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.

Convergence of Licensed, Unlicensed Spectrum Will Stress "Net Neutrality" Rules

As communication platforms blending licensed and unlicensed spectrum continue to develop, it seems obvious that new thinking might--or must--emerge related to network neutrality and quality of service mechanisms. To use just one example, bonding of mobile licensed spectrum with unlicensed assets to support voice services arguably results in some QoS mechanisms being employed for Wi-Fi networks, to make them operate “carrier grade.”

For consumer internet access regulation, that is an indirect development, as Wi-Fi typically operates as a local distribution mechanism, separate from the actual “access.” In that sense, what is done within any specific Wi-Fi session, by any specific device, does not actually entail a direct use of the access link, and so network neutrality rules are not involved.

In a functional sense, that might not be the case, as in a growing number of cases, Wi-Fi actually does function as an “access” connection. The easiest example is when a third party device registers to use a Wi-Fi hotspot in a public setting, or when a user logs on to a “homespot” operated by a cable TV company.

That is not to say “best effort access” will disappear. There will remain a large number of use cases where best effort access is what the business model will support. That is true for venue amenity access, for example. But many of the other use cases might well involve quality of service mechanisms and prioritized access. That is likely to be the case where mobile bandwidth--used to support carrier voice services--is bonded with Wi-Fi.

Carrier-grade access (already possible for commercial accounts) might also appear to support consumer video entertainment services, as such QoS is a staple for linear video services, where consumers pay for access to content, and then the use of the network (also including mechanisms to assure quality of service) is simply a feature of the service.

The point: strict adherence to the notion that consumer internet access must, by law, be limited to “best effort” is going to be bypassed in a growing number of settings where licensed or unlicensed spectrum assets are used.

Source: Wireless Broadband Alliance

Average Global Data Speeds Grow 21% Year over Year

Global average connection speed increased 2.3 percent to 6.3 Mbps in the third quarter of 2016, a 21 percent increase year over year, according to Akamai.

Global average peak connection speed increased 3.4 percent to 37.2 Mbps in the third quarter, rising 16 percent,  year over year.

Global 10-Mbps broadband adoption rate rose 5.4 percent quarter over quarter, while 15 Mbps adoption grew 6.5 percent. Use of 25 Mbps services grew 5.3 percent.

In the third quarter of 2016, of 61 surveyed countries or regions with mobile data, 24 had an average mobile connection speed at or exceeding the 10 Mbps broadband threshold, while 52 achieved average speeds at or above the 4 Mbps broadband level.

On average, users in Australia averaged 12.8 Mbps. In the United Kingdom, average mobile data speeds were 23.7 Mbps. In the United Arab Emirates, 13.3 Mbps was the average speed.

As you would guess, network demand now hinges almost exclusively on mobile and fixed network data demand.

source: Akamai

"Core" Telecom Market Now Includes Video Entertainment, Boosting Addressable Market at Least 29%

Not so long ago, the U.S. telecommunications market generated total revenue of $200 to $300 billion. These days, depending on what is included in the count, U.S. telecommunications revenue is closer to $500 billion, according to Wiley Rein. The higher figures normally include video entertainment revenues and advertising.

The “traditional telecom” revenues (fixed and mobile service revenues) tend to range in the $350 million range annually. The caveat is that those figures also include video entertainment revenues earned by telcos, not just voice and data in the consumer and business segments.

According to the FCC’s annual wireless competition report, total wireless service revenue in 2014 was $187.8 billion. By some estimates, as much as 80 percent of consumer revenue is generated by the mobile segment.

Another $100 billion or so worth of revenue is added to the “telecom market” total, including cable TV and satellite operator revenue. In that sense, the “core telecom” market might already be in the $450 billion range.

In 2014, cable video revenue was $62.3 billion, and satellite video revenue was $40.6 billion.

"Free" is a Compelling Price Point, But Subscription Models Gain Some Traction

Advertising always has been a primary method of defraying the “cost to consumers” of content, ranging from “free over the air TV and radio” to newspapers and magazines, linear video to web sites. Up to a point, consumers “prefer” lower-cost ad-supported content access. That now also applies to key applications ranging from messaging and email to search, social media and other consumer applications.

On the other hand, there has for several decades been an “advertising-free, subscription-based” access model of some importance for content and apps. “Freemium” models in the apps business and ad-free video channels provide examples.

The search for less-intrusive advertising models always is a concern, but some amount of advertising is key to defraying end user access costs. Use of ad blockers is one trend that undermines the model. Intrusive ads are another source of irritation.

But unless consumers are willing to pay the full cost of using media apps and services, some amount of advertising remains crucial. The business model is most clear for video entertainment and music, least clear for news content.

Though "nothing really is free," the prevalence of "no incremental cost" content and app access remains an unsettled issue.

More Freedom, Or Less, in Next Phase of Communications Regulation?

source: W.H. Dutton

Among key issues Berin Szóka, TechFreedom president believes U.S. communications policy makers should take up to “break a logjam” are some issues widely acknowledged to be top issues (network neutrality), some that are enduring issues (promoting broadband) and some that arguably do not register.

The enduring issues for broadband deployment include the key issues of how to simultaneously promote deployment, adoption and competition. That is a key balancing act, as incentives for investment and competition tend to be rival goods.

