Sure, AT&T and Verizon are "Unfocused" on Mobile; They Have to Be

Some argue that T-Mobile US is focused; AT&T and Verizon unfocused, where it comes to mobile services, and that explains why T-Mobile US is gaining share, while AT&T and Verizon struggle to add net new subscribers.

As with all observations, there is some grain of truth. T-Mobile US is a mobile-only operator attacking the  market to gain share, and does not have to worry about its future in the same way as AT&T and Verizon do, for one key reason.

T-Mobile US is a strategic seller, while AT&T and Verizon are strategic buyers. That has implications. T-Mobile US only has to add accounts and grow market share. It essentially knows it will eventually be acquired; it only does not know, yet, who the buyer will be.

Even profitability, and the ability to pay dividends, is not an issue for T-Mobile US: growing market share and cash flow are the actual objectives.

AT&T and Verizon must think and act seriously about growing new products and lines of business beyond mobility, as they plan to be in business long after T-Mobile US has been acquired.

That necessarily means working hard on growing internet of things, connected car, video and international businesses, mobile advertising and content services.

So, yes, in some sense T-Mobile US really is more focused. It can do so because mobile is its only business, and a business it intends to sell, someday. Growth, more than profits, is the goal.

AT&T and Verizon must focus on growth outside their legacy fixed and mobile businesses, to survive a shift in the business that T-Mobile US will not survive.

Video is a Huge Deal, for Telcos and Cable

The most-important fixed network bundle for U.S. consumers might be the dual-play “internet access plus linear video” package. There are several reasons. TV has the highest average revenue, and therefore the greatest impact on potential service provider cash flow.

Internet access arguably is the foundation service; the single most-important single service sold by any access provider, and arguably is the service with the highest profit margin for cable TV providers.

Comcast, for example, earns perhaps 46 percent of total revenue in its cable communications segment from video, while internet access contributes 27 percent. Voice represents just eight percent of revenue.

For telcos, the math is different, but equally strategic. Even when telco video services represented only five percent market share in video entertainment, video drove 60 percent of net telco account additions.

source: Market Realist

source: McKinsey

First FCC Action Under Chairman Pai is to Fund Rural Broadband

In its first action under Chairman Ajit Pai, the Federal Communications Commission voted to provide up to $170 million from the Connect America Fund to expand broadband deployment in unserved rural areas of New York State.

The $170 million in federal funding will be coupled with at least $200 million in state funding and private investment to jump-start broadband deployment and close the digital divide in these unserved areas.

“This is a first step of many to fulfill my promise to empower Americans with online opportunities, no matter who they are and no matter where they live,” said FCC Chairman Pai.

U.S. Mobile Customers are Rational Consumers of Network Bandwidth

When evaluating the ways U.S. consumers use Wi-Fi or mobile networks, one must distinguish between sessions, data consumed and average session time.

Session time and data consumption tend to be directly correlated on Wi-Fi, while negatively correlated on mobile networks. In other words, mobile sessions seem to be bursty, short sessions, while Wi-Fi sessions seem to be used for more-data-intensive purposes.

A reasonable person would argue that is a direct result of consumer behavior in response to tariff levels. -

Consumers also seem to be rational. On networks with “lowest perceived cost,” consumers use the mobile network more.

On networks with “highest perceived cost,” users restrict network usage. T-Mobile US and AT&T customers are most likely to use the mobile network, in terms of sessions. Sprint customers use both Wi-Fi and the mobile network about equally, in terms of sessions. Verizon customers rely more heavily on Wi-Fi.

LIkewise, when looking at time connected to either Wi-Fi or mobile networks, customers on high-cost networks tend to rely on Wi-Fi for as much as 51 percent of time connected. On the lowest-cost network (perception), Wi-Fi represents only about 39 percent of connection time.

source: P3 Consulting

source: P3 Consulting

Enterprises, Service Providers Do Not See Eye to Eye on Enterprise Priorities

Service providers do not always meet enterprise expectations for security, cloud or mobility services, a study commissioned by Tata Communications found.

