Why Amazon Cares about Drone Delivery

There is a very simple reason why Amazon is interested in commercial drone delivery services. For parcels weighing less than five pounds, the thinking goes, Amazon could potentially cut delivery costs up to an order of magnitude, compared to using UPS Ground, or “only” about nine times less than same-day shipping, or five times less than U.S. Postal Service one-day shipping.

Such changes also illustrate channel conflict. By internalizing delivery cost, and using a new platform. Amazon slices its distribution costs dramatically. Of course, that means less business for one of its traditional delivery partners.

Channel conflict dangers never fully disappear, in any business.

source: Business Insider

How Much Advantage Does Quad Play Provide?

Just how much advantage--beyond the free cash flow--AT&T will derive from DirecTV remains unclear. In some large part, one’s optimism or pessimism is driven by one’s beliefs about the coming power of quadruple play offers.

Many are skeptical of consumer demand for bundles of fixed services and mobility, while others, including cable TV operators, believe quad plays will drive both customer acquisition and loyalty.

To be sure the actual benefit of triple play offers has been driven by consumer discounts for buying the bundle, and not necessarily some new service or app potential based on the buying of voice, video and Internet access.

The issue for AT&T might be the extent to which that also extends to the quad play, while mobile services are added to fixed network services.

Count Walter Piecyk of BTIG Research among those who remain skeptical about the benefits AT&T can wring out of DirecTV. The upside?

DirecTV has 15 million customers who don't use AT&T for mobile services and three million DirecTV customers who have access to U-verse but use another Internet service provider. If AT&T can convert a significant percentage of those customers into AT&T mobile or fixed network Internet access customers, there is upside beyond the ability to take advantage of DirecTV’s free cash flow to support AT&T’s dividend.

The downside? Consumer willingness to switch mobile or fixed ISP accounts for relatively modest bundle discounts might be limited, especially when the level of promotions for mobile switchers is presently so high, and churn levels for AT&T and Verizon so low.                                                                                                                             

The analysis all comes down to the expected value of bundling now possible.

AT&T has argued the DirecTV buy would help reduce churn, overall. But Piecyk expects AT&T postpaid account losses to widen from 1.4 million in 2015 to 1.6 million 2016 and further to 1.7 million in 2017, in large part on account of fierce promotional activity by T-Mobile US.

On the other hand, many would argue that DirecTV will be a useful asset as AT&T launches a streaming TV service of its own, soon.

It is fair to say the divergence of opinion is largely centered in the legacy telco part of the market, not the cable TV segment. Where some believe telcos will not get many benefits from quad play, most believe cable TV operators will win.

For some of us, that implies the quad play does have strategic value, even if, as always, the attackers in the market benefit disproportionately.

Incumbents arguably do benefit from enhanced retention (lower churn) and, in AT&T’s case, some incremental ability to cross sell.

The former will be hard to quantify; the latter easier to demonstrate. One way or the other, we shall know, in a rather few years, whether the upselling reality matched the potential.

OTT "Versus" Mobile Operators is a Dead Argument

“OTT versus operators is dead,” argues John Strand, Strand Consult principal. “Partnerships will flourish, if not regulated out of existence” by regulatory bodies.

His argument is quite simple: “the two players need each other, and OTTs know it.” The argument, in broad outlines, is not new. Though some access providers have attempted to create their own over-the-top voice and messaging services, that generally has not worked well.

Instead, one might argue, there is more opportunity for collaboration in all other areas, where access providers might well find it fruitful to partner with OTTs.

You might think of what Internet.org is doing around the world with mobile service providers, partnering to provide “Free Basics,” a suite of Internet apps that can be used by anyone with a smartphone, or in many cases even feature phones, without a mobile data plan.

The idea is to allow people to sample the value of the Internet, on the assumption that many people will discover they want to use the Internet, and hence will buy data plans.

“Music services such as Spotify and Deezer; video services like HBO and Netflix; newspapers and magazines—any and all content that can be bundled with traditional traffic packets that telecom companies sell will be bundled with mobile service for all devices,” Strand argues.

“We expect that the number and type of services that operators bundle with voice, SMS and data will explode,” Strand predicts.

As you might suggest for services built on content, brands will matter. “In the same way that toys, clothing and other consumer products enter partnerships with film companies, more brands and mobile service will come together,” says Strand.

Growing Mobile Substitutiion for Internet Access?

Fixed-line and mobile voice connections are generally perceived by consumers as product substitutes, it is easy enough to argue. Whether that can broadly be the case for mobile and fixed Internet is the bigger question.

The extent to which mobile can be a functional substitute for fixed access is a more complicated issue, in part because of the value-price relationship. Mobile Internet access historically has been slower than fixed access, while the cost to use a mobile gigabyte of data generally is far higher than use of a fixed network gigabyte.

Nevertheless, there are growing instances where fixed and mobile Internet access are more-nearly functionally the same. Such mobile substitution has grown in the U.S. market, for example

For Deutsche Telekom customers, mobile Internet access speed--since 2014--has generally been faster than what is available on the fixed network.

Some usage scenarios already are clear enough. Where the cost of fixed network Internet access is non-economical, mobile will be the only form of access.

Where both mobile and fixed access are available, there are more use cases. With the advent of Long Term Evolution, the number of viable use cases has grown, compared to the situation where 3G is viewed as a potential substitute for fixed access.

