Between 2011 and 2016, Revenue per Gigabyte Prices Will Drop 300 Percent

Wi-Fi now has become an important input for mobile operator access cost containment. As usage continues to climb, revenue per gigabyte keeps dropping. 

Offloading traffic allows users to consume lots of data without excessive stress on their data plans.

That offloading also means network capacity investments to cope with usage growth can be delayed longer than otherwise might be the case.

Oddly enough, the bind is real: mobile operators arguably cannot afford to invest enough in their own networks to support all the usage and still have a sustainable business model.

Even if there is some "lost revenue" because users shift to Wi-Fi, and therefore the mobile operator loses usage, the upside is that the operators avoid huge capacity investments.

source: Analysys Mason  

                Average wireless network traffic per connection

source: Analysys Mason

Why Content is a Logical Mobile Service Provider Opportunity

There is a very good reason many mobile service providers now are turning their attention to mobile video, and might also eventually participate in other app efforts: mobile is going to be the dominant screen used to watch video content, mobile is the access platform and the revenue opportunity is large enough to affect earnings.

Even if consumption of digital media is growing, mobile consumption is growing faster, according to comScore.

By 2030, U.K. regulator Ofcom suggests, as much as 60 percent of video content might be viewed on a smartphone screen.

Also, content is at the heart of mobile app usage, daily.

In 2015, U.S. service provider mobile data revenue was $144 billion. TV revenues were $185.3 billion. Mobile has the screens and the delivery mechanism. It simply needs to create a sustainable role in the content and advertising part of the ecosystem.

Marketing and Operating Costs Might Provide the Difference for Small ISPS Deploying Gigabit Internet Access Networks

At a macro level, the consumer telecom business relies on scale. That is why any examination of market share (fixed or mobile) in virtually any country shows a very-small number of names with 80 percent to 90 percent market share.

But there are ways small local providers sometimes can create a sustainable business model.

Odds have proven to be best when operating in smaller markets (not dense urban, not rural).

Prospects arguably are especially picking markets where the dominant providers (cable TV and telco) are bigger “national” names who know their financial results do not hinge on what happens in the smaller markets.

In other cases, the dominant competitors are smaller providers without deep pockets, but also higher overhead and operating costs. You might argue that a small Internet service provider building its own fiber-to-customer facilities will not enjoy any cost advantages over a large tier-one provider, in terms of material costs.

It is conceivable there are some labor cost savings, but permitting, “make ready” and other costs should not be materially different from what other service providers have to pay. The possible exception is the rare instance where another entity is laying new conduit and the ISP can place cabling inside that conduit without paying the cost of digging.

The point is that the business model sensitivity likely hinges on marketing and operating costs.

Consider subscriber acquisition costs, a figure that typically includes attributed marketing costs, including discounts and other promotions, per subscriber, for linear TV and mobile service.

Dish Network and AT&T’s DirecTV (prior to acquisition by AT&T) subscriber acquisition costs were about $868, on average. Comcast incurred SAC costs of $1980 per new account, while CenturyLink had $2352 per new account.

It has been estimated that some independent third party suppliers, such as Ting, spend only about $125 to acquire a new video customer.

The same sort of disparity exists for mobile service provider subscriber acquisition costs. Verizon invests about $484 to get a new mobile account. AT&T invests about $583 to get a new mobile account, while T-Mobile US invests only about $169.

Sprint, on the other hand, has to spend a whopping $1440 to get a new account, while Ting spends perhaps $80.

There is, in other words, an order of magnitude difference between Ting SAC and costs for tier-one competitors.

And that, one might argue, accounts for the ability some small ISPs could have in the new gigabit Internet access market, in some markets, even when new facilities have to be deployed.

source: Seeking Alpha

Escaping "Dumb Pipe" Value and Role Requires Embrace of Content

One can argue about whether telecom and banking are logical partners, as one can argue about the upside for mobile payments and other banking-related transaction businesses. Many have struggled to find sustainable partnerships around social media and messaging apps.

Fewer think entertainment and content are illogical areas that could drive service provider revenue growth.

There is one theme that underlies thinking about all those potential growth avenues. The logic is to make an information asset a “communications” asset.

The reason that is important: in an era where applications are logically separated from network access, the value of access and transport becomes something of a commodity, difficult to differentiate.

Information--especially that related to discrete individuals and firms-- as well as content, are highly differentiated and therefore much more “unique.” And uniqueness creates the foundation for value, and higher retail prices.

Between 1998 and 2015, for example, Internet transit prices fell about three orders of magnitude (by a factor of 1,000).

To be sure, transit prices are but one element contributing to final retail prices. But transit prices, and capacity prices more generally, suggest the direction of pricing trends.

Access networks, observers will note, are not “virtual” or as easy to replace or upgrade as chipsets or consumer devices. That suggests access costs should be sticky to the high side.

But even if “access” involves construction that cannot follow Moore’s Law, the actual trends for Internet access speeds and prices in the United States have nearly followed a path one would expect from Moore’s Law or  Kryder’s Law.  

In fact, if the trend continues, by about 2030, fixed networks and mobile networks will operate at the same speeds, an astonishing development, both technologically and in terms of business implications.

Since capacity increases that fast, but consumer discretionary spending power never does, the price per bit falls dramatically, even if retail prices drop marginally in developed markets, but rapidly in developing markets.

