Customers as Competitors

I always have found the important nugget in Selling the Invisible, billed as a “field guide to modern marketing, its relatively brief--and vital--notion that services cannot be marketed the same way as physical products, as there is no way for the potential buyer to evaluate quality in advance, before consuming the product.

In many cases, the consumer has no objective way to evaluate quality even after performance. Unlike physical products, intangible products (software, communications services, all sorts of home repair, medical, legal, accounting, financial, advertising) cannot be touched, seen, tasted or  smelled.

On the other hand, among the other points that have stuck with me over the years is that a service provider’s competition is actually not the other firms selling similar or the same services. It is the customer deciding to do nothing, or “do it yourself.”

A survey by the TMForum suggests that might actually be the case. Asked whether service providers “can make it without them,” about half said “no.” But only about half.

A slightly smaller set of respondents agreed that service providers “will continue to be hugely reliant on vendors.” And some 12 percent said they believed “many large operator groups will successfully transition to (becoming) tech companies.”

source: TM Forum

True though that might be, I know of no instance where firms, evaluating market share, actually assume the potential customer is a competitor, and track sales, market share or installed base in the same way that other suppliers are tracked.

The point is that the observation still appears apt: potential customers can do nothing, or sometimes “do it themselves.” So the competition really is “inertia” (do nothing) and “do it yourself” (DIY).

Can ISPs Keep Increasing Internet Access Speed at Moore's Law Rates?

Perhaps improbably, at least some internet service providers--Comcast in particular--have been doubling the top speeds on their networks at rates consistent with Moore’s Law . “Comcast has increased speeds 17 times in 17 years and has doubled the capacity of its broadband network every 18 to 24 months,” Comcast says.

Comcast says gigabit speeds now are available to nearly all of the company’s 58 million homes and businesses passed in 39 states and the District of Columbia.

Of course, not every platform, or every ISP, has been able or willing to boost average speeds that much. The general rule is that a hybrid fiber coax network mostly can boost speeds by swapping out customer premises equipment, where a telco has to replace copper access networks with optical fiber. The former simply costs less than the latter.

source: youreeeka.com

That explains why cable TV operators tend to supply a disproportionate share of the fastest connections in the United States and United Kingdom, for example.

source: FCC

If  want to know why mobile service providers see upside in 5G , the ability to upgrade speeds to gigabit ranges without having to rip up copper access networks explains much of the interest.

Some have argued that fixed and mobile 5G is an existential threat to cable operators for that reason. Some us might argue that danger likely is overblown, but other existential problems arguably exist, among them declining revenue growth rates, profit pressures, lower average revenue per account and shrinking of revenue for virtually every legacy revenue stream.

Mobile substitution for fixed network voice services is one problem. But mobile messaging and voice revenues now are declining in most countries, while internet access prices also are dropping in most countries.

Sometimes, in some markets, actual price declines are disguised. That can happen when posted retail rates are not the prices most consumers pay; when customers actually buy more-costly packages over time; as prices per gigabyte fall or when prices are not indexed for inflation or compared to household income levels. In most developed countries, internet access costs less than one percent of household income, for example.

It also is common for ISPs to increase speeds on given tiers without price increases. That is an effective price cut, even if the nominal or posted retail price remains unchanged.

source: FCC

source: PCmag.com

Today, 75 percent of Xfinity Internet customers choose plans with speeds of 100 Mbps or more, double the speed those customers took just three years ago, Comcast says.

One can see the shift in consumer demand to faster-speed tiers in data from 2011 to 2015. Over that four-year period, speeds more than doubled, for some telcos, and increased by 300 percent to 400 percent for many cable operators.

source: FCC

5G Might Feature New Marketing Platform

Though 5G represents many things, it also is destined to become the key marketing emphasis for major U.S. mobile service providers, in the same way that "gigabit" has become a marketing emphasis for fixed network internet access providers.

That is not unusual. Looking even at the ways people use internet access services, the “headline” offers often do not match the actual consumption or buying patterns especially closely. In other words, the main impact of gigabit speed marketing is to drive uptake of the tiers of service slower than a gigabit, but faster than what consumers were buying before gigabit marketing began.

The big wild card right now is whether 5G will feature the introduction of speed tiers in the mobile business, as is the standard case for fixed network access. If so, headline speeds likely will assume a role similar to what happens in the fixed network business: "speed" will become a key driver of advertising and messaging.

That is the case now, but in a more-restricted sense of "our network is faster" being the attempted claim. It is conceivable that in the 5G era, that might be supplanted by a broader "pick the plan that works for you" focus, if and when it is possible to buy mobile packages based not only on usage allowances, but also access speed and possibly other attributes.

Even so, most consumers are unlikely to choose neither the fastest nor the slowest tier of service, opting instead for one of the tiers in the middle of the speed/price/value range.

Past experience suggests that will be the case.

There is likely a reason service providers do not release statistics about take rates for their headline "fastest" tiers of service. The reason is likely that take rates are not all that high.

AT&T executives have said that, where it is available, about 30 percent of customers buy a gigabit per second service, even when other tiers of service are available. In part, that relatively high take rate reflects the fact that AT&T builds gigabit networks first in neighborhoods where propensity to buy is highest.

In the fixed network internet access business, most consumers do not buy gigabit connections, even if service provider marketing, in markets where gigabit services is available, often focuses on that high-end offer.

Generally, consumers tend to buy services that offer reasonable value for reasonable price, and that is rarely the fastest speed tier or the most-basic level of service.  

Back in the days when cable TV operators first were rolling out consumer Internet access at speeds of 100 Mbps, it was virtually impossible to get subscriber numbers from any of the providers, largely because take rates were low.

