Near Term, Telcos Need Acquisitions to Grow Revenues Fast

source: Telco 2.0

Looking only at markets in the United States, Canada, France, Germany, Spain, UK, Italy, Singapore and Taiwan, researchers at STL Partners have estimated core revenue losses of 25 percent to 46 percent between 2012 and 2018, potentially.

In other words, to stay where they already are, in terms of revenue, service providers will need to create between 25 percent and 46 percent more new revenue over the six-year period. Big acquisitions are almost certain to be part of the answer.

AT&T’s acquisition of DirecTV, for example, instantly made AT&T one of the biggest providers of video entertainment in the U.S. market, and changed its revenue profile by about $7 billion per quarter, or potentially $30 billion annually.

It would have been virtually impossible to add that much revenue, so fast, by any organic means.

In similar fashion, Verizon spent $130 billion to buy the minority stake in Verizon Wireless owned by Vodafone, boosting annual revenue by about $22 billion.

Still, even that will not be enough, long term. Voice, messaging and linear entertainment video already are flat or declining.

Eventually even Internet access revenues will stall, then decline, at some point. Long term, big new revenue sources must be found.

Telcos Need to Place Big Bets

source: Infonetics

It is not yet clear how well some tier-one service providers will fare, as providers of enabling services

for business partners. It is clear that many observers believe future revenue sources will depend more on partner relationships and services than telco-created apps and services.

Some might argue that voice, Internet access, messaging, wholesale and enterprise services are the “core,” while virtually everything else must be developed.

Those pressures arguably are most intense in the European markets, where virtually every legacy service has declining revenues.

source: Ali Saghaeian

If global telecom revenues were about $2.2 trillion in 2015, and one assumes that half of that revenue from legacy sources will be lost over 10 years, then new services will have to grow by $1.1 trillion over that same decade simply to replace lost current revenues.

source: Telco 2.0

For the largest global service providers, that implies discovery and creation of huge new markets. For NTT, some $70 billion in annual revenue has to be found. AT&T would  need to discover $65 billion, Verizon perhaps $59 billion, Telefonica $40 billion, Deutsche Telekom $38 billion.

In some cases, a significant portion of the gain could come from acquired firms in new geographies. Still, with all legacy services in decline, or destined to decline, that strategy is a short term solution only.

One might be skeptical about Verizon’s prospects in mobile advertising, for example, or AT&T’s move into entertainment video. Whether IoT winds up being as big a revenue driver for mobile companies as some anticipate also is open to question.

What is not open to question is that mobile firms need to make big bets on replacement revenue sources, as difficult as it might be. The largest mobile firms will need to create new businesses and revenue streams worth scores of billions.

Smartphone Infection Rate Up 96%

The smartphone infection rate averaged 0.49 percent in the first half of 2016, according to Nokia, up about 96 percent from the 0.25 percent experienced in the second half of 2015.

The infection rate rose steadily in the early months of 2016, reaching a new high of 1.06 percent of devices in April.

Smartphone infections accounted for 78 percent of the infections detected in the mobile network, while 22 percent are related to Windows/PC systems connected using dongles or tethered through phones.

In April 2016, 0.82 percent of smartphone devices exhibited signs of malware infection.

The overall monthly infection rate in residential fixed broadband networks averaged 12 percent in the first half of 2016. This is up from 11 percent in late 2015.

source: Nokia

Mobile Apps are More than Half of All Media Consumption

comScore

Smartphone apps now account for more than half of all Americans’ time spent online, according to comScore. That provides some insight into the primary role mobile devices now play in the content ecosystem.

But that fact also might illustrate one more way the “open Internet” is being reshaped, as well as illustrating why “open” continues to compete with “closed” as an approach to Internet-related devices, apps and services.

In fact, some might argue that “open” is not always the “best” approach. One downside of “open” Android is fragmentation, compared to the closed, walled garden approach taken by Apple.

And it is very hard to argue that consumers are worse off when they have convenient access to “walled gardens” such as Free Basics. In fact, even critics must concede that consumers are better off when they have access to such “walled gardens” because free-to-use Internet access is available.

The same argument applies for many other types of sponsored usage. Consumers often benefit from offers that are bounded or customized, rather than “open.”

comScore

Some might argue that a world dominated by apps is more a “walled garden” than a world where web pages are the way most people use Internet content and apps.

Some nations ban some apps. That’s one angle. But should consumers be prevented from choosing products they prefer, even if more “closed” or “packaged” than might otherwise be the case?

