Airtel Commits to Big Mobile Banking Effort in India

It still remains to be seen whether mobile banking will be a widespread, or simply a niche business, for mobile operators. In regions where retail banking is well developed, it is likely to be a niche dominated by financial providers. In regions with undeveloped banking infrastructure, mobile banking is going to be more important.

So far, in fact, mobile operator involvement in mobile banking has failed to get traction. That is not th case in other markets, such as regions of Africa where M-Pesa operates. In India, mobile banking is about to get a big boost, as well.

Airtel M-Commerce Services, which presently provides money transfer services in 800 towns in India, has been renamed Airtel Payments Bank, and also now plans to use the Airtel network to deliver banking services from 1.5 million outlets covering 87 percent of India’s population..

Kotak Mahindra Bank also has acquired 19.90 percent stake in Airtel Payments Bank.

Though not every tier-one access provider will inevitably become a supplier of banking services, many, in areas where the retail banking system is undeveloped, will do so. In some cases, that will take the form of remittances and payments. In other cases, a wider range of traditional banking operations will be supported.

In other instances, mobile operators might seek roles in retail payments as well.

source: Merrill Lynch Global Research

Mobile operations in core banking activities are important less for revenue upside than for cost reduction in some countries where banking systems are robustly developed. Cost savings and better customer quality of experience are the drivers in such markets, not “branch bank coverage.”

In fact, it might also be correct to say the shift in virtual banking in developed nations, is from online capabilities to mobile interactions, from retail payments to customer service functions, account balance checking and balance transfers.

source: the financial brand

In 2020, IoT Will Not Be Sufficient to "Move the Needle" for Telecom Suppliers, Globally

With the caveat that suppliers and customers always can be wrong, potential solution providers and customers believe as much as $470 billion will, by about 2020, be generated, with $60 billion in profits. About 40 percent of that revenue will be generated by purchases of devices, perhaps $15 billion by connectivity services, some $20 billion in apps, analytics and hosting services and about $20 billion in system integration and implementation services.

If correct, it is fair to note that the biggest potential changes in service provider business model cannot be driven by IoT services and revenues. In an industry with annual revenues in the nearly $2 trillion range, $15 billion simply is not going to move the needle.

The big changes therefore will come in other existing parts of the business (existing revenue sources and existing cost structures, plus "growth by acquisition").

source: Bain

Are We at "Peak" Internet Access Adoption? In the U.S. Market, That Might be True for Fixed Accounts

“You can lead a horse to water, but you can’t make him drink.” The principle, that making something available and having it used, applies to internet access. Not every household buys a fixed line internet access connection.

Some 83 percent of U.S. residents buy (or use) fixed network internet access service at home, according to Leichtman Research Group.

Consistent with the profile of those not online at home, the most common reason for not getting an Internet service at home is a lack of need (50 percent of non-buyers). Cost is said to be the barrier for 17 percent of non-buyers. Some eight percent say they “cannot” buy service.

About 60 percent of non-buyers say they do not own a personal computer or notebook.

At least eight percent of non-buyers say they use smartphones for access. Other studies suggest that perhaps 13 percent of U.S. residents report they use their smartphones exclusively for internet access. Some 65 percent of the smartphone-only respondents say the smartphone lets them do all they need to online, according to a Pew Internet and American Life Project survey.

The availability of other access options outside the home also is a reason some rely on smartphone-only access. Some 34 percent of smartphone-only users say they go online at a public library. Others (about 40 percent of smartphone-only users) access the internet using facilities at a high school, college or community college.

The point is that there is a difference between supply of access services and demand for those services. Virtually everyone would agree that access should be made available to everyone. But that is a different matter from actual purchase. A significant number of households do not want to buy.

One might even predict that the percentage of homes buying a ‘fixed network” service might actually continue to decrease, as tethering, 5G fixed wireless and Wi-Fi (especially homespot access) becomes widespread.

We might already be at the peak of fixed network internet access adoption. "Peak" cable TV adoption was about 80 percent (satellite competitors, then telcos, and now over the top streaming are taking share). "Peak voice" happened about 2000 or 2001, as mobile substitution took hold. Internet access is likely next to begin receding.

Regulators Should Not, or Can Not, Ignore Long, Slow Decline of the Landline Business

Telecom regulators always face the challenge of balancing policies to promote rapid investment and adequate competition, no easy challenge, but also complicated by industry dynamics that are anything but promising, especially in the fixed network segment. Virtually all observers would say they are in favor of much more investment in broadband internet access facilities, for example.

Over the last decade or so, with the exception of Verizon, relatively less investment has been made by telcos to match cable TV internet access speeds, for several reasons. AT&T and Verizon logically have invested most of their network capital in the mobile side of their businesses, a logical move since mobile drives half to 80 percent of total revenue.

