OTT Provides Better Video Business Model Than Linear Video, CenturyLink Believes

LInear video always has been a tough business model for any small telco. That also seems to be true even for firms the size of AT&T, Verizon and CenturyLink, for several reasons.

Verizon earns modest amounts of total revenue from anything other than mobility services. Mobility generally contributes as much as 70 percent of total revenue, with fixed network business and consumer services representing 30 percent. AT&T earns more total revenue from its fixed network than does Verizon, but consumer video service revenue mostly is generated by the DirecTV operation, not fixed network video.

AT&T only had about five percent market share in the linear video subscription business prior to its acquisition of DirecTV. Now AT&T is the single largest linear video provider, but on the strength of satellite delivery, on market share of fixed network services.

So video services represent growing amounts of revenue, but not at a significant  level. “We don't look to video as a significant revenue and EBITDA contributor in 2017,” CenturyLink has said.

Also, all consumer revenues only contribute about 25 percent of CenturyLink total revenues, which mostly are earned selling services to business customers.

“If you look at our Prism product, as you know, we've talked about content costs have really gone out of sight the last couple of years,” said Glen Post, CenturyLink CEO. “If you look at the margins, sometimes actually negative margins,” said Glen Post, CenturyLink CEO.

In addition to the “cost of goods sold” problem, CenturyLink costs include truck rolls and installation capital and operating cost.  

“With over-the-top product, we don't have to make a truck roll,” said Post. “We have much wider availability due to lower bandwidth requirements of over-the-top.”

In other words, the business model for over the top TV is better than for linear video.

Why Telcos Do Not Sell Mobile PBX Services: Market is Way Too Small

Every now and then, someone advocates a “mobile PBX” service that would allow enterprises and other businesses and organizations to map organization phone numbers to personal cell phones, probably using a virtualized switching scheme that does away with the need to own a business phone system.

Some suggest mobile service providers are “dumb” for not offering such a service and capability. Maybe not. For starters, the incremental revenue opportunity might be relatively small, and the relative hassle and cost relatively high.

The global market for sales of business phone systems is probably in the neighborhood of $6.4 billion annually.

That is a fairly small market for all telcos globally, if one assumes that the actual revenue earned by a telco selling such a system would be some fraction of the sales price. Assume a 10-percent profit margin on the direct value of sold merchandise.

That means the global revenue (before overhead and sales costs) is about $640 million annually. That is way too small a business for even a single tier-one provider to want to tackle, as that is global revenues. The cost of setting up a global sales and service organization of that magnitude would be prohibitive.

Some might argue that is not a problem, as a virtual PBX service would net recurring revenues of greater interest. But the problem there is the same issue that has likely prevented even more organizations from buying phone systems. After some point, buying multiple lines of service becomes more expensive than buying a business phone system, as suppliers of managed business phone services can readily attest.

If you want to know why mobile service providers have not moved sooner to create mobile PBX services, the business model explains why.

The market is simply too small to bother with. Much the same problem is encountered with any proposed mobile unified communications offer. The market simply is way too small for a telco to attempt to provide.

source: IHS Infonetics

IoT Will Require Mobile Network Overlay

Much as some mobile industry executives might prefer a single network platform that supports all conceivable apps--low bandwidth and high bandwidth;  latency insensitive and latency dependent; low cost per bit and higher cost per bit; human and machine users; mobile and fixed--that does not seem likely to happen in the 5G era, Cisco believes.

It might well develop that low-bandwidth sensors, requiring unusually low connectivity prices, are best supported by an overlay IoT network, rather than some variant of either 4G or 5G networks.

Cisco sees specialized low power wide area (LPWA) networks will grow from seven percent in 2016 to 31 percent of device connections by 2021, with mobile operators deploying such networks as an overlay.

Globally, M2M connections will grow from 780 million in 2016 to 3.3 billion by 2021, a 34-percent compound annual growth rate, Cisco forecasts.

 

source: Cisco

source: Cisco

Wearable devices might normally be considered the category of IoT appliances that use mobile network connections the most. Maybe not. By 2021, Cisco estimates there will be 929 million wearable devices globally, growing nearly threefold from 325 million in 2016 at a CAGR of 23 percent.

But only about seven  percent will have embedded cellular connectivity by 2021, up from three percent in 2016.

source: Cisco

in 5G Era, Will Wi-Fi Offload Still be So Important? Probably Not

Offload of mobile device connections from the mobile network to Wi-Fi has been a generally-growing trend for some time, steadily increasing from 2G to 3G to 4G. But that might well change with 5G, where so much capacity, and lower costs, might provide clear incentives to remain connected on the mobile network, most of the time.