In the United Kingdom, then planning on upgrading consumer Internet access speeds to “superfast” 30 Mbps, officials complained about low demand. In fact, demand for 40 Mbps was less than expected.

So “gigabit” internet access remains mostly a marketing platform, not an indicator of what services people actually buy, when they have access to gigabit services. Retail price almost always is an issue for such buying patterns.

The point is that marketing efforts often are focused on elements of experience that arguably are somewhat tangential, even somewhat trivial.

Most consumers in the U.S. and other markets use their mobile devices “mostly” indoors, yet service provider marketing always focuses on the “outdoor” signal coverage.

source: Dell'Oro Group

But the marketing context does shift over time. In the 3G era, Wi-Fi access was valued by consumers because access speeds on Wi-Fi tended to be faster than the mobile network. These days, on most 4G networks, Wi-Fi is slower than staying on the mobile network.

In the 5G era, the mobile network might be the fastest connection by an even greater margin.

source: Dell'Oro Group

Live Streaming Might Well Salvage Most Linear Accounts

For 42 percent of customers who continue to buy linear video subscriptions, live programming is the primary reason for keeping such a subscription. But 30 percent of such customers say  they would cut the cord if they knew they could live stream all of their favorite sports, events, and news, a new study by Telaria and Adobe Advertising Cloud has found.

An additional 40 percent would consider doing so as well.

But live streaming is the latest new change. Live streaming provides the advantages of live television content, but consumed as a real-time OTT service rather than through a traditional cable or satellite connection.

Cost is the other major variable. Some 73 percent of customers who terminated their traditional linear video subscriptions cited cost as a reason for dropping the service.

So we may someday find that such surveys of cord cutting were not as predictive as we once thought, for a couple of reasons.

The emergence of live programming services that cost less and  are streamed may well change customer behavior. Consumers may switch to OTT linear offerings in place of legacy linear services.

Such options combine the “best” of linear services (live content) with the lower cost and possible conveniences of streaming services that show archived content.

source: Telaria, Adobe

The study polled 750 consumers between the ages of 21 and 54.

Mobile Industry Revenue Growth Falls to 0.3%

Revenue growth is the single biggest problem facing the global mobile services industry. Globally, mobile revenue has just 0.3 percent compound annual growth rate.

And even in the fastest-growing mobile markets globally--Sub-Saharan Africa-where subscriptions are growing at a compound annual growth rate of of 6.1 percent to 2020, about 50 percent faster than the global average, revenue growth is not keeping pace, expanding only about two percent per year.

source: GSMA Intelligence

That is why the search for big new revenue contributors in the internet of things, entertainment video and other potential big new markets is so intense.

Total mobile revenues in Sub-Saharan Africa reached $40 billion in 2016, an increase of 3.9 percent, year over year. But revenue growth since 2017 has been trending downwards, driven in part by economic weakness.

Revenue growth will “remain subdued for the remainder of this decade due to the increasing cannibalization of traditional voice and messaging revenues as subscribers shift to alternative platforms,” says GSMA.

As in other markets, messaging substitutes are widely used and are one reason voice and carrier messaging revenues are dropping.

With traditional voice and messaging services accounting for more than 70 percent of service revenues for many operators in the region, revenue growth from additional subscriptions and mobile internet will be countered by declining legacy revenues.

source: GSMA

SD-WAN Market Size is Not So Much the Issue: Enterprise Networking Market is Key

Revenue for the SD-WAN market overall was $221 million in the second quarter of 2018, doubling year-over-year and up 25 percent in sequential quarters, according to a report from IHS Markit.

source: IHS

Most of the revenue earned in the SD-WAN space is earned by edge device suppliers, although service provider alternatives are proliferating fast.

But that is not the point. If SD-WAN becomes a replacement for MPLS, the addressable market is much larger, on the order of $35 billion in service provider service provider revenue.

source: IHS

VMware had 18 percent market share, Aryaka was in second place with 15 percent and Cisco entered the top three with 12 percent, the report says.

source: IHS Markit

Cost of Using Internet Access Drops, Globally

By 2025, entry-level (fixed network) broadband services should be made affordable in developing countries at less than two percent of monthly gross national income per person. That matters as the cost of using internet access services as a percentage of income is a key measure of affordability.

More importantly, the total number of active mobile broadband subscriptions is expected to reach 4.4 billion by end 2018, up from 3.3 billion, at the end 2015,  the International Telecommunications Union says. That matters since mobile internet access is the way most people in developing countries use internet access services.

This is a clear case of perceiving a “glass half empty, or half full.”

In January 2017, the Broadband Commission lowered the de-facto standard for Internet  affordability to two percent of average income, from the previous five percent levels, evidence of significant price declines.

Although the majority of the world’s population (52 percent or 3.7 billion) currently remain unconnected, 3.8 billion people or 49 percent of the global population will be online by the end of 2018.

In less developed countries, prices fell from 32.4 percent to 14.1 percent of GNI.

The point is that, when making cross-country comparisons, costs must be adjusted for purchasing power.

Around 1995, the cost of buying a U.S. business connection supporting a kilobit per second might have been US$1.50 to $1.75. In other words, a 56 kbps connection might have cost as much as $98 a month.

By about 2006, even consumer internet access costs had dropped to about two cents per kbps. So a 10 Mbps connection might then have cost the same as the 56 kbps connection of 1995. In 2017, U.S. 100 Mbps connections cost about the same as a 56 kbps connection of 1995.

As speed has grown and apps have evolved, consumers now use more data (megabytes), so the cost per consumed megabyte also has fallen, even as people use more data.

Source: Boston Consulting Group

While complaints about high prices never seem to stop, in developed markets as well as the United States, the percentage of disposable income spent on fixed network internet  access is about 1.7 percent of gross national income per person.

The glass is half full.