectrum for communications, more-efficient use of existing spectrum, lower-cost platforms and market entry by a mix of large and small new competitors.

In some cases, though the immediate changes are incremental, the longer-term changes could represent an order of magnitude (10 times) or even two orders of magnitude (100 times) more capacity.

It is hard to see how anything other than business model disruption will happen, as a result of those changes. In fact, J.P. Morgan equity analyst James Sullivan believes mobile business models are unsustainable across parts of South and Southeast Asia.  

In the near term, the challenges are likely to be incremental, rather than market shattering.

In Southeast Asia, spectrum allocations in the second half of 2016 will intensify telecom competition in Indonesia, Singapore and Malaysia, as regulators are preparing to reallocate spectrum for mobile data services, Fitch Ratings says.

Though additional spectrum does not always lead to greater competition, it appears regulators will allocated the new spectrum in ways that do so. In Singapore, some spectrum will be set aside to support a new competitor. In Indonesia new spectrum likely will be allocated to allow some contestants with less spectrum to gain greater parity with the spectrum-rich firms.

In Indonesia, it will be crucial for fourth-largest telecom operator PT Hutchison 3 Indonesia (Hutch) and the largest mobile operator PT Telekomunikasi Selular to win  new spectrum in the upcoming assignment.

Hutch has the smallest spectrum holding among the four largest Indonesian telcos. Meanwhile, Telkomsel still serves a large 2G market and will require additional spectrum to cater to its growing 4G subscriber base.

Some 48 percent of Indonesian mobile subscribers are still on the 2G network. Indonesia's Ministry of Communications and Information Technology is scheduled to announce the spectrum assignment of two 5MHz blocks of 2100 MHz, and two 15 MHz blocks of 2300 MHz later in 2016.

In Singapore, the Infocomm Development Authority's decision to lower the reserve price of the total 60 MHz spectrum set aside for a new mobile network operator (MNO) and double the allocation in the 2.3 GHz band to 40 MHz, are expected to increase the amount of competition.

An October 2016 auction will set aside 2x10 MHz in the 900 MHz band, and 40 MHz in the 2300 MHz band for a new operator.

Fitch believes the smaller spectrum allocation in the 900 MHz band for the incumbents Singapore Telecommunications Limited, StarHub and M1 will result in the companies boosting their capital spending over the next two years, as the new operator is expected to compete on price to gain market share.

The spectrum reassignment by the Malaysian Communications and Multimedia Commission in 2016 also is likely to intensify competition in Malaysia.

As in Singapore, the emphasis for new spectrum seems to be to support smaller competitors. The third-largest mobile operator DiGi and mobile virtual network operator U-Mobile will benefit from a larger allocation of the coveted 900 MHz spectrum.

Fitch believes this will enable them to challenge the market leaders Celcom and Maxis, whose allocations for 900 MHz and 1800 MHz have been reduced.

Celcom and Maxis also are likely to build more cells, and densify their networks, to make more-efficient use of their spectrum, as a result.

Fixed-line operator Telekom Malaysia also will enter the mobile services business with unlimited data, SMS and voice plans.

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. New lower-cost platforms and huge increases in spectrum supply are among the issues to be discussed.

Here’s a  fact sheet and Spectrum Futures schedule.

Verizon Wireless 4G Leadership is Not "Sustainable"

Sustainable advantage in any competitive market is difficult to impossible, some would argue. In the U.S. mobile business, that might be seen in a recent OpenSignal 4G speed test that had T-Mobile US edging past Verizon Wireless.

Though not the only measure of network quality--Verizon still had better 4G signal availability, for example--T-Mobile US performance shows how competitors can, over a period of time, close gaps.

Sprint, for its part, now touts network reliability within one percent of Verizon and AT&T.

source: Sprint

To maintain its marketing position of “having the best network,” Verizon Wireless will have to respond in 4G, while shifting from leadership in 4G “quality” to an emphasis on 5G leadership.

AT&T also enjoyed a brief period when it had--starting in 2007--exclusive rights to sell the Apple iPhone, something virtually everyone believes helped AT&T measurably, before the other service providers gradually also got rights to sell iPhones.

