Apple Earns 69% of Revenue from iPhones

If you ever wondered why “Apple Computer” is now simply “Apple,” it is because Apple is a mobile phone company, not a “computer” company. The Apple iPhone, in Apple’s second quarter of 2015, represented 69 percent of total revenue.

Apple had quarterly revenue of $58 billion and quarterly net profit of $13.6 billion in its most-recent quarter, up from revenue of $45.6 billion and net profit of $10.2 billion year over year.

Gross margin was 40.8 percent compared to 39.3 percent in the year-ago quarter and international sales accounted for 69 percent of the quarter’s revenue.

For the next quarter, Apple predicts its fiscal 2015 third quarter will feature

revenue between $46 billion and $48 billion.

Verizon Puts Muscle Behind A LA Carte and Streaming Strategy

Verizon wants to make omelets.  It has to break eggs.

Did Verizon Just Screw The Content Giants? http://m.seekingalpha.com/article/3106216?source=ansh $VZ, $DIS, $FOX, $FOXA

Level 3 And Verizon Agree To Share Cost Of Network Upgrades

That is the way large networks and Internet domains always have interconnected. And it makes sense.

When networks exchange roughly equal amounts of traffic there is no structural problem. When traffic is unequal,  the sending network imposes costs on the receiving network. "Sending network pays" is how it works.

And how it should work, in fairness.

Level 3 And Verizon Sign Interconnect Agreement: Agree To Share Cost Of Network Upgrades http://m.seekingalpha.com/article/3106406?source=ansh $LVLT, $VZ

ESPN Sues Verizon Over Skinny Bundles that Do Not Include ESPN

ESPN obviously sees the Verizon skinny bundle as a bigger threat than DirecTV’s skinny bundle. Verizon excludes ESPN from the base tier, relegating ESPN to an optional sports tier.

DirecTV does something similar, albeit on a smaller scale, by allowing consumers to purchase a basic tier without ESPN, though most of the packages do seem to include ESPN.

So Verizon’s approach likely is going to affect more consumers. Verizon has been sued, and DirecTV has not been sued.

55% of U.S. Internet Homes Buy OTT Video

Some 55 percent of U.S. households with Internet access now subscribe to an over the top streaming (OTT) video service, up from 44 percent in 2013, Parks Associates estimates.

Subscriptions are highest among households with a younger head-of-household, with 72 percent of households headed by those 18 to 24 and 71 percent of households headed by those 25 to 34 having an OTT service subscription.

That alone might not suggest a tipping point, or inflection point, is nearing. More significant are moves by content suppliers to create stand-alone streaming services not dependent on a prior purchase of a standard linear service.

AT&T Acquisition of DirecTV Seems Likely, for Good Reasons

As a rule of thumb, I tend to assume U.S. regulators will nix any acquisition by a market leader that produces an outcome where a single entity controls more than 30 percent national market share.

That math suggested Comcast would not be allowed to buy Time Warner Cable, since Comcast’s share of high speed Internet access would exceed 57 percent.

The only issue, after the Federal Communications Commission raised the definition of broadband to a minimum of 25 Mbps, was how much higher Comcast’s share would grow.

By way of contrast, an AT&T that has acquired DirecTV would still only have a maximum of 17 percent share of the U.S. Internet access market. The actual share, under the new 25-Mbps definition, is not clear, but would be less than 17 percent. And linear video share would not exceed 27 percent, in a line of business universally recognized to be declining, in any case.

That is why rumors of merger approval seem logical. Even if the acquisition consolidates one of the major linear video providers, the new entity has 27 percent market share, and faces almost-certain declines over the next five to 10 years.

What if Nobody Wants to be the "Carrier of Last Resort?"

AT&T has about 17 percent share of the U.S. Internet access market, assuming none of its lines now fail the new definition of 25 Mbps. Most consumers buying satellite Internet, and probably most customers buying fixed wireless services likewise now are purchasing Internet access, but not, strictly speaking, what the Federal Communications Commission calls “broadband” or “high speed access.”

Beyond the issue of FCC regulatory fiat redefining a few industries out of business (most satellite and fixed wireless access services), causing a statistical, overnight decline in “broadband” adoption in the United States, and rendering multi-year tracking of Internet access more difficult, there are other perhaps perplexing issues in the U.S. Internet access business.

In a competitive market, some of us would argue, the low cost provider wins. In the fixed network Internet access market, that is cable TV.

So it is noteworthy that Verizon has been shifting capital investment into mobile, and generally away from its fixed networks.

And even allowing for its use in a lobbying capacity, AT&T now says its own fixed network is more costly than that of the cable operators that now are the market leaders in high speed access, in the U.S. market. AT&T's fiber to the neighborhood network cannot keep pace with the bandwidth offered by cable and other competitors, AT&T has told the FCC.

So AT&T increasingly will have to shift to fiber to the home to keep pace, as Verizon already has done with FiOS.

The problem is that the new investment will occur in the context of declining profit margins in the fixed networks business overall. Voice revenue is declining, linear video is expected to decline, and cable has the more efficient, and faster, Internet access services.

Put bluntly, the ability of a telco--even a tier one telco--to compete against a well-capitalized cable TV company is doubtful, long term, in the fixed network business.

That might be a shocking conclusion. But evidence points in that direction. It is fashionable, perhaps even directionally correct, to say that the fundamental strategic importance of a fixed network is mobile backhaul.

But that statement also suggests the revenue potential of a fixed network is shrinking. Special access might have been a high-margin service that drove profits for networks that recovered their costs substantially from consumer services.

But such business-focused services (backhaul) were not huge gross revenue drivers.

It is too easy to argue that telcos will discover huge new revenue sources to revive the fixed networks business, so there is no strategic issue. It is possible such revenues will never be found, leaving cost reduction or exiting the business the options.

That does raise issues for regulators. What if no single service provider wishes to, or can afford to be, the “carrier of last resort?”

And if the intent is to create and sustain incentives for any service provider to take on that role, what has to change? We don’t have clear answers, yet.