Low usage, single-user consumers are a generic class of consumers for which mobile access using LTE could be a viable substitute for fixed access. Single-person households or users who do not watch much online video are examples.

On the other hand, multi-user households that watch significant amounts of video almost never are the best candidates for mobile Internet access substitution.

Someplace in the middle are many use cases where mobile offers might compete effectively with fixed network offers on a price-per-gigabyte basis.

It will is tough, but not impossible. Users will have to manage their own behavior, resisting the temptation to use resource-intensive apps when on the mobile network.

Substitution also will be easier in markets where public Wi-Fi or at-work Wi-Fi is plentiful.

The big question is whether future 5G mobile networks, supporting gigabit access speeds, also will be priced, on a cost-per-gigabyte basis, close enough to fixed prices to make both modes relatively full substitutes.

The other issue is mobile access in markets where fixed network alternatives are unavailable, expensive, slow or all of the above.

The converse also is true: where fixed network services are highly affordable, the value of using a mobile alternative is less compelling.

According to Ofcom, the lowest levels of mobile broadband take-up are in France (15 percent of respondents) and the United States (10 percent).

In France the widespread availability of cheap triple-play bundles of fixed voice, fixed broadband and pay-TV provides an incentive for households to have a fixed broadband service, while in the United States, relatively expensive mobile broadband data charges are likely to be limiting the use of mobile broadband as a substitute for fixed broadband services, Ofcom says.

source: Ofcom

source: Ofcom

Reliance Communications Halts Free Basics, at Least Temporarily, After Government Request

The Telecom Regulatory Authority of India has asked Reliance Communications to stop the Free Basics service, at least temporarily.

"We have asked them (Reliance Communications) to stop it and they have given us a compliance report that it has been stopped," a senior government official said, the Times of India reports.

It always is hard for any firm regulated by a government entity to resist such "requests."

Free Basics, called by many a zero rated approach, allows mobile consumers to use and sample a selection of Internet apps without incurring a data plan charge, or even if they do not have a data plan.

In India and elsewhere, including the United States, regulators, policymakers and policy advocates have been arguing that zero rated apps are a violation of network neutrality principles.

Others argue the practice is a business policy, like offering coupons, discounts and other promotions.

In the United States, the Federal Communications Commission has requested more information from mobile service providers about programs that allow users to listen to streaming music, or watch streaming video, without incurring usage charges on their mobile data plans.

The T-Mobile US "Binge On" program provides an example of that effort. AT&T, meanwhile, offers a sponsored data program where advertisers can sponsor data consumption by consumers, much as toll-free calling works. Verizon, for its part, also is working on a sponsored data program.

Internet Access by Smartphone Now Depresses Fixed Network Internet Access

As wireless substitution has been a major trend in voice communications, it now is measurably an issue for high speed access as well.

About 67 percent of U.S. adults have access to fixed network high speed Internet access, according to the Pew Research Center, down slightly from 70 percent in 2013.

Reliance on mobile Internet access appears to account for the change. More Americans are “smartphone-only” in 2015 than was the case in 2013.

Some 13 percent of adults rely on their smartphone for online access at home, up from the eight percent who did so in 2013.

The increase in “smartphone-only” adoption largely corresponds to the decline in home broadband adoption, according to Pew Research Center.

Smartphone adoption has reached parity with home broadband adoption (68 percent of U.S. adults report they use a smartphone, the same percentage as report using at-home fixed network Internet access.

The bottom line is that 80 percent of U.S. adults have either a smartphone or a home broadband connection, a small change from 2013, when 78 percent had one of these two access means.

Will OTT Video Save Consumers Money? It Depends

Though it is not a consumer’s task to worry about product provider profit margins, revenue, stock prices and such, consumers, in the end, pay for all costs of developing and supplying any product.

So it matters whether new video delivery platforms will lead to lower prices, irrespective of what happens with content volume, the number of channels or shows.

That noted, one might question whether cost per hour of consumption of over-the-top video will necessarily be a better value for most consumers than linear video.

With the caveat that all prices will change over time as the market moves in the direction of over the top, on demand or a la carte delivery, it is not true that over the top video now available to consumers costs less than linear video subscriptions do, on a cost per hour basis.

True, consumers might not care. They might only care about out of pocket costs. On that basis, for some consumers, OTT video offers higher value.

For heavy users, though, OTT video costs more, per unit. The cost to use an hour of linear TV (expanded basic only, not including any premium services such as HBO), might be about 25 cents an hour. Using Hulu already costs $1.69 per hour, while using Netflix costs 89 cents per hour.

To be sure, all that depends on how much video actually is consumed each month. How many Netflix customers actually watch 34 hours of video every week, as is quite common for most linear video subscribers?

It might easy enough to predict the outcome of a market that moves massively in the direction of over the top video. Economic viability of most programming networks will be called into question, as advertising-dependent business models will not work for networks with small audiences.

Independent channels, especially, will suffer as affiliate revenues (payments made by distributors for rights to carry a channel) also dwindle because of skinny bundles and lower gross revenues for linear services.

For better or worse, content diversity will take a hit. That might, or might not, be such a problem, in one sense. Out of hundreds of options, most linear video consumers watch 17  or fewer channels on a regular basis. So, arguably, not many actually want to spend money for most content, and most channels.

source: Nielsen

source: The Atlantic