The implications are easy enough to predict: access--by itself--will become, and remain, a relative commodity, in the absence of value added other ways.

source: Fiber Optic Association

source: DrPeering.net

source: advancedsignalz.com

The implication, some of us would continue to argue, is that revenue growth, higher value and profit margins will require escaping the commodity-like “access and transit” function.

The threat posed by a “dumb pipe” role in the Internet ecosystem is precisely the commoditization of the function, and therefore the retail price, sales volumes and profit margins.

Content and information functions, on the other hand, remain capable of differentiation. Future winners in the service provider space likely will succeed in operationalizing that insight.

Verizon Wants to Sell Data Center Business

Verizon Communications is moving to sell its data center assets, reversing an earlier effort to  expand in hosting and colocation services after it acquired data center operator Terremark Worldwide Inc in 2011 for $1.4 billion.

The assets up for sale includes 48 data centers, generating annual earnings before interest, tax, depreciation and amortization of around $275 million.

The move comes at a time when a few U.S. tier one telcos appear to be rethnking their roles in the data center business.

In addition to the possible sale of Verizon data center assets, AT&T and CenturyLink likewise are trying to sell their data center businesses.

Windstream already has divested its data center business.  

So what is going on? Most larger U.S. telcos seem to believe they can obtain the benefits (services for their enterprise customers) without owning the facilities, and can deploy capital elsewhere.

Cincinnati Bell also is monetizing its data center assets, selling ownership shares of its CyrusOne data center business and raising cash to reduce debt.

Some would argue the large telcos also face issues of relevance in the cloud computing  business.

Will Netflix Shift to Focus on Profits After Big Global Expansion

Will Netflix do as Amazon did and shift from growth to reporting some level of actual profits? Possibly.

Netflix, already in more than 60 countries after launching in Japan, Australia and Southern Europe in 2015, might be at a point where it can concentrate on harvesting.

Netflix has estimated it would add about six million accounts domestically and 11 million outside the United States in 2015, reaching 74.3 million total.

Netflix might have net income of $137 million in 2016.

Some analysts project $535 million net income in 2017 and more than a $1 billion by 2018.

Separately, Netflix now has climbed into the top ranks of spending to create original content. Netflix will spend more than CBS, Viacom, Time Warner and Fox Networks on content in 2016, according to MoffettNathanson.

Netfli also will spend more than HBO, Amazon and Hulu.

source: Bloomberg

Business Insider

Why Content Will Drive Mobile-App Provider Partnerships

Even if they operate in different parts of the value chain, mobile service providers and app providers increasingly will partner, many now argue.

Beyond 2020 to 2025, the degree of collaboration might hinge on content services, SCF Associates has argued. “That may involve MNOs becoming much closer to the major web services players,” argued Simon Forge, SCF Associates analyst.

To be sure, the partnering recommendation is not new, nor a strategy mobile and fixed network service providers have failed to envision. Thinking--and some action--around OTT voice and messaging has been extensive.

Still, it has generally been hard for over-the-top challengers and service providers to make robust revenues or profits on OTT voice and messaging.

One analysis conducted for the International Telecommunications suggested that no OTT strategy would be able to arrest a major decline of voice roaming prices, and therefore revenue.

In that analysis, resistance to OTT voice (scenario one)r collaboration (scenarios two, three and four) all lead to vastly-lower voice roaming prices.  

Some might note that past successes or failures in the over-the-top messaging or voice areas is not a predictor of future developments, in large part because of the role content apps and services now are assuming in the “telecom” space.

For starters, content is “sticky” and “unique” in a way that voice, messaging or Internet access is not. That is why prices, profit margins and revenue for content services have not followed the almost-linear downward path seen for voice and messaging.

Uniqueness is why streaming and linear channels and services create their own unique content, and seek exclusive licensing deals. That offers lots of room for partnering between content apps, services, networks, studios and copyright owners and access providers (both mobile and fixed, but especially in the mobile realm).

source: ITU

Think of services such as Verizon’s Go90, Comcast Watchable and T Mobile's BingeOn. All provide examples of the role content services are expected to play in core mobile and fixed network revenue plans.

That also is true of Dish’s Sling TV, Sony PlayStation Vue, Alibaba TBO and Youku, Showtime’s carriage on Hulu, YouTube’s Red subscription service, and now the ability to buy OTT subscriptions from HBO, Showtime and others on Amazon’s Prime service.

Smaller networks, in particular, may ultimately need OTT carriage to survive, and therefore have incentive to eventually partner with mobile firms.

Recent research indicates that 15 to 20 prominent niche services will rise by 2018 to eat into share now held by Netflix, and the premium OTT market as a whole will total $8-10 billion by that time, notes Forge.

In the same vein, networks, pay TV providers, and mobile carriers are all looking at strategic ways they can make the most of their content and infrastructure to create compelling consumer service offerings, particularly for Millennials, Ooyala argues.

AT&T partnered with Hulu for mobile and Internet customers, and Time Warner has a new Internet TV service.

Cablevision has a cord-cutter package linking broadband, over-the-air digital antenna and in some areas, Wi-Fi-based phone service.

The Verizon Fios Custom TV bundle omits some high-cost networks, while Comcast also sells a  “mobile-first IPTV service,” Stream TV.

source: ITU