That exclusive, some argue, boosted average revenue per user more than $5 a month, reduced churn by a few tenths of a percent and reduced AT&T’s cost per gross addition by $300.

Others might argue the iPhone exclusivity boosted AT&T revenues and profit margins, especially compared to key rival Verizon Wireless. In fact, AT&T iPhone customer revenue was arguably boosted far more than $5 a month.

But determined competitors eventually close gaps. All the top four carriers eventually got rights to sell the iPhone.

The point is that advantage in the mobile market, as in virtually all others--is not “sustainable” over time. Competitors catch up. To keep a lead, contestants need to keep innovating. And that is why Verizon will push so hard to lead with 5G.

Average U.S. Internet Access Speed Should be 200 Mbps or Higher by 2018

Up to a point, consumers might not care whether the prevailing headline speed for high speed access--where they are able to buy it--is 100 Mbps or 1,000 Mbps (1 Gbps).

In some important ways, a symmetrical connection is “better” than an asymmetrical connection, while “more” bandwidth is “better” than less bandwidth.

For suppliers, who must make the capital investments, it matters whether 100 Mbps or 1,000 Mbps is the ubiquitous offering. But if the market standard is set by a competitor offering 1 Gbps, the upgrades simply must be made.

Of course, headline speed is not the only issue. Lots of consumers will conclude that 100 Mbps at a lower price is preferable to 1,000 Mbps at a higher price.

But it wasn’t so long ago that government policymakers and Internet service providers were talking about building ubiquitous 30 Mbps “ultra-fast” connections, so rapid progress is being made, in some markets and nations.

The typical fixed broadband consumer in the U.S. saw average download speeds greater than 50 Mbps for the first time ever during the first six months of 2016, topping out at 54.97 Mbps in June. That represents a 42 percent increase in download speed year-over-year, according to Ookla.

According to the U.S. Department of Commerce, 59 percent of U.S. population in 2013 could buy service of at least 100 Mbps download speed, according to the Department of Commerce.

About eight percent could, three years ago,  choose from at least two 100 Mbps providers, and one percent could  choose from three.

With Comcast, AT&T, CenturyLink, Google Fiber and others now rolling out gigabit access service, those figures likely are far too conservative. In fact, U.S. Internet access speeds have been doubling or tripling every five years.

So the U.S. Department of Commerce figures are, by now, quite out of date. At the usual rates of development, the average U.S. consumer should have access to 200 Mbps or more by about 2018.

U.K. Business, Consumer Spending on Communications Fell from 2010 to 2015

Spending by U.K. businesses and consumers has fallen from 2010 to 2015, Ofcom says, though industry revenue was up slightly in 2015, driven by higher consumer spending on high speed access, but offset by flat business and mobile spending.

Total UK telecom revenue grew by £0.2 billion (0.5 percent) to £37.5 billion. The big change was significantly lower roaming revenue, down nine percent.

source: Ofcom

Revenue from corporate data services fell in 2015, declining by one percent.

Average monthly household spend on telecoms services increased by £2.52 (3.2 percent) to £82.17 in real terms in 2015, driven largely by higher spending on faster Internet access services.

The total number of fixed voice lines decreased by 0.3 million (one percent) to 33.2 million in 2015, while the total number of mobile subscriptions, including handset, dedicated mobile data and machine-to-machine (M2M) connections, increased by 1.6 million (1.8 percent) to 91.5 million during the year.

Fixed-to-mobile substitution in voice calls continued in 2015, when fixed voice call minutes fell by seven billion minutes (9.2%) to 74 billion minutes in 201551 and mobile voice call minutes increased by five billion minutes (2.0%) to 143 billion minutes.

Falling mobile voice prices are likely to have contributed to these trends, as well as the increasing prevalence of mobile tariffs offering unlimited voice minutes, and the convenience of smartphones.

The total number of outgoing SMS and MMS messages continued to fall in 2015, down by eight billion messages (7.6 percent) to 101 billion messages.