How the Global Telecom Business has Changed Since 2000

A few statistics will illustrate just how much has changed in the global telecom business since 2000. Prior to the turn of the century, most lines in service used wires and carried voice.

By 2007, 74 percent of all lines in service used wireless access or carried data, says the Organization for Economic Cooperation and Development.

Mobile alone in 2007 accounted for 61 percent of all subscriptions while standard phone lines have dropped to 26 percent. And the change has come swiftly: in just seven years.

Mobile revenues now account for nearly half of all telecommunication revenues—41 percent in 2007—up from 22 percent 10 years earlier. (click chart for larger view)

Along with the change in access methods and applications is the sheer number of connections. The total number of fixed, mobile and broadband subscriptions in the member nations of the Organization for Economic Cooperation and Development grew to 1.6 billion in 2007, compared to a population within the OECD nations of just over one billion inhabitants.

To put that in perspective, consider that there were seven access paths in use in 2007 for every access path in use in 1980. That includes broadband, wireless and voice connections.

To put those figures in even greater perspective, consider that the percentage of household budgets devoted to communication expenses has climbed only slightly over the last 10 years. In most OECD countries, households generally spend about 2.2 percent and 2.5 percent of household income on communications, year in and year out, though one can note a slow rise since 1998.

The big exception is Japan, where household spending on communications is close to seven percent of household income. That might be something to keep in mind when making cross-national comparisons. It is true that Japan has very-fast broadband and has pioneered any number of mobile application innovations.

But Japanese households spend very close to three times as much as U.S. households on their overall communications. That’s worth keeping in mind. It always is difficult to make meaningful comparisons between nations.

Japan has very-fast broadband. But Japanese consumers also pay nearly three times as much as U.S. households do for their communications services.

Generally speaking, though, OECD consumers have added seven new connections for every existing connection in 1980, while spending about the same percentage of their incomes on those services. That’s an obvious example of an explosion of productivity.

Much has changed in the Internet access realm as well. Broadband is now the dominant fixed access method in all OECD countries. In 2005, dial-up connections still accounted for 40 percent of fixed Internet connections but just two years later that percentage had fallen to 10 percent.

Also, while many criticize the industry for retarding innovation and behaving as “nasty monopolists,” prices have tended to fall for virtually all communication services on all platforms, the OECD says.

“Over the previous 18 years, residential users saw the real price of residential fixed-line
phone service fall roughly one percent per year while business prices fell 2.5 percent per year,” the OECD says.

Mobile subscribers also benefitted from declining prices between 2006 and 2008. The average price of OECD “mobile baskets,” representing a number of calls and messages per year that normalizes features and prices, fell by 21 percent for low usage, 28 percent for medium usage and 32 percent for the heaviest users over the two-year period.

User voice behavior also has changed. The number of minutes of communication per mobile phone is increasing while the minutes on fixed networks are decreasing. In other words, the mobile is becoming for most people the primary voice device while the landline is a backup.

Some might argue that ultimately has implications for pricing. In some real ways, the mobile is the “premium” device and a landline represents a supplemental service. That probably means the value is such that consumers ultimately will think it should be priced as a backup service.

Data between 2005 and 2007 suggest people are making fewer domestic calls on the fixed network in most countries, OECD says. When people do use fixed networks they are increasingly making calls to users of mobile phones.

This trend is well highlighted by Austria where the introduction of flat-rate voice telephony on mobile networks has shifted calls away from the fixed-line network. Voice traffic on Telekom Austria’s fixed network fell 13.3 percent in 2007 as a result of the shift to mobile communications.

There was an OECD monthly average of 272 minutes of outgoing calls on fixed line telephones in 2007. This is down 32 minutes per month from 2005.

But there was an interesting landline rebound trend appearing recently in a number of OECD countries.

The number of PSTN minutes per line declined until 2005 when the numbers started rising again. For example, French minutes per PSTN line fell until 2004 when they started to increase.

One explanation is the shift in France to flat-rate national calls offered by a number of carriers. That suggests U.S. landline voice providers might stem some of the traffic erosion by offering aggressive, flat-rate, all-distance services within the domestic market, as VoIP providers generally do.

On the mobile side, the OECD average number of outgoing minutes of completed calls on mobile networks was 220 minutes per month in 2007, up 56 percent from 2005.

