Facebook Scales Up Internet.Org Initiative

Facebook’s Internet.org initiative has worked with mobile operators in 17 countries over the past year to provide people access to relevant basic internet services without data charges, and now is available to more than a billion people, with more than nine million people getting online as part of the program.

People now have access to basic internet services including tools and resources for communication, health, education and local news.

Over the past 30 days, for example, people have used Internet.org health services more than a million times.

Facebook says Internet.org brings new users onto mobile networks 50 percent faster after launching free basic services/

Also, within thre first 30 days, more than half of the people who come online through Internet.org become mobile data subscribers.

To scale operations, Facebook has created a partner portal that includes technical tools and best practices, improving the process to offer free basic services to the unconnected.

As nearly as outside observers can tell, Facebook remains committed to the program, despite opposition in some quarters about creation of a two-tier Internet, walled gardens or network neutrality concerns.

In some ways, those concerns are hard to understand, unless one takes the position that network neutrality must extend beyond consumer right to use any lawful app (“no blocking”) to other practices including app performance optimization, any type of bit “discrimination” (“treat all bits exactly the same”) that arguably have end user experience benefits, direct cost benefits or provide additional value.

In other words, some might argue, the important principle that people should have unrestricted access to lawful apps is conflated with many other issues not directly related to lawful app access, and instead restrict entirely normal and lawful business practices.

Retailers routinely run promotions, offer discounts, use coupons, sales and other product offers to get new customers. Internet.org only encourages sampling of Internet apps, creating awareness of the value of the full Internet.

Some might object to Internet.org apps being optimized for low-bandwidth environments.

That simply is a practical requirement for users in areas where the only data bandwidth available is 2G.

The zero rating of Internet.org apps does not happen because Facebook pays mobile operators.

In fact, Facebook pays nothing to mobile operators who are part of the program, and ultimately succeeds only if new users who sample Internet.org also sign up for mobile data plans in numbers sufficient to compensate mobile operators for allowing the free access.

Also, no company pays Facebook to be part of Internet.org.

For Facebook, there also is no direct revenue stream, as no ads are allowed in Internet.org apps.

Internet.org offers more than 100 free basic services globally and gives people choice over the services that they want to use.

A key guideline for developer participation is to encourage the exploration of the entire internet, Facebook says.

How Many Accounts Does Netflix Lose Because of Login Sharing?

A recent survey by GlobalWebIndex survey of 5,721 Netflix users in the United States and United Kingdom found that 65 percent of people watch on a shared account, meaning they are not the registered account owner.

That might suggest an awful lot of people are watching “for free,” and not paying. Of course, some of that shared viewing is intentional. Netflix allows members of an account household to do so.

Of course, at least some people not in an account household also share a login password. The issue is how many might be doing so.

In fact, 19 percent of respondents who have an account report sharing login credentials with three or more other people.

But Citi Research analyst Mark May does not think that is a problem, because most of the sharing occurs within single households.

As there are an estimated 45.6 million subscribers in the United States, May applied the percentages found in the GlobalWebIndex survey.

That suggests there are 15.9 million single-user accounts, 27.3 million two-user accounts, 21.9 million three user accounts and 34.6 million four-user accounts.

So May estimates that there are actually 99.8 Netflix users, compared to the just 45.6 million subscribers.

In principle, that might suggest Netflix is “losing” 54.2 million potential accounts because of login sharing.

But the average U.S. household has 3.1 members, which multiplied by Citi's estimate for Netflix subscribers means that about 143 million people in the United States are permitted to use a Netflix account.

In other words, most of the login sharing likely happens within account households.

Verizon Mobile Video Service Go90 to Launch Summer of 2015

Verizon’s new mobile video service  will be called Go90 when it launches in the summer of 2015, Variety reports. has learned.

Go90 reportedly will provide full episodes of TV shows from some networks as well as music videos and other short form content including sports and web content.

The service also will be provided entirely free of charge.

What is not clear is whether the over the top service will be restricted to Verizon customers, Verizon mobile subscribers or will be available to all as a mobile app.

Vodafone Questions "Wholesale-Based" Access Competition

It is an unwavering strategic belief within the U.S. cable TV industry that the business can not, and should not, be based on use of leased facilities. Among the chief reasons is that costs cannot be controlled when relying on a third party’s facilities under lease.

The other reason is that the ability to differentiate is lost when buying wholesale access. That has not generally been seen as a viable option in many other markets, where the assumption is that there is only room for a single facilities-based network.

Singapore might be the fortunate market where there are multiple facilities-based providers as well as a universal wholesale regime. New Zealand and Australia have chosen to go the wholesale route.

That has become less true in the United Kingdom and other markets where cable TV operators have established themselves, creating a facilities-based option, in large part, even if coverage is not completely universal.

Vodafone might be leaning towards a facilities-based approach, working in cooperation, in some form, with Virgin Media.

In recent years, the advantages of such an approach have become clear. Cable operators have been able to scale access speeds faster, at lower cost, than telcos. Vodafone might want to exploit that advantage in the U.K. market.