Some 31 percent of mobile device traffic was offloaded on 2G networks, 45 percent on 3G networks and 66 percent on 4G. That might well reverse in the 5G era, where Cisco suggests 48 percent of mobile device traffic will be offloaded. In some markets, where tariffs are encouraging, and capacity is not an issue, the offload percentage might be far lower than that.

In 2016, 63 percent of all traffic from mobile-connected devices was offloaded to the fixed network by means of Wi-Fi devices and femtocells each month, Cisco says.

Of all IP traffic (fixed and mobile) in 2021, 50 percent will be Wi-Fi, 30 percent will be wired and 20 percent  will be mobile.

Cisco argues that offload volume is determined by smartphone penetration, dual-mode share of handsets, percentage of home-based mobile Internet use, and percentage of dual-mode smartphone owners with Wi-Fi fixed Internet access at home.

Some of us might argue that, in addition to those issues, retail tariffs and network capacity will play a key role, perhaps even a decisive role. The reason is that consumers are rational where it comes to paying for access. If remaining on the mobile network provides reasonable user experience at reasonable cost, the incentive to offload is reduced (even if it is very easy, and seamless, for devices to switch.

That noted, not all consumers will be on 5G connections in 2021, so incentives to offload will still exist.

For that reason, the amount of traffic offloaded from smartphones will be 64 percent by 2021, and the amount of traffic offloaded from tablets will be 72 percent.

Cisco notes that data caps and costs are issues. “Some have speculated that Wi-Fi offload will be less relevant after 4G networks are in place because of the faster speeds and more abundant bandwidth,” Cisco’s Visual Networking Index staff notes. “However, 4G networks have attracted high-usage devices such as advanced smartphones and tablets, and now 4G plans are subject to data caps similar to 3G plans.”

“For these reasons, Wi-Fi offload is higher on 4G networks than on lower-speed networks, now and in the future according to our projections,” Cisco staff say.

But the same report also suggests that, on 5G networks, Wi-Fi offloading will decrease. “As 5G is being introduced, plans will be generous with data caps and speeds will be high enough to encourage traffic to stay on the mobile network instead of being offloaded, so the offload percentage will be less than 50 percent,” they say.

Wi-Fi and mobile traffic both are growing faster than fixed traffic (traffic from devices connected to the network through Ethernet).

Fixed traffic will fall from 52 percent of total IP traffic in 2015 to 33 percent by 2020, as a result.

source: Cisco

Video Drives 75% of Mobile Data Traffic

More than 75 percent of the world’s mobile data traffic will be video by 2021, growing 900 percent between 2016 and 2021, accounting for 78 percent of total mobile data traffic by the end of the forecast period.

The average smartphone will generate 6.8 GB of traffic per month by 2021, a fourfold increase over the 2016 average of 1.6 GB per month. By 2021, aggregate smartphone traffic will be seven times greater than it is today, with a CAGR of 48 percent.

Asia Pacific will account for 47 percent of global mobile traffic by 2021, according to Cisco. But the Middle East and Africa will have the strongest mobile data traffic growth of any region with a 65 percent compound annual growth rate (CAGR). This region will be followed by Asia Pacific at 49 percent and Latin America at 45 percent CAGR.

China’s mobile traffic will surpass that of the United States by the end of 2017. China’s mobile traffic will reach 1.9 exabytes per month by the end of 2017, and mobile traffic in the United States will reach 1.6 exabytes per month, sys Cisco.

source: Cisco

Average Mobile Speeds to Grow by Order of Magnitude Next 5 Years

By 2021, more people will be using mobile phones (5.5 billion) than bank accounts (5.4 billion), running water (5.3 billion), or landline phones  (2.9 billion), according to the 11th annual Cisco Visual Networking Index.

Mobile data traffic seven-fold over the next five years, as a direct result.

Mobile network connection speeds, on average, will increase from 6.8 Mbps in 2016 to 20.4 Mbps by 2021.

Machine-to-machine (M2M) connections will represent 29 percent (3.3 billion) of total mobile connections -- up from five percent (780 million) in 2016.

M2M will be the fastest growing mobile connection type as global Internet of Things (IoT) applications continue to gain traction in consumer and business environments, Cisco predicts.

Mobile video will increase 8.7-fold from 2016 to 2021 and will have the highest growth rate of any mobile application category, representing 78 percent of all mobile traffic by 2021.

In 2016, 60 percent of total mobile data traffic was offloaded; by 2021, 63 percent of total mobile data traffic will be offloaded, Cisco predicts.