Subscribers in the United States make far more outgoing calls on mobile phones each month than any other country in the OECD. The average number of minutes per mobile subscription was 443 in 2007, more than double the OECD average. One might argue that is because of the reasonable cost of calling great distances. In Europe, many calls that would be domestic in the United States are international calls.

Broadband prices have fallen as well over the same time. OECD broadband prices declined significantly over the previous three years. Prices declined an average of 14 percent per year for DSL and 15 percent for cable between 2005 and 2008.

The average price of a low-speed connection (2 megabits per second or less downstream) was $32 per month in September 2008. At the other end of the scale, broadband connections with download speeds advertised as faster than 30 megabits per second averaged $45 per month.

Despite the falling price-per-unit trends, telecommunications services, about a trillion dollar market in the OECD, continues to grow at about a six-percent annual rate. That remains to be tested as we finish 2009, but there is reasonable historic precedent for continued growth, though perhaps not at a six-percent rate.

Regarding voice and new mobile and data services, we might as well note that landline voice appears to be a product like any other. That is to say, like any other product, it has a product life cycle.

To be specific, wireline voice looks like a product in its declining phase. Optical fiber-based broadband looks like a product earlier in its cycle, with 56 percent compound annual growth since 2005.

Digital subscriber line and cable modem services likely are further along their curves. DSL grew at a compounded rate of 21 percent per year while cable modem service grew at 18 percent rates between 2005 and 2007.

Mobile voice markets grew by 10 percent each year since 2005 but may be nearing saturation levels in a number of OECD markets. Mobile broadband clearly is early in its product life cycle.

Analog lines, used for voice, facsimile and dial-up Internet access, also seem to be in decline. The number of analog subscribers fell by 34 million between 2005 and 2007.

The decline of Internet dial-up services also means that many households no longer need a second analog line. The same might be true for in-home fax machines. And many additional lines once used by teenagers now have been replaced by mobiles.

Finally, the number of “mobile-only” subscribers has increased as well.

The penetration rate for fixed telephone lines (analog and ISDN) in 2007 was 41 subscribers per 100 inhabitants, which was less than the penetration rate ten years earlier.

Overall, the penetration rate rose from 43 percent in 1996 to a maximum of 47 percent in 2000, only to decline again to 41 percent in 2007. The year 2000 appears to be the turning point in the technological life cycle of fixed-line telephony.

Canada had the highest fixed-line penetration in 2007 with a penetration rate of  54 subscribers for every 100 inhabitants. Sweden, Luxembourg and the United States all had penetration rates greater than 50 per 100 inhabitants. Mexico, the Slovak Republic and Poland had the lowest penetration rates in 2007.

There’s an interesting observation we can make about those figures. Nobody seems to argue that the United States has a big problem with voice service availability. In fact, availability is not the issue: consumer demand is the issue. One doesn’t hear people complaining about the lack of voice availability in Canada or Sweden. But penetration is in the 50 percent range, per capita.

Nearly all Internet users in the United States use broadband, not dial-up. And yet broadband penetration might well be higher than voice penetration, on that score. People who want the product generally buy it.

That said, there are some methodological issues here. “Per capita” measures might not make as much sense, as a comparative tool, when median household sizes vary. Adoption by households, adjusted to include people who use the Internet only at work or at public locations, or using mobiles, would be better.

Broadband adoption, by people who actually use the Internet, might make the most sense of all. Broadband is a product like any other. Not every consumer values every product to the same degree.

DSL network coverage is greater than 90 percent in 22 of the 30 OECD countries. Belgium, Korea, Luxembourg and the Netherlands report 100 percent.

Cable coverage is extensive in some countries such as the United States (96 percent) and Luxembourg (70 percent), but non-existent in others such as Greece, Iceland and Italy.

An analysis which followed the evolution of broadband plans over four years shows that speeds increased by 28 percent  for DSL and 72 percent for cable on average between 2007 and 2008.

A survey of 613 broadband offers covering all OECD countries shows the average advertised speed grew between 2007 and 2008 across all platforms except for fiber. The average advertised DSL speed increased 25 percent from 9.3 Mbps in 2007 to 11.5 Mbps in 2008.

