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Value of Mobile and Fixed Network Assets Diverges in US & European Markets

Does the level of competition in a market enhance or devalue mobile and fixed network assets? It is a hard question to answer in every instance. But it might be fair to say that the strategic value of both fixed and mobile asset ownership is higher in Western Europe than in the United States, for several reasons.

Sheer geography plays a role. A mobile operator can acquire a meaningful fixed network footprint far more affordably in any single European country than is possible in the U.S. market, where AT&T, Verizon and CenturyLink not only are unwilling to sell their own assets, but those providers actually own fixed network access assets that reach perhaps 85 percent of all U.S. locations.

Even if some other contestants, including Dish Network, DirecTV, Sprint and T-Mobile US might wish they did own fixed network “local access” assets, they could not buy them. And even if one of the big three fixed network providers was willing to sell fixed assets, none of these firms could afford to buy them.

Sometimes intense competition can lead to a devalued estimation of the value of investing in facilities; in other cases perceived value can be heightened. U.S. cable operators, after trying for decades to figure out a way to enter the U.S. mobile market, buying spectrum and then disposing of it, having concluded the present market is so competitive it would not make sense to build networks to use that spectrum. In Western Europe, where competition in both mobile and fixed segments arguably is tougher than in the United States, mobile operators are investing in fixed assets, while cable operators are investing in mobile network assets. You might position those moves as offensive in nature, designed to capture additional revenue sources. But one might also describe the moves as partly defensive in nature, intended to protect existing revenue streams. In other words, service providers fundamentally face markets where the long term competitive dynamics mean each incumbent provider will have potentially fewer customers than it has in the past.

As typically is the case, the solution is to sell more products to a smaller base of customers. And in a growing number of cases, that means cable TV operators, having added voice and high speed access on their fixed networks, now are finding the next appealing revenue sources come from offering mobile services. Likewise, mobile service providers see fixed networks as driving revenues from video entertainment, fixed voice and fixed high speed access, at a time when they face growing competition on the mobile front.

Vodafone’s recent moves to acquire cable operations Kabel Deutschland and Ono in Spain provide an example. Why would a largely-mobile service provider want to buy cable TV assets? Simply, revenue growth is negative in many of Vodafone’s core mobile markets. Under those circumstances, revenue growth has to come from new markets. In part, that means growing out of region, in the mobile segment. But Vodafone now also wants to grow revenues by adding new lines of business, which is what the new cable TV assets will do.

BT offers a mirror image of Vodafone’s moves, as the former fixed network provider now hopes the creation of a new quadruple play offer including Long Term Evolution mobile services, fixed network voice, video entertainment and high speed access will boost revenue per account and slow fixed network voice line churn rates. Though 60 percent of U.K. consumers buy a bundle of some sort, the “typical” bundle is a dual-play bundle of fixed network voice and high speed access, according to Ofcom, the U.K. communications regulator.

Some 27 percent of U.K. households buying a bundle purchase the voice-plus-broadband package. About 21 percent buy a triple-play package including video entertainment as well as voice and high speed access. Just three percent buy a quad play package, and those customers largely are Virgin Media (Liberty Global) customers, it appears. And that is the attraction for BT. Very low adoption of quad play packages suggests most of the market still is available.

In that sense, both BT and Vodafone, attacking the market from opposite positions, have the same objective: create compelling quadruple-play offers that allow each to sell more products to a fixed or smaller number of customers.

That is feasible in Europe to a degree that seems quite infeasible in the U.S. market. In that sense, as a practical matter, it might be argued that intermodal assets have higher value in Europe than the United States, at the moment. That does not necessarily mean the financial values of such assets diverge, between regions. But the strategic value clearly is perceived differently.

Predictive Analytics Power: Is time-travel key to customer retention?

Predictive analytics and time travel. That sounds as cryptic as a riddle from Dr. Who himself. And while interpreting massive amounts of information for the sake of customer acquisition and retention doesn’t have same intrigue, there’s definitely a way to stay a step ahead of real time.

How, you’re sure to ask, is that even possible?

Does Predictive Analytics (PA) provide some kind of disruptive technology that allows data to be amassed, examined, and applied so fast that you’re truly ahead of any curve of inquiry Does it give you answers before you even ask the question?

The short answer, in a sense, is: “yes”!

Of course you’re skeptical. That kind of promise is hard to swallow. But if you can stand-up and manage PA capability, the power becomes as plausible as it is desirable.

Like so many methodologies being designed to tackle the challenge of “Big Data”, PA is about sifting through the incomprehensible volume of customer data available today, and using it to distill the best action on behalf of an individual customer. When there’s a service issue, for example, how quickly can a representative present them with a resolution that stands the best chance of success — both for the customer on the phone and for a company in terms of retention success and price point.

Today’s large data sets represent tens to hundreds of millions of customers, each nuanced by inbound data points that (in the case of Razorsight, for example) can come from a handful to more than 100 data sources. That kind of math is staggering, but harnessing that information is imperative, especially in an industry like Telecommunications, where there’s essentially a limited prospect and customer pool that companies are constantly trying to attract and retain.

Making any promotion, product or offer highly magnetic means empowering service reps with the ability to fine tune them on a case-by-case basis. Of course, the idea of call-center staff having that kind of discretion is implausible. Even if everyone on the phones was a customer-service savant, they couldn’t possibly present the most attractive upgrade offers or issue resolutions.

But armed with PA, they become geniuses operating at light speed, and with enormous consistency and congruity. The subjectivity is gone because with each inbound inquiry, you’re pulling up a multi-faceted profile that is effectively matching the right campaign to the right customer at the right time.

