How Much Can Bundling Boost Demand for Fixed Network Voice?

It is hard to argue with the notion that landline voice service is a clear “legacy” technology that half of consumers--or more--have decided they no longer need to buy.

A Bank of America survey of U.S. consumers found “landline” phone service was used by just 36 percent of those surveyed.

The issue is the trend: how much further can purchases fall? To be sure, many would point out that analog accounts are a declining portion of total fixed network voice lines, while market share also is shifting from traditional suppliers to competitors.

Some, such as the Telecommunications Industry Association, are optimistic, essentially arguing that voice over Internet Protocol lines will grow enough to ensure that the total number of fixed network voice lines will not decline.

It is not an impossible outcome, but likely rests on a couple key assumptions. If voice lines are bundled with other more-desired services, such as internet access, and the price is low enough, it is possible that demand can be propped up.

That often is the case for triple play bundles, where it is impossible to discern a specific price for any of the constituent products.

At a low enough price, even a product with lower usage can make sense. In other markets, including the United Kingdom, consumer use of voice or all types actually is dropping, so the “value” of voice is a problem not only for fixed network providers, but also mobile service providers.

source: Ofsted

Some telcos offer discounts on internet access service if a voice line is purchased with that service. That often is the case in markets where retailers use wholesale access, for example, and the wholesaler requires that retailers buy voice service as a prerequisite for access to rights to buy broadband services.

source: Bloomberg, TIA

That seems not to square with other data, though, even if some forecasts of decline might have been too aggressive. A recent survey by Convergys found that only 36 percent of respondents buy fixed network voice service.

source: bankofamerica.com

Recent studies by the U.S. Centers for Disease Control have found households buying fixed network voice service represent about half of U.S. homes in 2014. By 2017, the percentage of mobile-only households had climbed to 51 percent, while homes buying fixed network voice represented about 46 percent of locations.

The government’s survey found that more than 70 percent of adults between 25 and 34 were mobile only, suggesting that in some demographics, fewer than 30 percent of households buy a fixed network telephone service.

In the developing world, most people already are mobile-only.

source: CDC

Voice Is Not Yet "Just a Feature," But it Now Drives Less Revenue

Even if “voice” is a vital feature of a mobile phone service, it is driving less revenue and profit for mobile and fixed network operators in the U.S. market. Still, despite declining demand, service providers are using bundling to sustain some amount of demand for a product that, as a standalone product, would arguably have far less demand.

Recent studies by the U.S. Centers for Disease Control have found households buying fixed network voice service represent about half of U.S. homes in 2014. By 2017, the percentage of mobile-only households had climbed to 51 percent, while homes buying fixed network voice represented about 46 percent of locations.

The government’s survey found that more than 70 percent of adults between 25 and 34 were mobile only, suggesting that in some demographics, fewer than 30 percent of households buy a fixed network telephone service.

Without triple play bundling, generally purchased by perhaps 30 percent to 37 percent of U.S. cable TV households, voice take rates would be even lower than they presently are.

Voice, for example, represented in 2015 something on the order of eight percent or so of Comcast’s service provider revenue. In the second quarter of 2017, voice represented about 6.5 percent of Comcast cable communications segment revenue. About 37 percent of Comcast consumer accounts bought a triple play, in the second quarter of 2017.

It is a reasonable bet that nearly all the voice accounts come from triple-play accounts.

Consider current pricing of mobile “voice and messaging” by some leading U.S. mobile operators, which tends to price unlimited domestic usage for voice and messaging at about $20 a month. By some estimates, fixed network voice represented $22 to $30 a month in revenue per line, half a decade ago.

The value of fixed voice arguably is less than that in 2017, but an attribution of $15 a month might be reasonable, in a fixed network context, if $20 is the retail value of a mobile voice-plus text-messaging capability, per line.

Though the value of triple play bundles long has been that it reduces account churn, in the current environment, the triple play also sustains demand for voice services that--absent the bundle--would be significantly lower.

Triple play bundles also increases profits, some studies find. In the U.S. market, single play accounts tend to run between 30 percent and 37 percent, as a rule. Bundles (dual play or triple play) represent up to 70 percent of accounts.

source: indiantelevision.com

Only 36% of U.S. Consumers Still Buy Landline Phone Service

Legacy technologies can remain in use for quite some time, as a Bank of America survey of U.S. consumers suggests. For communications service providers, the salient example is “landline” phone service, used by just 36 percent of those surveyed.

The very inclusion of landline voice service with outmoded platforms such as compact discs, physical calculators, VCRs and records indicates something about the likely future of landline voice services.

It would not be unrealistic to predict that, at some point, buying of such services--absent other bundling--would fall to low double digits. The countervailing trend is bundling, where consumers are offered discounts for buying phone service with video and internet access, “artificially” inflating demand for landline voice.