Advertised speed of course is not user-experienced speed at all times of day. Still, it offers some measure of changes in the product.

The average fixed wireless offer in 2008 was 3 Mbps, up from 1.8 Mbps just a year earlier.

Fixed wireless speeds grew by 64 percent but remain only one-quarter of the average advertised speeds of DSL providers. The average cable offer is five times faster.

There are some insights about mobile broadband in the OECD’s analysis. The amount of data traffic carried over mobile networks remains small in relation to other broadband data networks.

For example, Telstra in Australia reported in a 2008 investor briefing that data consumption increased from 100 kilobytes per month per user in 2007 to 250 kilobytes in 2008. Compare that to the gigabytes consumed on landline connections.

Data from the Netherlands also show relatively low data traffic in the first half of 2008. Between January and June 2008, Dutch mobile broadband subscribers downloaded 358 gigabytes over mobile networks.

It is possible to calculate an estimate of mobile data traffic per 3G subscriber per month in the Netherlands by making a few assumptions. If the ratio of 3G to total mobile subscriptions in the Netherlands is equivalent to the OECD average of 18 percent, then the average amount of data traffic per 3G subscription per month in the Netherlands works out to be only 18 kilobytes per month.

Of 52 mobile broadband packages evaluated in September 2008, the average headline speed was 2.5 Mbps. Subscribers to these plans were allowed an average of 4.5 gigabytes of data traffic per month.

Much has changed in the global telecommunications business in just seven years. Landline voice might still provide the revenue mainstay, but it is a product in the declining stages of its life cycle.

Even mobile voice, DSL and cable modem service are products at something like the peak of their cycles.

Mobile broadband and optical fiber access are early in their product life cycles. Mobility is becoming the preferred way of consuming voice communications.

That’s an awful lot of change in just seven years. And we haven’t even discussed VoIP, over-the-top applications, content or video.

Elections Matter: Competitive Carriers Challenge Telco Wholesale Pricing

In the U.S. communications business, some things don't change, and among those unchanging realities is that competitive local exchange carriers believe they should have widespread rights to use access facilities owned by the former Regional Bell Operating Companies (Qwest, Verizon and AT&T), paying wholesale prices with healthy discounts.

The former RBOCs just as vociferously argue that such access should be available, but not on a mandated basis, and only at market-based rates. Those fights were particularly fierce earlier in the decade, but have been relatively muted over the past several years. But nothing is ever completely settled in the communications business.

Eight competitive communications providers and Comptel have asked the Federal Communications Commission to adopt rules that would lead to lower prices for broadband access and transport. The petition for "expedited rulemaking" will not, as its name suggests, result in anything actually happening very soon.

The request must, by law, be circulated for response, and those responses will be vigorous. The request also comes at a time when larger issues, especially the shape of a new national broadband policy, are being weighed as well.

Comptel, 360networks, Broadview Networks, Cbeyond, Covad Communications, NuVox, PAETEC, Sprint Nextel and tw telecom have asked the FCC to create new procedures that would require the former Bell Operating Companies to offer wholesale access at "going-forward rates," plus a "profit margin or markup" of about 22 percent.

The concept is arcane for anybody who is not a communications policy expert or communications attorney, but essentially boils down to a competitor belief that prices are too high, and that the changed political complexion of the FCC will allow changes more in line with CLEC thinking both on mandatory wholesale and robust discounts on wholesale facilities used by competitors.

The perhaps unstated hope is that the forthcoming national broadband plan might address terms and conditions for mandatory wholesale access to optical broadband facilities owned by the former RBOCs, something competitive providers would dearly like to win, and which existing rules do not support.

Still, the petitioners do not expect immediate action, as the request has to be circulated for public comment, and will, as usual, face heated opposition from Qwest, AT&T and Verizon.

Still, it has to be noted that elections have consequences. The new petition might not have been deemed to have a chance of upside in the previous presidential administration.

Why Droid is Important

Lots of people position the new Motorola Droid, available on the Verizon Wireless network at the moment, as the first, or the best, competitor to the Apple iPhone. We can argue about that. What seems much less contestable is the possibility that many of Verizon's 86.5 million subscribers now will begin to create a new critical mass of users for location-based marketing initiatives.