In part, that might happen because, globally, total public Wi-Fi hotspots (including homespots) will grow six-fold from 2016 (94.0 million) to 2021 (541.6 million).

Wi-Fi traffic from both mobile devices and Wi-Fi-only devices together will account for almost half (49 percent) of total IP traffic by 2020, up from 42 percent in 2015.

What might be interesting is whether that reliance on Wi-Fi might actually decrease, in some regions, as tariffs and mobile network capabilities grow so much that users see less benefit to offloading. In the 3G era, offload made sense because user experience was better. In the 4G era, offloading makes sense mostly to avoid mobile data usage charges, as experience generally is better on the 4G network. In the 5G era, it is conceivable, at least in many areas, that no economic or performance incentive will exist for traffic offload.

source: Cisco

Three Leading U.S. Mobile Operators Launch New Promotions

When one major supplier--especially a service provider positioned as a premium brand-- announces new mobile promotional deals, in a highly-competitive market, it does not take long for the other contestants to respond.

In the U.S. market, Sprint launched new promotions. Then Verizon and T-Mobile US responded. Now the issue is whether AT&T will decide it has to move also, and what form that response might take, if AT&T concludes that its core postpaid, multi-line account base is at risk.

The most-recent wave of promotions has seen the return of some form of unlimited-use plan to all four leading mobile operators, zero rating of video and price discounting.

The Sprint unlimited plans offer unlimited mobile data, talk and text messaging for $50 per month for the first line (with automatic payment); two lines for just $90 a month; and the third, fourth and fifth lines supplied for free.

In other words, five lines cost just $90 a month. Some might note that, as always, the promotions are time limited, so the long term impact is hard to gauge. Some might argue that additional promotions tend to follow, until the suppliers reach whatever market share goals they have targeted.

Savings through March 31, 2018. After the promotional period is over, customers will pay an  additional $10 per month for first line, the second line remains at $40 per month and each of lines three to five are $30 per month.

Verizon then launched new unlimited plans, something Verizon had eliminated in 2011. The Verizon Unlimited plan costs $80 a month, for unlimited data, talk and text, using paper-free billing and AutoPay features.

Both T-Mobile US and Sprint gained market share in the second half of 2016, presumably on the strength of  aggressive “unlimited usage” promotions. Verizon previously had stopped selling unlimited plans in 2011.

At the moment, all four leading U.S. carriers offer unlimited usage plans of one sort or another.

Just prior to the Verizon announcement, Sprint introduced a new family promotion, offering five lines of unlimited data for $90 per month excluding taxes and fees. Sprint's promotion lasts through March 31, 2017.

A current T-Mobile US unlimited plan costs $180 plan for five lines and $160 plan for four lines,  including taxes and fees.

Multi-user plans cost $45 per line for four lines. Some nevertheless are going to complain. After 22 GB of data usage on a line during any billing cycle, Verizon says it “may prioritize usage” in the event of network congestion. That “throttling” feature always is criticized in some quarters as a violation of the “unlimited” feature, but others simply see that as “fair use” policies.

Also included are up to 500 MB per day of 4G LTE roaming in Mexico and Canada.

T-Mobile US announced the addition of high-definition quality (HD) video and 10 GB of T-Mobile hotspot access, at no extra charge, with monthly taxes and fees included, for T-Mobile US customers on “T-Mobile One” customers,  T-Mobile US says.

T-Mobile US also introduced a new offer of two lines on T-Mobile ONE for $100 a month.  

The upgrades are available starting February 17, at no extra charge for customers on “T-Mobile One” service plans. Customers can simply activate their new features in the T-Mobile app or at my.t-mobile.com.

Previously, T-Mobile US had been offering unlimited video streaming--without usage charges on the customer’s mobile data plan--at standard definition. The latest move bumps up image quality, and also bandwidth consumption per minute of use.

Customers will get HD quality video streaming and up to 10GB of high-speed Mobile Hotspot data per month, so they can ‘tether’ a laptop or other device to access the Internet. And, after the included 10GB of high-speed data, customers still get unlimited 3G data through the end of the month.

As the latest move by T-Mobile US shows, unlimited data plans might have disruptive consequences.

Now that all four leading U.S. mobile service providers now offer some form of unlimited usage plan, consumer behavior and service provider behavior become crucial. Will consumer usage increase, and by how much, where and when? Will service providers keep the unlimited offers prominent in their marketing efforts?

If mobile network usage profiles change, how will that affect quality of experience on the various networks? And what will mobile service providers have to do to maintain quality in the face of increased network demand? How much can they do, near term?

In other words, will network congestion suddenly become a much-bigger issue?