But there are other competing uses of capital, such as acquisitions to grow the revenue base. And make no mistake, acquisitions--rather than organic growth--account for most of the revenue growth achieved by AT&T (about 26 percent of revenue growth between 1996 and 2008), and a substantial percentage of Verizon revenue growth (about 46 percent) between 1996 and 2008, for example.

In other words, those firms have to balance capital for acquisitions, dividends and network investment. It is not easy.

source: Deloitte University Press

As a result, U.S. telcos have vastly lagged U.S. cable operators in upgrading internet access speeds, leading to cable operator dominance of that key product segment.

It might be easy to criticize the firms for ignoring their own long-term interests. But such behavior is rational if managements believe the long term prospect is for slow, steady decline.

The other institutional factor is that fixed network telcos are viewed by investors as dividend payers, not “growth” vehicles, which means telcos must make dividend payments a priority, even if that capital might be deployed into faster internet access networks.

The situation, though difficult, is not necessarily that dire for the a few of the tier-one integrated providers who own both mobile and fixed assets. Verizon made a decision to upgrade much of its access network to fiber-to-home within the past decade, though apparently concluding it did not make business sense, since about 2010. AT&T has made more controlled investments, focusing on fiber-to-neighborhood for most of the past decade, though recently switching to a more-targeted gigabit upgrade plan based on fiber to home platforms.

What comes next will be telling. A range of firms, including Google and Facebook, AT&T and Verizon, now are investigating whether new platforms might provide a better business case, including fixed wireless.

The coming 5G upgrades of the mobility networks will include lots of small cell deployment in denser areas, supporting new opportunities for gigabit upgrades without the full cost of fiber to home. That might be a game-changing development for at least some telcos.

The larger point to be made is that the fixed network business is a very-tough proposition for any telco, but especially for smaller providers without mobile assets. With the exception of growth provided by acquisitions, organic growth in the fixed network segment will be difficult, at best.

Why Content and Access Mergers Still Make Sense

There is good news and bad news in the global tier-one telco business. Between 2009 and 2015, most telcos, perhaps as many as two thirds, experienced revenue growth. The bad news is that up to a third of tier-one telcos saw  negative revenue growth, especially in Europe.

The issue is “why?” that pattern exists. One line of thinking is that continent-specific factors are at work (market fragmentation, heavy regulation, wholesale policies, lack of incentives for investment to create new products). Another line of thinking is that, as a “mature market,” Europe points to inevitable revenue erosion in all legacy services (fixed voice, mobile voice and data), as well as modest returns from relatively-new services such as internet access.

We will know a bit more over the next decade, if revenue growth begins to “go negative” across a broader set of geographies or countries. Asia, which now drives most of the global growth, has one singular advantage: lots of people to convert as customers of new internet access services. That also applies for Africa. Those two continents will be, on the whole, the last to see any revenue pressures from market maturation.

Those trends might help explain why AT&T proposes to buy Time Warner, and 21st Century Fox wants to acquire the remainder of satellite broadcaster Sky that it does not already own, or why Verizon seems determined to establish itself as the default buy for advertisers who want a choice from Google or Facebook venues.

It might also be fair to again ask why firms such as Comcast choose to buy assets such as NBCUniversal.

source: STL Partners

The traditional arguments for blending distribution and content assets in the cable TV business had to do with revenue growth more than synergy within the ecosystem (we used to call this “vertical integration”). In part, the revenue growth would come from scale; in part from the ability to create new products; in part from diversification (the distribution business was mature, both in terms of products and regulations on additional growth).

Ownership of complementary assets arguably is useful, but programming rules prevent a distribution entity from restricting sale of its programming assets to rival distributors, or applying non-standard rates when the distribution entity buys content from the programming entity.

When Comcast bought NBCUniversal, in 2009, it was a revenue growth play. Comcast in 2004 had tried to buy Disney, for the same reasons.

As we near 2017, a newer set of justifications exist. One way of describing Comcast’s transformation from “content distributor” to “content owner,” in substantial part, is the notion that doing so allows Comcast to benefit from at least some of the content it delivers over its distribution networks. In other words, Comcast benefits from the revenues generated by the content assets used by customers of its access networks.

That, in a sense, also underlies Verizon’s attempt to fashion a major role for itself in internet--and especially mobile--advertising. As would other access providers, Verizon gains from customer use of applications enabled by its access operations.

To be sure, diversification of revenue sources is seen as valuable. Access and content or app providers are in distinct industries, so multiple roles provides some protection from sector downturns. Beyond that, the content and apps businesses are growing, while core telecom access products are mature and declining.