Until the total number of smartphone users on particular operating systems or devices is reached, it will be difficult to create mobile marketing campaigns with reasonable prospects of success. And make no mistake, mobile marketing has to be different than the interruption-based advertising we are used to with place-based media.

Mobile users are not likely to appreciate mobile advertising that they haven't asked for, or worse, must pay for. The difference between mobiles and TVs, radios, DVD or game players is that mobile devices are uniquely seen as "personal" devices. Peoploe use the other devices, but only the mobile is always with a user, and typically is seen as a personal and private device.

The other important angle is that mobile media typically is consumed as a byproduct of some other activity; it is not a primary destination or activity.

Virtually any mobile marketing message is, by definition, catching users in the middle of doing something else. So the value of the messages must be situational, in context, or relevant to those other activities. On the other hand, the key change is that devices such as the iPhone and Droid incorporate location information.

Potential message senders will know whether a user is at home, at some other indoor location or moving. If moving, message senders potentially will know whether a user is moving at high speed (in an auto) and should not be interrupted, or is moving at pedestrian speed, when a contextual message might be safe to send and also relevant to current location.

Presumably it will be possible (with permission) to determine whether a person is using public transportation, even when moving at high speed, and might be amenable to messages.

It will take a bit more work, and more opt-in detail, to determine whether a business person is presently trying to figure out where to get a cab, take a client to dinner, or find their way to their hotel, or whether a person might be trying to figure out what social venue to attend after work.

So why is Droid important, beyond simple creation of critical mass? Droid, as are all Android devices, are part of a larger effort by Google to tap mobile advertising potential. Google has unusual incentives to create the sort of detailed opt-in processes needed to create granular messages of high relevance to end users.

The reason this is important to end users is that if mobile network providers and the rest of the mobile ecosystem can create self-sustaining revenue streams based on mobile messaging, the providers can justify perpetual investments in the quality of the mobile networks and devices, potentially holding down end user costs as well.

News Corp. to Block Google Indexing?

The Wall Street Journal is the salient exception to the rule that users will not pay for newspaper content online. It now appears we might find out whether the Wall Street Journal also is an exception to the rule that one wants leading search engines to find and index one's content.

News Corp., which owns the Wall Street Journal, apparently is planning to block Google from indexing content from the Wall Street Journal and other web sites, unless Google pays for the right to do so.

No matter what the outcome, this is a major test. Google obviously prefers not to pay rights holders for the right to crawl and index content. But the company gradually is finding it must, or would benefit from, do so in some cases. The ability to offer popular TV or movie content through YouTube is one example.

What Will Enterprises Buy in 2010?

It always is dangerous to make predications about what enterprises will do when extrapolating from what they did last year, and what executives say they will do in the coming year, and doubling difficult at transition points, which is where enterprise IT managers likely will find themselves in early 2010.

As IT spending clearly was under pressure in 2009,. the issue is how much growth will happen in 2010 as postponed projects must be started, and how much top-line revenue growth enterprises actually can eke out, since it is hard to see a sustained increase in IT spending without top-line revenue growth. Up to this point in 2009, profitability increases at most enterprises have come because of cost cutting, not revenue growth, and that cannot continue indefinitely.

Investments for cost cutting for that reason appear to have been a big priority for enterprises in 2009. About 24 percent of those polled say cutting telecom and network costs were a critical priority, and 48 percent say  it was a high priority.

But some underlying trends likely will re-emerge in 2010. Data center consolidation has been a high priority for cost and disaster recovery reasons, with 24 percent of respondents. saying that is a “critical” priority and 43 percent saying it is a “high” priority.

About 40 percent of enterprise executives say mobility, collaboration and voice over IP continue to be high or critical priorities.

Desktop IP telephony migration continues, while other VoIP technologies of high interest also will get attention. Some 34 percent of enterprises say they already have implemented or are implementing desktop VoIP, and an additional 14 percent are expanding or upgrading their VoIP environment.

IP conferencing, including Web, video, and audio, while not yet implemented widely, have high interest as well. 

Cost savings, faster communication, and decision speed are values that drive UC adoption, says Ellen Daley, Forrester Research analyst. UC adoption continues to see traction, as well. About 21 percent of firms report that they are already, or are currently implementing, a UC solution, while nine percent are expanding or upgrading their current UC solution.

