Uber Only Faces the "If it Looks Like a Duck, It's a Duck" Problem; Capacity Markets Face Margin Compression, Shrinking Markets

Uber is finding out that in regulated markets, even when new technology and business models are pioneered, regulators use a simple test, not much more complicated than captured by the phrase “If it looks like a duck, swims like a duck, and quacks like a duck, it’s a duck.”

 source: TeleGeography

Aereo found itself facing the same problem when courts ruled that Aereo essentially is a cable TV business, and must pay licensing fees to redistribute off-air TV signals.

VoIP providers found that to be true after they started to take significant market share from legacy providers.

In other words, even new technology and clever business models will long survive regulatory scrutiny and compliance when the new approaches are applied in competition with legacy businesses.

So now Uber is slowly conceding to demands that its drivers and services be subject to the same rules as apply to licensed taxicab firms, Aereo has been ruled illegal and connected VoIP services pay the same taxes and fees as do legacy voice services.

Sometimes the Internet has other impact on legacy businesses, especially when applied to non-regulated industries.

Publishing and music already have seen a profound change in industry revenue potential, as well as changes in the way content is created, presented and distributed to consumers and customers.

In other cases, the Internet can transform an industry by making the market smaller.

In other words, it has now become a fact of business life that the Internet not only brings efficiencies to any market it touches, but actually can destroy legacy markets.

And that might be the fate of the wide area network capacity business. In 2003, the global private line business generated about $36 billion in annual revenue. By about 2016, private line revenue might hit $42 billion.

But there is an unmistakable trend: legacy voice and capacity revenues are declining, at least in in developed markets.

Between 1997 and 2007, for example, long distance, which represented nearly half of all U.S. telecommunications revenue, was displaced by mobile voice services.

The point is that such revenue declines put unrelenting pressure on the capacity business, as wholesale services are sold to customers who must not only attack their own operating and capital costs, but also can build and operate their own facilities in an effort to do so, creating the opportunity for converting transit payments into network infrastructure investments, instead.

That has the effect of putting pressure on transit revenue opportunities and capacity sales, as service providers build their own captive networks.  

For example, consider that the IP transit market generated $2.1 billion in revenues in 2013. Sales of circuits connecting customers to Internet hubs contributed an additional $2.5 billion, for a total of $4.6 billion in revenues, according to TeleGeography.

But consider that other new segments, such as content delivery networks , already by 2013 had grown to be a business generating perhaps $2.5 billion in global revenues, headed for perhaps $4.5 billion by 2017.

By way of comparison, U.S. local access revenues generated from business segment Ethernet access services passed $4 billion worth of revenue in 2011, and is projected to reach $11 billion by 2016.

And though global wholesale revenues might total $142 billion in 2019, that is driven largely by mobile service wholesale, not wide area network transport.

The point is that, all revenue sources considered, the long-haul capacity markets continually face the reality of customers building their own long-haul networks, trading operating expense for capital investment.

TeleGeography analysts say that the fate of the IP transit business rests on the growth of peering relationships that obviate the need for IP transit purchases.

“As Internet service providers worldwide have gradually migrated from purchasing transit to establishing mostly free peering arrangements, the share of global Internet traffic connected via transit agreements declined from 47 percent in 2010 to 41 percent in 2014,” TeleGrography says.

source: TeleGeography

In other words, undersea and long haul capacity, which once was a significant revenue stream, is gradually becoming a matter of private networks interconnecting without charge.

As long as this relative decline of transit continues, TeleGeography forecasts that IP transit-related revenues will fall from $4.6 billion in 2013 to $4.1 billion in 2020. If the ratios of traffic routed via transit and peering were to stabilize at current levels, IP transit revenues would increase to $5.5 billion by 2020.

So far, you might argue the effects have been somewhat subtle. While African Internet traffic is forecast to grow 36 percent annually over the next seven years, transit volumes will increase by only 28 percent compounded annually, while peering volumes will grow 67 percent—driving down the share of traffic routed via transit from 90 percent in 2014 to 61 percent in 2020, TeleGeography says.