Choice itself always leads to winners and losers. We might rightly object to external constraints on “choice,” such as application bans. It is harder to object to consumer choice. And sometimes that choice is for a more “closed” approach.

It Doesn't Matter Whether Google Fiber is Available to Most U.S. Households

It has been argued that Google Fiber would never be available to most U.S. households. Those predictions might turn out to be correct. And yet, it might not matter.

The real question is whether  gigabit Internet access will be made available to most U.S. households.

And the answer to that question is “yes.”

U.S. cable TV companies--even if Google Fiber kicked off the gigabit upgrade movement--already are the primary suppliers of gigabit connections in the U.S. market.

Comcast, the largest U.S. Internet access provider, is upgrading all its consumer locations to gigabit speeds, and makes available a symmetrical 2 Gbps service available to about 85 percent of its locations.

AT&T now touts the extensiveness of its own gigabit access service, and bigger changes are coming, as the 5G standard calls for gigabit speeds.

Independent gigabit suppliers operate as well, but cannot serve most potential U.S. customers because their networks are local and targeted.

The big change will come when 5G is commercialized, making gigabit available to most locations and potential consumers, though perhaps not always as a direct substitute for fixed connections.

The big issue for 5G platforms is whether mobile or fixed wireless offers will be close enough to wired access offers to be effective substitutes.

That noted, as many as 100 million gigabit customers might be connected by 2020. Some might note that this is not the most important headline number. As already is the case, marketing of gigabit offers also stimulates sales of services operating at lower speeds (100 Mbps to 300 Mbps, for example), often representing speed upgrades.

It no longer matters--if it ever did--whether Google Fiber is available to most U.S. households.

Cable TV Companies Now Drive Gigabit Internet Access in U.S. Market

source: NCTA

Some argue cable TV is bad for the Internet, in the sense that the industry prefers walled garden content, higher prices and data caps.

Others would argue that one reason the U.S. Internet access market has moved so quickly towards gigabit access is because cable TV operators are able to upgrade their services so affordably, compared to other platforms.

It requires a nuanced discussion.

As a content distribution provider, Comcast’ legacy business model is threatened by over the top distribution alternatives.

But Comcast also knows very well that the new Internet access business is what drives its future growth, not linear video services or voice. Between 2016 and 2026, cable TV operator video revenue will fall but Internet access revenue will climb, according to SNL Kagan.

In the second quarter of 2016, the biggest U.S. cable TV companies had more than 57 million high speed accounts and 48.9 million linear video customers, according to Leichtman Research Group.

Internet access will be important for U.S. telcos as well.

source: Business Insider

The point is that U.S. cable TV companies have a vested and big interest in growing their Internet access businesses, irrespective of other issues.

Also, cable TV companies--even if Google Fiber kicked off the gigabit upgrade movement--are the primary suppliers of gigabit connections in the U.S. market. In that sense, it must be said, U.S. cable TV companies have done much to rapidly upgrade U.S customer Internet access speeds and availability.

Comcast, the largest U.S. Internet access provider, is upgrading all its consumer locations to gigabit speeds, using software and device changes on the ends of the network, without access media changes.

Gigabit Internet Access Forecasts are Too Low, Ironically

Any linear forecast for gigabit Internet access connections is likely going to be wrong, since the biggest long-term change will be provision of gigabit service by mobile operators on a routine basis.

Deloitte Global predicts that the number of Gigabit per second (Gbps) Internet connections grew to 10 million in 2015, a tenfold increase, of which about 70 percent will be residential connections. All of that represents fixed network potential.

in 2015, the number of Gbps tariffs almost doubled in just three quarters, from just over 80 to over 150, and falling prices.

By 2016, 250 million customers will be able to buy gigabit service, all on fixed networks.

Some 600 million subscribers may be on networks that offer a gigabit tariff as of 2020, representing the majority of fixed network connected homes in the world.

At the moment,  between 50 and 100 million broadband connections may be Gbps, or can be purchased by customers, representing five percent to 10 percent of all broadband connections.

Of these about 90 percent are residential.

Those forecasts eventually will be eclipsed when 5G mobile networks become staples of the mobile business, as 5G--by definition--will support gigabit speeds.

In fact, we are likely to see a period where--at least on the metric of speed--fixed networks are nearly universally slower than mobile networks, something that has not happened, on a wide scale, ever before.

source: Point Topic