Enterprises consider service providers best equipped to increasing their network capacity or reach (73 percent), or delivering hybrid networking (66 percent) services, while around half (48 percent) of enterprises feel that their network service provider is best suited to address their cloud needs.

That makes sense. Connectivity is what communications carriers always have done. Cloud is not only something new, directly supporting computing functions--something telcos never have supplied on a major retail basis--but also a function that megascale suppliers (Amazon Web Services and others) do more efficiently and effectively.

Service providers logically believe (76 percent) supporting employee mobility is key for enterprise UCC strategy. Only 26 percent of enterprises rank this as a top priority.

Some 27 percent of enterprises say lack of employee readiness as a barrier for UCC adoption, a view not shared widely by service providers.

How Can Telcos Create New Value as OTT Cannibalizes Industry?

It will come as no surprise to anybody who follows the industry that value in the communications (internet) ecosystem is shifting from access to apps.

Access provider share of the ecosystem profit pool has declined from 58 percent in 2010 to 47 percent in 2015 and is forecast to fall further, to 45 percent in 2018, the World Economic Forum (WEF) says. Among the beneficiaries are digital content creation, distribution and aggregation companies such as Google, Netflix and Facebook.

Together with device manufacturers, the combined share of industry profits of these segments (apps and devices) is expected to increase to 40 percent in 2018, up from 29 percent in 2010.

“Telecom players, already lacking OTT businesses in this respect, face a real threat of being left to compete on two inherently contradictory fronts – price and throughput – that could put margins under further pressure,” says the WEF. “Telcos could be left to compete as IP-connectivity pure plays.”

“In the extreme scenario, increasing commoditization of the core offering could see margins drop to the levels of utility companies,” WEF says.

source: WEF

“Over-the-top (OTT) applications generate 50 percent to 90 percent less revenue for communications service providers,” the World Economic Forum says. “While the exponential rise in data consumption has provided some relief, this has not been enough to overcome the consistent decline in mobile voice average revenue per user (ARPU).”

Web-scale players such as Google, Microsoft and Facebook are moving quickly to fill key gaps in core telecom services and connectivity, as well. Google Fiber, Project Loon and Project Fi are examples of what Google has been doing.

Amazon and Apple have been making investments to make access from any available netrwork possible, moves that further reduce access provider account control.

Facebook is developing open source public network standards, in addition to the open source data center standards it already has developed, and is using.

All that is driving a search for new business models and revenue streams. The World Economic Forum believes that search will require strong collaboration with vertical industries and internet platforms.

In large part, competitive advantage in digital services and IoT will be driven by the capability to collect and analyse large pools of data specific to vertical-market use cases and to target value opportunities through customization of services and offerings, WEF says.

source: World Economic Forum

The biggest revenue opportunities for the global telecom industry will come from deploying next-generation networks and creating services beyond access, the World Economic Forum believes. The next generation of networks could be worth $440 billion, while apps and services beyond access could represent $650 billion worth of value.

WEF believes Internet of Things (IoT) solutions, consumer and enterprise digital services and communication leveraging natural human interfaces and augmented reality / virtual reality are the areas where new apps will develop.

WEF believes virtualization and an abstraction of the physical hardware layer, to create self-optimizing and secure zero-touch networks will represent the value from next-generation networks.

source: World Economic Forum

IoT, Virtualization Will Drive $1.3 Trillion in Industry Value Over 10 Years, WEF Says

The biggest revenue opportunities for the global telecom industry will come from deploying next-generation networks and creating services beyond access, the World Economic Forum believes. The next generation of networks could be worth $440 billion, while apps and services beyond access could represent $650 billion worth of value.

WEF believes Internet of Things (IoT) solutions, consumer and enterprise digital services and communication leveraging natural human interfaces and augmented reality or virtual reality are the areas where new apps will develop.

WEF believes virtualization and an abstraction of the physical hardware layer, to create self-optimizing and secure zero-touch networks will represent the value from next-generation networks.

source: World Economic Forum