About 15 percent say they are piloting one. An additional 39 percent of firms are interested in or are considering UC solutions.

The top motivation for adopting UC is cost savings, followed by increasing communication between users. It appears enterprise executives are more comfortable with UC as well.

Some 51 percent of executives say they understand how UC will affect the way their companies do business. Still, about 32 percent of respondents say they still have some questions about UC value.

Integrated voice, email, and instant messaging top the list of the most desired features for UC.

Web conferencing and audio- and videoconferencing capability come in second while presence, allowing others to see coworkers’ status, comes in third.

Almost half of enterprises buy managed services, and though cost savings are a factor, freeing up time to focus on core business issues has grown as a driver of perceived value.

About 62 percent of respondents say that they have already purchased or are interested in purchasing managed or outsourced telecommunication services.

Unlike in past years, the top reason isn’t cost savings, although it is still high on the list. Instead, firms are opting for managed services to enable them to focus on their core business competencies.  

Telecom and network buyers are also interested in managed services beyond physical networks and telecom services like multiprotocol label switching. Web conferencing and or collaboration are the most popular managed services among respondents.

About 52 percent of those polled say they are very or somewhat interested in the technology.

Firms also are interested in network-based security services (46 percent), storage and backup services (44 percent) and data center services (43 percent).

About 51 percent are using IP technologies for contact centers. About eight percent are piloting IP contact center implementations, 31 percent are implementing now and

12 percent say they are upgrading or expanding their existing IP contact center capabilities.

So far, though, enterprise executives have lukewarm interest in hosted contact center solutions, Daley says.

Close to half of firms (49 percent) expect their overall number of contact center seats to remain about the same over the next year, with similar portions either increasing (23 percent) or decreasing (24 percent) seats.

Outsourcing of contact center seats is a different matter, though, says Daley. About 30 percent of firms report planning to outsource more of their contact center seats, while 51 percent of firms anticipate no change.

Both MPLS and Ethernet wide area networks are popular. About 36 percent of those polled say they already have completed their firm’s migration to MPLS. Ethernet adoption is which is growing fast as well, but has not yet reached use of MPLS, Daley says.

Managed MPLS is also popular, with 30 percent of firms already using it, and 22 percent of firms using managed Ethernet service.

Cost is the most important criterion when choosing landline data service providers, respondents say. About 60 percent of buyers say that is a very important consideration.

Service level agreements are important to 49 percent of respondents. Vendor pricing models, especially clarity on service elements and options, are very important to 43 percent of buyers.

Nearly 65 percent of respondents say they have, or are implementing, wireless local area

networks. And while SMB respondents generally are not that interested in public data networking, enterprise executives are much more interested both in fixed WiMAX (23 percent) and mobile WiMAX (25 percent) of respondents.

The majority of respondents have deployed wireless email or BlackBerry applications. Customer-facing applications dominate, though there is interest in line-of-business apps as well, though little buying as of yet, says Daley.

The majority of enterprises buy vendors’ mobile versions of existing packaged applications (41 percent), but a large portion also are developed in-house (35 percent) or are custom-built by third parties (33 percent).

Cost is the most important criterion (68 percent) for choosing a mobile network service provider, followed by domestic coverage (56 percent).

AT&T, Verizon Will Gain Video Share in 2010

AT&T and Verizon are slowly gaining share in the U.S. multi-channel video market, while satellite providers DirecTV and Dish Network are holding their own, with Comcast and Time Warner Cable under a bit of pressure, but possibly facing more erosion over the next year, new surveys by ChangeWave Research suggest.

A key factor is simply that AT&T and Verizon now are able to market video services to millions more customers every year as they build out their new networks. Given a choice, some customers will exercise that choice, and switch from a current provider to one of the telco-provided services.

To the extent that customer satisfaction has a direct effect on churn behavior, Verizon, AT&T and DirecTV also stand to benefit, as their customer satisfaction ratings are at least three times higher than those of Comcast and Time Warner Cable, according to a recent Changewave Research survey of nearly 3,000 end users.

Still, market share changes relatively slowly in the video entertainment market. When asked whether they planned to switch TV providers in the next six months, about 12 percent reported they’ll be switching.

That works out to about two percent of the customer base a month, a figure quite consistent with what video operators have seen in recent years. But users rarely behave precisely as they say they will. One might expect churn to wind up being less than two percent a month, but more than one percent a month.