When competition wrings too much of the profit out of the business, there is reduced incentive to invest, and heavy barriers to robust investment in new facilities. On the other hand, without effective competition, consumer welfare is harmed.

Net neutrality has been a hugely-contentious issue. The present “strong form” of network neutrality, which not only restricts consumer access to “best effort only” also is viewed by some as a mandate to outlaw other practices such as zero rating or quality of service mechanisms.

That might be difficult, long term, as internet access moves increasingly to support bandwidth-intensive entertainment video, while many new services require latency control.

The least talked about issue is outdated regulation by silo. Traditionally, different media types and industry segments were regulated in highly-disparate ways. Print content was unregulated. Broadcast TV and radio were somewhat regulated, as was cable TV and other linear video platforms.

Voice and messaging were viewed through the lens of common carrier regulation, and highly regulated. Internet access once was unregulated; now has been regulated as a common carrier service.

As appropriate as that might have been in the legacy era, it increasingly makes no sense in the internet era, where all media types are accessible over the internet and IP networks. The mess is that the same apps, services and industry segments (equivalent functionality is probably the better phrase) wind up regulated in different ways. That violates our sense of “fairness,” equal treatment and distorts competition.

Looking only at internet access, fixed network telcos no longer are anywhere the “dominant providers.” That role is held by cable TV operators. In the linear video business, AT&T now is the largest supplier by market share.

In the voice business, “leadership” counts almost for nothing, as voice increasingly is a feature, not the industry revenue driver. The same holds for messaging.

In the mobile business, telco leadership soon will be tested as cable operators become major suppliers in that market.

The issue now is how to harmonize, update and modernize the rules relating to regulation of like services, despite “industry legacy.” As always, the choices are to lighten or tighten regulation, either relying on the rules that presently apply to the most-free segments, or impose the more-stringent existing rules on the lesser-regulated industry segments.

More freedom, or less. That always is the fundamental question.

Where is the "Next Big Thing" for Telecom Service Providers?

Sometimes the “next big thing” does not prove to be as big as expected. It might not be too early to say that consumer wearables--though someday that might change--are a product category to rival smartphones or TVs. So far, expectations are lagging forecasts. That is not unusual.

Tablets once were thought to be the next big thing in personal computing. Significant, yes, but not a new category big enough to replicate the market opportunity of PCs, phones or TVs. In fact, consumer interest in wearables has been in decline since 2015. Demand for smart watches, perhaps the biggest category within the wearables market, has plummeted.

That does not mean wearables will not, in the future, make a comeback. But it can take decades for that to happen. What we now call “cloud computing” was a hopeful “next big thing” in the mid-1990s, when application service providers made a big splash. It was not to be. The point is that even big innovations often take a while--a decade or more--to reach commercial success.

Some will not that the search for the next big thing in consumer electronics continues, with huge implications for that industry.  So far, nothing has reached the magnitude of the smartphone.

For suppliers, including consumer electronics firms and internet access providers, that search is vital. Big new markets are needed to replace a smartphone market that is fast maturing, as well as declining voice, messaging and other “access network” products.

Internet of Things is widely expected to provide some serious chance of creating one or more "next big thing" markets. But history suggests we might be further from that happening than many hope.

source: Argus Insights

70% of TV Channels Lost Share in 2016

Cord cutting and cord avoidance are part of the reason most TV channels now see audience losses. What else would you expect in a market where choices keep growing, but discretionary time does not? The point is, even if one "solves" the problem of fewer people subscribing to video services, that does not mean the "market share" problem (smaller audiences) gets solved.

Most economic or industrial “problems” are difficult to solve. There typically are opposed stakeholders, often multiple drivers of industry dynamics and underlying performance trend.

The problem of “jobs moving from high-wage to low-wage areas;” coal industry dynamics or viewership of linear TV channels provide examples. One can try and stop the movement of jobs, but then it becomes logical to eliminate the jobs altogether, by automating or changing business practices.

One might blame coal industry declines on government policy (true enough, in many cases), but also note that the better economics of natural gas (it is cheaper than coal for electrical generation) would cause distress in the coal industry in any case.

So too in the television network area, one might argue that changing consumer demand (cord cutting) is leading to less viewership of ESPN and other channels. But it also is true that in a market with vastly more choices, and a fixed number of buyers and discretionary time, that viewing time on any legacy channel likely has to fall.

In other words, people have a relatively-fixed amount of time for leisure, and less time than that for watching TV. If choices grow from dozens to hundreds, it stands to reason that some time has to shift from the dozens of legacy channels to the new channels. Such audience fragmentation has been going on since cable TV channels first appeared, taking audience share from the “big three” broadcast TV networks.

When there are hundreds of channels, plus new services (Netflix, Amazon Prime, DirecTV Now, Sling) that shift additional video viewing time away from “channels,” audience fragmentation seems an inevitable consequence. Dividing market share in any market is different when there are just three providers, dozens of providers, hundreds of providers or virtually thousands of choices (each on-demand title represents a chance to “spend time” that competes with watching a TV channel for the equivalent amount of time).

That is why most--if not all--legacy channels will continue to be under pressure. It is not just a “sports” or “ESPN” problem.

source: CNBC