Ignore for the moment the tendency of capacity services to decline in price every year. At least for the moment, peering economics seem to be strong enough to make investment in one’s own infrastructure a reasonable alternative to transit services.

Might that change in the future? TeleGeography says that could happen, if transit prices were to fall low enough.

A Very Odd, but Wise, Instance of Telecom Rebranding

Of all the company "rebranding" efforts many of us have seen in the telecommunications business, the most unusual is the decision by the owners of the mobile payment service owned by AT&T, Verizon and T-Mobile US to adopt a new name.



The move is being taken because the acronym ISIS of course is associated with an unsavory group much in the news of late. 



Isis apparently has not yet decided on a new name, but hasn't announced what the new name will be.



It's a wise move, if unprecedented, in my experience.

A Very Odd, but Wise, Instance of Telecom Rebranding

Of all the company "rebranding" efforts many of us have seen in the telecommunications business, the most unusual is the decision by the owners of the mobile payment service owned by AT&T, Verizon and T-Mobile US to adopt a new name.



The move is being taken because the acronym ISIS of course is associated with an unsavory group much in the news of late. 



Isis apparently has not yet decided on a new name, but hasn't announced what the new name will be.



It's a wise move, if unprecedented, in my experience.

Mobile ISP Role in M2M Will Largely be the Same Role as in Mobile Phone Business, Despite All Efforts

If the "machine to machine" (M2M) or "Internet of Things" market consists of “hundreds of micro-markets,” not a single industry, as a new Vodafone report suggests, then the logical conclusion also is that the role of mobile service providers in M2M or IoT markets will substantially replicate the industry's role in the mobile phone business.

In other words, the mobile service provider role largely will involve communications connectivity, not application-layer functions. Those who worry about "dumb pipe" roles can start worrying now.

If applications are highly fragmented and discrete markets are individually small, then it will make sense for mobile service providers to focus on the general purpose communications role, not a possible role as application suppliers.

That means mobile service providers--like it or not--will be "pipe suppliers," earning nearly all their M2M or IoT revenue from access services.

There are 4.4 billion machines or devices now connected to each other or to servers, growing  10.3 billion by 2018, a study sponsored by Vodafone predicts. 

Still, since definitions of “machine-to-machine” or “Internet of Things” vary, it is hard to separate connected appliances such as televisions or game consoles from industrial sensors and monitors.

Within three years, most firms will be embedding M2M into the actual products and services sold to customers.

That likely has implications for the role of the mobile service provider in the ecosystem. If the application settings are highly fragmented, the easiest role for an access provider to adopt is “horizontal,” not “vertical.”

In other words, mobile service providers supply the communications function, not primarily vertical applications, much as the primarily value provided to business or consumer customers is mobile access (for phones, other personal devices and sensors), with a couple of general purpose applications (text messaging and voice).

About 22 percent of 600 executives involved in machine-to-machine strategy say they already have at least one active M2M deployment in operation, up about 80 percent in 2014, compared to 2013, according to a new study sponsored by Vodafone and conducted by Circle Research.

The three leading industries, in terms of deployment, are the consumer electronics, energy and utilities, and automotive industries, each with a minimum of 30 percent adoption by respondent firms.

By 2016, the percentage of respondents with at least one M2M deployment will be 74 percent, the study predicts, based at least part on the embedding of M2M features into products such as thermostats and kitchen appliances.

Energy and utility respondents will have boosted M2M deployment to about 62 percent by 2016, based on smart meters and grid monitoring programs.

Use of M2M in the transportation and logistics verticals will be 57 percent in 2016, based largely on fleet logistics applications, and adoption in the healthcare and life sciences industry will be identical, the Vodafone survey found.

Automotive segment adoption will reach 53 percent, while retail deployment reaches 51 percent. M2M deployment in manufacturing will be at least 43 percent, though self reporting might be underestimating the actual state of deployment, given the widespread use of automation in manufacturing. Some respondents might not call what they already are doing an instance of M2M deployment.