The survey, conducted by Convergys, included 1,000 respondents throughout the United States, of  adults 18 or older with a current banking relationship (checking or savings), and who own a smartphone.

source: bankofamerica.com

Winner Take All in Mobile Apps

Facebook and Google hold the top-six spots for usage among U.S. mobile users,  and eight of the top-10 slots. That matters because, in a winner take all market, only the few leading firms reap the returns.

U.S. consumers spend 90 percent  of their mobile app time in their top five apps, making up 51 percent of total digital time spent overall, comScore reports.

source: Business Insider

5G Might Generate $3.5 Trillion in 2035

In 2035, when 5G’s full economic benefit should be realized across the globe, a broad range of industries – from retail to education, transportation to entertainment, and everything in between – could produce up to $12.3 trillion worth of goods and services enabled by 5G, a study conducted by Berkeley Research Group forecasts. 

The 5G value chain itself is seen as generating up to $3.5 trillion in revenue in 2035, supporting as many as 22 million jobs. 

Over time, 5G will boost real global GDP growth by $3 trillion dollars cumulatively from 2020 to 2035, roughly the equivalent of adding an economy the size of India to the world in today’s dollars, the researchers predict.

Value Shifts in Auto Industry are an Opportunity for Telecom

Shifts of value within the ecosystem are happening in virtually every industry touched by the internet and software. In the telecom industry, value has shifted from “access and transport” to “applications.” That is happening in the automobile industry as well, with a difference. In the communications business, access providers struggle to maintain relevance.

In the automobile industry, as in other industries, access providers have a chance to gain relevance.

In the automobile industry, shared of ecosystem revenue are shifting from “vehicle sales” to applications and services. More important, shares of profit are shifting even faster, away from vehicle sales and aftermarket, and towards mobility and apps.

If you want to know why 5G matters, a chance to earn new revenues, from new customers, using new applications, is among the key reasons.

source: strategy&

source: strategy&

source: strategy&

5G Fixed Wireless Could Add $1.8 Billion in Consumer Segment Revenues

Even if service providers in most parts of the world will not see the opportunity in such terms, AT&T, Verizon and possibly other service providers see significant upside in fixed 5G deployments, for obvious reasons.

In the U.S. market, fiber to the home has remained a tough business case, given generally lower population densities across much of the United States, as well as the certainty that at least half the investment will be stranded, immediately. So 5G fixed wireless could allow AT&T and Verizon, for the first time, to supply gigabit per second internet access connections in many areas where the fiber-to-home business case has not worked.

Quantifying the potential upside is the issue. One way is to calculate the amount of account loss 5G fixed wireless could address.

In the second quarter of 2017,  U.S. telcos lost at least a net 233,260 internet access accounts, according to Leichtman Research Group. But most of those losses were from a few telcos other than AT&T and Verizon.

Between them, AT&T and Verizon lost only about 32,000 accounts in the second quarter of 2017. So a first-order impact of 5G fixed wireless would be a halt to those losses.  

If AT&T and Verizon merely halted 75 percent of those fixed network internet access account losses, that would represent annual gains of about 96,000 accounts.

Assuming those saved accounts represent monthly gigabit access revenue of $70, each such account represents $840 in annual revenue, or about $80.6 million in revenue.

If AT&T and Verizon were able to erase all the losses, that implies revenue upside of nearly $107 million, from avoided losses of 128,000 accounts.

If AT&T and Verizon did better, and actually gained 231,000 net new accounts (splitting those gains with cable TV operators), the annual revenue impact would be about 359,000 net new accounts.

That might represent $301 million in net new revenue, plus avoided losses of $80.6 million, for a total revenue swing of about $408 million, incrementally.

But that is not the biggest impact.

Considering only AT&T, which had in the second quarter about 15.7 million internet access accounts in service, what is the impact of being able to provide gigabit internet access using 5G fixed wireless?

Assume four million AT&T customers still are on all-copper access lines. Assume half those lines can be upgraded using 5G fixed access in the relatively near term, and that half those locations decide to upgrade to 5G fixed wireless.

That could mean two million additional passing, and perhaps a million additional accounts. At $70 a month, that implies additional upside of about $840 million for AT&T.

So internet access upside could amount to perhaps $1.24 billion annually.

For AT&T, which has a consumer internet access business generating a bit under $2 billion per quarter, $7.6 billion annually, those gains could amount to a boost of about 62 percent. That is huge.

But there is more. Once gigabit access is available, linear and on-demand TV services can be sold to the accounts. Assume a net gain of about 1.2 million accounts because of 5G fixed wireless, in the near term.

Assume half those customers buy a linear video service. That is an incremental 600,000 accounts. At $80 a month ($960 per year), that adds perhaps $576,000 in incremental video revenue.

That implies perhaps $1.8 billion in incremental new revenue generated by 5G fixed wireless, for AT&T alone.