Also, service providers recently have found churn levels lighter than usual, in part because of slower housing starts, in part because of “save” offers made when customers call to disconnect, in part because bundles save customers money.

But prices seem to have very-high importance. According to the Changewave survey, price is the reason half of the “switchers” plan to make a change. Only about 10 percent indicated they would switch to get a bundle.

If price drives half the changes, rather than some other service attribute, many users who plan to defect will wind up staying because of a “save” offer that addresses the price objection.

Market share changes over the last year show just how stubbornly service providers are fighting to prevent churn in a saturated market that mostly is a zero-sum game.

For the U.S. market as a whole, cable TV operators retain dominant market share of 65 percent while satellite providers have 25 percent market share. Telcos now have 11 percent market share.

Comcast, with 23 percent share, slipped about one percentage point over the last year.
Time Warner Cable, with 11 percent share, gained one market share point over the same period.

DirecTV, with 13 percent market share, was unchanged over the year. Dish Network, with nine percent share, lost one share point over the last year.

Verizon’s FiOS has five percent share of the national market, while AT&T U-verse has three percent of the national market.

About 54 percent of the Changewave respondents who say they intend to switch providers say they will choose a fiber-optic service, an eight-point increase in three months.

Verizon FiOS TV remains the top provider that switchers plan to move to in the next six months. But AT&T’s U-verse service has jumped seven percentage points since Changewave’s March survey and is currently showing the most momentum among providers.

By way of comparison, just four percent of switchers saying they’ll sign up with Comcast and one percent say they’ll buy from Time Warner Cable.

Changewave researchers think cable and satellite providers will, for these reasons, face headwinds as the telcos gear up.

Fiber TV providers boast a big lead when it comes to customer satisfaction levels. Some 38 percent of subscribers say they are “very satisfied.”  About 27 percent of satellite subscribers say they are “very satisfied.”

About 13 percent of cable subscribers say they are very satisfied. So satellite subscribers are twice as satisfied as cable customers while fiber TV customers are three times as satisfied as cable customers.

The difference is even more evident at the individual company level, where Verizon has the most satisfied customers. About 47 percent of Verizon FiOS TV customers say they are very satisfied, while 39 percent of AT&T’s customers say they are very satisfied.

Some 34 percent of DirecTV customers say they are very satisfied. Just 11 percent of Comcast and Time Warner Cable customers say they are very satisfied.

MiFi: What's the point?

By most accounts, MiFi is getting a warm end user reception. Novatel Wireless, which makes the MiFi, posted a third-quarter profit, reversing last year's loss, as strong sales of its MiFi personal Wi-Fi hotspot. Novatel recently surprised Wall Street analysts by revealing it had received $100 million in orders for the MiFi in the first two months.

Novatel executives think the MiFi could be a new product category someplace between a dongle and a smartphone. That remains to be seen, as consumers ultimately will decide what the value is, and how big the value is.

The MiFi creates a mobile, personal hotspot for up to five devices using a single 3G connection. For some, it might be a more-convenient dongle or aircard for PCs. If so, the difference might turn on such simple issues as whether a device that requires use of a USB port is less functional than a device that doesn't require use of a port.

For others, the advantages will be the ability to connect devices without USB ports to a Wi-Fi network.  Dual-mode smartphones might provide one example, but they probably don't provide the biggest obvious benefit, especially when those smartphones have 3G connections.

More obvious value will be garnered by users of iPod "Touch" or other devices that operate only on Wi-Fi, not mobile broadband, and who already pay for a 3G connection, in any location other than the home or office.

Perhaps the more obvious application is a temporary Wi-Fi hotspot for business users in a workgroup setting. But I'd be willing to be that is only one of many uses consumers will find for the MiFi.

For some, the only additional required value might be the ability to use their 3G access device without tying up a USB port. For others it is the ability to access the Internet from their Wi-Fi devices wherever they can get a 3G signal, without needing separate 3G connections for each discrete device.

The point is that hard dollar savings will drive the value for some users, while for others it might be something as simple as "not tying up a USB port." Along the way, clever users will figure out other ways why a MiFi connection adds more value for a mobile broadband connection than using an aircard or dongle.