Safety and security applications are the leading uses of M2M in automotive settings, partly because in many regions they are being driven by regulation, such as the eCall programme in the European Union.

Consumer electronics is at present the leading adopter of M2M, with the highest adoption

of external-facing strategies, at 71 percent.

Those applications primarily include tracking mobile assets including shipping containers.  But

20 percent of all company executives  surveyed in the consumer electronics segment already are selling connected devices directly to consumers.

Asset tracking is expected to be important in the energy and utility segment, monitoring in health care, connected car services in the auto industry, monitoring in manufacturing and connected cabinets or asset tracking being lead apps.

Early adopters tend to say productivity and cost savings are the deployment drivers, with projects tending to be in the internal processes areas, rather than external operations visible to customers.

At the moment, adoption of at least one active deployment is highest in the “Africa, Asia, Middle East” region, a rather broad category of limited analytical usefulness, one might argue. But 27 percent of executives surveyed in that region had projects underway.

The study included respondents from Australia, Brazil, China, Germany, India, Italy, Japan, the Netherlands, South Africa, South Korea, Spain, Turkey, the United Kingdom, and the United States.

In Europe, 21 percent of respondents reported they had at least one M2M project in action. In the Americas, 17 percent of executives said they had at least one project in progress.

But Vodafone expects that, by 2016, deployment profiles will be quite similar, with more than half of all  respondents supervising actual deployments.

As predicted in last year’s Vodafone M2M Adoption Barometer report, the US has been overtaken by the Asia Pacific region as the geography with the widest adoption of M2M. This year’s report suggests that by 2016 the gap will be negligible with all regions close to a 55% average for adoption.

The survey, carried out by Circle Research, captured the views of more than 600 executives involved in setting M2M strategy in seven key industries across 14 countries.

Three sectors have emerged as front runners in M2M with nearly 30 percent adoption rates: automotive, consumer electronics, and energy and utilities.

Automotive is the most mature of the sectors where M2M is now seen as an enabler for additional services such as remote maintenance and infotainment. M2M adoption in energy and utilities is also growing rapidly as ‘smart’ home and office services such as intelligent heating and connected security gain popularity.

This uptake is being fuelled by the use of M2M in connected devices such as smart televisions and games consoles. The research shows that nearly three quarters of consumer electronics companies will have adopted some form of M2M by 2016, whether for new products, logistics or production.

Similarly, the report anticipates that 57 percent of healthcare and life sciences companies will have adopted M2M technologies by 2016.

Amazon Fire Phone is About the Future of Mobile Commerce, Not Phones

It can be argued that Amazon's Fire Phone has not gotten off to a big start, in terms of sales. And it isn't hard to find detractors who think the device is too late to market. 



But it also can be argued Amazon is testing something more than "one more smartphone." To be sure, it might be an expensive, but important test. But what sort of test?



As Google's efforts center on supporting its advertising business on mobiles, so some might argue the Fire Phone is about Amazon's e-commerce business.



Some argue the issue is whether a smartphone can in significant ways replace the traditional PC-based e-commerce site.



What if, instead of going to an online store to buy something, the phone becomes the store? Taking a picture of an object, or scanning its barcode, or saying its name then pulls up an Amazon "click to order" screen. 



If so, Firefly is an effort to turn the entire physical world--anything that can be photographed, for example--into a buying opportunity for a consumer, using Amazon.



Kindle hasn't managed to become the world's top tablet device, either. But Kindle users almost certainly spend more money with Amazon that owners of other brands of tablets. 



The Fire Phone most likely is seen as a gamble on similar behavior on smartphones. If you have used a Kindle, you might agree it is less useful as a general purpose device, but excels as a gateway to content sold by Amazon. 



Likewise, the Fire Phone might not so much be viewed as a general purpose smartphone but more like a Kindle, a device optimized for Amazon e-commerce.