DirecTV, Dish Network Know Their Legacy Businesses are Doomed: What about Telcos?

Marginal cost pricing and competition pose growing risks to commercial Internet service providers and communications providers.

That especially is the case because marginal cost pricing absolutely is a core business strategy for market disruptors. In other words, a now-proven strategy is for an “outsider” to disrupt a market by essentially destroying it.

What results is a smaller overall market, but one which the attacker “owns.” Let us be clear: what that all means is that there is a growing risk to the sustainability of traditional telco, satellite, fixed wireless and perhaps cable TV business models.

Google Fiber, and similar efforts by ISPs across the United States, provide evidence that competition is growing, and illustrate the growing “marginal cost pricing” challenge.

Chattanooga's electric utility (EPB), for example, has built the nation's biggest municipal telecom service over the past five years, attracting nearly 74,000 Internet, cable and telephone customers in a venture that netted a profit of nearly $17 million last year.

EPB also sells a gigabit Internet access service for $70 a month. Google created that market pricing umbrella when it launched symmetrical gigabit services for $70 a month.

EPB reported $118.2 million in revenues in the fiscal year ended in June 2015, with net income of $16.9 million.

But competition might the lesser problem, compared to marginal cost pricing (pricing products at the incremental cost of producing the last set of units). The problem is that the actual cost of producing the last unit of a digital product is pretty close to zero, but the sunk cost to sell the first unit is far from zero.

In other words, ISPs run the risk of not recovering the cost of the sunk assets, unless there are other big new revenue streams that do provide the financial return from building the network.

One example: “the large incumbent telephone companies do not earn attractive returns in their wireline businesses,” said Craig Moffett Partner and Senior Analyst, MoffettNathanson. “For example, a decade after first undertaking their FiOS fiber-to-the-home buildout to eighteen million homes, Verizon has not yet come close to earning a return in excess of their cost of capital.”

In other words, Verizon FiOS has actually lost money.

AT&T also has earned poor returns on its fixed network.  AT&T return on invested capital has been declining for a decade and is, like Verizon’s, well below the cost of capital, Moffett said.

In 2014  aggregate fixed network telecommunications businesses earned a paltry 1.2 percent return, against a cost of capital of roughly five percent, Moffett argues.

“For the non-financial types in the room, that’s the equivalent of borrowing money at five-percent interest in order to earn interest of one percent,” said Moffett.

“That’s a good way to go bankrupt,” Moffett said.

Cable operators, on the other hand, are earning returns of 13 percent to 33 percent, Moffett said.

To be sure, “forward pricing” is a common tactic when a firm begins producing any product whose actual initial cost is far above market expectations.

That often leads firms to price at expected future levels, when learning curve effects have kicked in. The corollary is that every unit produced early on is sold at a loss.

The problem comes when the forward pricing does not recover sunk costs, but only marginal operating costs.

The problems are worse when the core products are in a declining, or very mature mode. And that is an issue in many markets, not just “developed” markets.

Mobile subscriptions have been slowing in Brazil, and Dow Jones newswire says growth turned negative in June 2015.

The number of active mobile phones users in Brazil dropped by 1.7 million in June, ending with a monthly total of 282.45 million, compared with 284.15 million in May, government agency Anatel said.

That is why the search for big new markets, especially related to the Internet of Things, is so very strategic.

Already, of AT&T’s 2.1 million net adds in the second quarter of 2015, 410,000 were postpaid accounts,  331,000 were prepaid and one million were from connected cars.

In other words, in the second quarter, connected cars drove AT&T net account adds.

AT&T also added 1.2 million branded (postpaid and prepaid) smartphones added to its base.

Still, the fundamental problem is marginal cost pricing, something I like to call near zero pricing, since it immediately captures the nature of the problem.

Several possible outcomes are possible. Perhaps today’s legacy access providers will indeed find they can create huge new revenue streams from IoT. That will take care of the sunk cost problem.

If not, one cannot rule out business failure. The challenge posed by EPB, similar ISPs and Google Fiber is precisely that they destroy the legacy business model and therefore the sustainability of the businesses supported by those business models.

You might argue that is why DirecTV decided to sell itself to AT&T, and why Dish Network is getting into the mobile business. Both DirecTV and Dish have concluded their old business models will inevitably fail.

Some day, many fixed network operators might have reached similar conclusions.

FCC Approves AT&T-DirecTV Acquisition

Its official.The FCC has approved the AT&T acquisition of DirecTV. https://www.fcc.gov/document/fcc-grants-approval-att-directv-transaction

Brazil Mobile Subscriptions Go Negative

Maturation in the mobile business, tyically manifested as a slowing rate of subscriber growth, now is becoming an issue in developed and other economies alike.

Mobile subscriptions have been slowing in Brazil, and Dow Jones newswire says growth turned negative in June 2015.

The number of active mobile phones users in Brazil dropped by 1.7 million in June, ending with a monthly total of 282.45 million, compared with 284.15 million in May, government agency Anatel said.

It was the first month of mobile subscription declines since September 2013, when mobile subscriptions declined 173,600.