To a significant extent, owning both content and access also makes easier the creation of new on-demand products to replace the expected declining linear service revenues. That advantage comes not so much from “exclusivity” as from fewer institutional barriers to innovation. The point is not so much the “exclusive” nature of the on-demand content services, but rather incentives to fashion content assets in that manner, faster. Comcast becomes simultaneously a seller and buyer of such services, creating incentives for cooperation between content and distribution entities.

"Bigness," By Itself, is Not an Antitrust Problem

Antitrust regulation is the “normal” remedy for excessive market power, even when obtained through competitive processes: people use the dominant products because they prefer them. What might be new is that oligopoly exists in the internet applications space, as tends to occur in the more-regulated telecommunications business. That “winner take all” market outcome now is expected for internet apps.

That gatekeepers issue is relevant for the internet ecosystem because it could, or should, shape policies intended to maintain investment and competition within the ecosystem. Federal Communications Commission policy of the last eight years has assumed that internet service providers are among the key gatekeepers, if not “the” gatekeeper, requiring regulation of internet access under common carrier rules.

Others might argue there are other key gatekeepers as well.

Consider that Alphabet has an 83 percent share of the mobile search market in the United States and just under 63 percent of the US mobile phone operating systems market.

To be clear, some of us are in favor of light or lighter regulatory touch for every part of the ecosystem--app and access providers alike. That is not the only choice. As always, regulators can apply heavier regulation to some industries or companies as a way of fostering more competition. The other approach is to lighten regulation on some potential competitors within the ecosystem able to provide competition.

Some might argue the right approach is to take account of rising and declining “gatekeeper” power within the ecosystem. There might be multiple gatekeepers, but some arguably are gaining power, others losing it. Few who follow the internet ecosystem would disagree that app providers are growing much faster than ISPs. In fact, one might actually argue that ISPs are losing power within the ecosystem.

A not-so-often comparison to telecom providers is made by media entrepreneur Jonathan Taplin, who notes that AT&T has a 32 percent market share in mobile phones and 26 percent in linear subscription TV.

Google and Facebook have 85 percent share of the internet advertising market.

The combined AT&T-Time Warner will have $8 billion in cash but $171 billion of net debt. Alphabet has $76 billion of cash and total debt of less than $4 billion.

Alphabet alone has a market capitalization of around $550 billion. AT&T and Time Warner combined would be about $300 billion.

That is not sufficient reason, some would argue, for taking antitrust action against any of these firms. In some markets, especially the tier-one level of telecommunications, scale seems an inevitable requirement. Scale in application markets arguably means those firms can invest in many new services and capabilities at a high level, and fast.

In fact, in most app markets, the “winner take all” nature of the markets might suggest something about what is needed, at the tier-one level of apps, to compete globally. The point is that “bigness alone” might not be the point, at the tier-one level in the access or apps business. Oligopoly might be the natural outcome of competition in such markets, at the tier-one level.

For tier-one telecom companies, capital intensity might be the issue. For app providers, huge scale required to drive advertising markets might be the requirement.

source: Precursor

AT&T Acquisition of Time Warner is Not an Antitrust Problem

Though good arguments can be made to the contrary, some argue that an AT&T combined with Time Warner would have too much power in the internet ecosystem. Reason enough, some argue, to block the deal, even though the acquisition would not reduce suppliers in the content business, or increase AT&T’s footprint, customer base or assets in the access business.

That might not be the point, critics essentially argue. The point is too much more power held by a gatekeeper. That, one might argue, ignores the simple consolidation trend that is, and will continue to sweep, the media and communications industries. Scale, one might argue, now is required to maintain profit margins, beyond increasing revenue.

Consider the linear video business. ISPs argue they have to raise prices every year because content fees keep rising every year. Scale, ISPs argue, will allow them more bargaining power. Conversely, content owners believe they need to match that scale to maintain their own leverage.

Consumer benefit hangs in the balance: lower service fees are not possible unless content prices are controlled and content contract terms made more flexible, allowing skinnier bundles that cost less.

In a related sense, core ISP revenues are under pressure, as voice, messaging, internet access and video revenue streams face lower demand and higher competition from substitute products. In other words, ISPs (access providers) sell generally-declining legacy products. To wring profits from a declining business, costs have to decline. That is as true in the content business as in any other.

On the other hand, content is easier to differentiate than internet access, voice or messaging. That is why content prices have been growing every year, while price per unit for voice, messaging or internet access has been dropping.

To use a simple explanation, the path forward for any large ISP is to “own at least some of the content” delivered over the access pipe. That is what Comcast already has done, and what AT&T (and eventually Verizon) will conclude they also must do.

Some see antitrust danger in the AT&T proposal to buy Time Warner. Some of us just see a “keeping up with the Joneses” move that mimics what Comcast already has concluded must be the strategy.

Like it or not, "bigness" might be a survival requirement in the access market, at the tier-one level.