That might limit its appeal as a general purpose phone. But the Fire Phone might be useful for some users who actively engage in mobile commerce. 

Are ISPs Responsible for Video Stalling?

Google's YouTube now is offering consumers reports about video streaming performance, as Netflix likewise displays messages that video stalling at the moment is caused by the Internet service provider.

To be sure, Internet service providers directly control contention ratios, capacity investments, network architectures and other network elements that enable and limit both bandwidth and latency.

On the other hand, other users also are, in a direct sense, the cause of congestion, as always is the case on shared networks.

And some apps impose more load on any network, video being the primary and common example, representing an order of magnitude or two orders of magnitude more bandwidth loading than other apps such as voice.

Compounding the problem, most streamed video entertainment is a zero-revenue driver of consumption, as are most apps, for the ISP. That is not to say apps should be sources of direct revenue for ISPs, but only to note that the business context for supplying more network resources is affected by that lack of revenue.

Any ISP will have a direct incentive to invest in additional capacity to support revenue-generating apps and services, and incentive to provide whatever level of network support is required to ensure good app performance.

Consumer Internet access is more problematic. On one hand, consumers expect affordable prices and virtually unlimited usage. On the other hand, suppliers have to balance expectations with a business case for more investment.

In other words, no ISP can afford, over the long term, to invest more in facilities and support than the customer is willing to spend to use the product, unless there are compensating revenue streams that can be used to augment the business case.

Voice services, texting, revenue-producing video entertainment or ancillary services are examples.

And there is no question but that widespread use of entertainment apps and services has dramatically different revenue implications for ISPs, compared to other apps.

How much bandwidth is required to earn those $43 revenue components? Almost too little to measure in the case of voice; gigabytes for Internet content consumption and possibly scores of gigabytes for video.

By some estimates, where voice might earn 35 cents per megabyte, revenue per Internet app might generate a few cents per megabyte. At one level, a network engineer might argue that such fine distinctions do not matter. The network has to be sized to handle the expected load.

McKinsey analysts have argued in the past that a 3G network costs about one U.S. cent per megabyte. The problem, in many developing markets, is that revenue could drop to as little as 0.2 cents to 0.4 cents per megabyte, for any mobile Internet usage.

That implies a strategic need to reduce mobile Internet costs to as little as 0.1 cent per megabyte, or an order of magnitude. Tellabs similarly has warned about revenues per bit dipping below cost per megabyte, leading to an "end of profit" for the mobile business.

The point is that ISP investment in higher-capacity networks does affect app quality. But so do prevailing business models, app bandwidth requirements, end user demand for video content and contention from other users.

Video at standard definition is one issue. High definition requires even more bandwidth. And "4K" video, requiring bandwidth four times that of HDTV, is coming. Few networks can be upgraded fast enough to cope with those sorts of capacity demands, to say nothing of changing business models to support continual capacity upgrades.

Yes, ISPs control their own investment levels. But they are not singularly responsible for quality of experience in the whole content ecosystem. Consumers, app providers, app technology requirements, display devices and communication networks and revenue relationships all play some part, even if it is the ISP that controls access bandwidth.

Major Changes Coming for Mexico Telecommunications

Mexico is moving towards the biggest overhaul of the telecommunications sector in more than two decades, as legislation has passed the Senate authorizing a number of changes to increase competition in the mobile and fixed communications markets, as well as television broadcasting.

The new rules will mandate lower termination charges for competitors completing calls to Telmex customers. 

But the legislation also eases restrictions in investment by non-Mexican firms, and is expected to allow new TV networks to be created. 

Telefonica is expected to be among the firms that takes advantage of the regulatory changes to expand its market share in the Mexican market. 

On the other hand, observers also expect that  América Móvil, owner of Telmex, will make a move into the broadcast television as well. 

The legislation also does allow Internet service providers to provide quality of service mechanisms for their access services. 

In other words, "best effort" access can be supplemented by access with quality of service features such as provided by content delivery networks in the wide area network.