Here’s a high-level way to think about it: Your marketing teams spend a lot of creative energy (and budget, no doubt) developing an array of ways to get current and prospective customers to consider your services. That’s the art of promotion. But plugging that temporarily dissatisfied or curious prospective customer into the offer that is going to get them and keep them on board? That kind of precision is possible. It’s the science — or as we call it, predictive analytics.

In the weeks ahead, we’ll be taking a deeper dive into how PA is being used to drive value across the communications and media space, citing examples from our experience, and asking our cohorts who are well-versed in PA to share their own perspective. We think it will add welcome illumination to the impact of PA in today’s enterprise, and we look forward to your joining us in the conversations.

This post was authored by Chris Checco, Razorsight’s president and chief analytics officer.

Spectrum Policy Will Have Bigger Impact than Telecommunications Act of 1996

Precisely how the U.S. communications market will develop over the next decade is less clear than we might believe, even as a major round of mergers appears to be developing. But a reasonable person might argue that something bigger than the Telecommunications Act of 1996 is coming.

But even a Comcast acquisition of Time Warner Cable, a merger of Dish Network and DirecTV, or a Sprint acquisition of T-Mobile US, though important shapers of market structure in the near term, capture the magnitude of future potential disruption.

The biggest potential challenges will come from developments affecting the ease with which new providers can enter communication markets.

Those developments might easily be greater than the impact of abolishing local exchange service monopolies in the Telecommunications Act of 1996.

As “who can be in the business?” was the question answered by the Act, so too will an additional set of changes made possible by regulator action shape possibility over the next decade.

In the wireless and mobile business, “spectrum is market entry.” Without spectrum rights, a contestant generally cannot enter the market (the exception being wholesale access provided by a contestant with spectrum rights).

And while the Act initially allowed the Federal Communications Commission to operate in what might be called a “European model” of stimulating competition (mandatory wholesale access with high discounts), the next wave will rely on more of a “United States” model of applying technology and market mechanisms.

In other words, instead of relying on “wholesale,” the next big wave of market shaping will be driven by facilities-based service providers whose primary asset is spectrum access.

This next wave will be built on use of radically-new methods of clearing communications spectrum, a vast expansion of spectrum and a new mix of mobile, untethered and fixed assets.

In the area of spectrum, the U.S. market will move from exclusive licensed and shared unlicensed spectrum to a new pattern where those models will be augmented by substantial use of shared spectrum.

One common way of describing how the market will add 1,000 times more spectrum over the next decade is to say an order of magnitude increase will be obtained from new spectrum, another 10 times increase from technology improvements and an additional 10-fold gain from use of small cell architectures.

But another way of looking at the spectrum supply is to say that network architecture, device capabilities and application of software to allow interference-free sharing will drive most of the change. Better air interfaces will help some, but the big changes will come from dynamic allocation and use of spectrum.

Though mobile service providers will likely continue to rely mostly on licensed and exclusive use of spectrum, a new wave of competitors will be able to enter markets using unlicensed or shared spectrum, sometimes paying a fee to obtain assured access, in other cases relying on “best effort” only.

This will provider new answers to the question of whether firms such as Google, Facebook, Apple, Amazon and others might become ISPs or communication service providers.

 

Though Google Fiber already has made Google an ISP and video service provider, while Google Voice, Hangouts and calling from inside Gmail already have made Google a voice and video communications providers, observers also have wondered whether Apple or others might become mobile service providers, using either the wholesale route (mobile virtual network operator) or simply becoming a facilities-based mobile carrier.

But spectrum is market entry, and a facilities-based approach has not been possible, except for the scenario where Apple, Google, Facebook or Amazon actually buys an existing mobile service provider.

There will be new options in the future. Mobility might or might not be crucial. Instead, a mix of access modes, both mobile and fixed, will be possible, using a mix of licensed, shared and unlicensed spectrum resources.

The biggest single change will be access to perhaps 1,000 MHz of shared spectrum, sometimes with payments for assured levels of access, other times with the ability to dynamically hop to alternative frequencies in the event of congestion in any one band.

The big change is in how spectrum property rights are handled. Formal licensees will retain first priority for use of their assigned spectrum. But when not in full use, other users will be able to share use of that spectrum, so long as interference is avoided.

Perhaps a better formulation would be that sharing will be allowed so long as interference remains at negligible levels. There is a meaningful difference between “small amounts of interference that do not materially degrade a channel,” and “amounts of interference that do degrade a channel.”

The point here is that the market will be reshaped to allow wireless access (mobile and fixed or stationary) for a great many new providers who do not have primary and exclusive use of any particular frequency allocations.

In conjunction with the new importance of Wi-Fi capable devices, dynamic radios, database-based access, small cell architectures, shared spectrum will enable many new contestants, with many possible revenue models, to become wireless service providers.

More than any current round of big service provider mergers, that is going to be the next big change in U.S. communications market dynamics, with the biggest new opportunity for additional service providers since the Telecommunications Act of 1996.

by Gary Kim

Wireless is Strategic for Both Cable and Telcos, for Different Reasons

Mobile (or untethered communications) and video entertainment are the two areas where cable and telco firms can make significant gains in the coming years, and it is starting to look as though wireless will be key for both industries in their efforts to make a breakthrough.

U.S. cable operators have virtually no share in the mobile buisness, while telcos have just 11 percent of the linear video subscription market share.

More importantly, cable operators face structural barriers in the mobile segment, while telcos face structural hurdles in the video business.

By 2015, AT&T, for example, will be able to market video  to only about 33 million U.S. locations.

Verizon’s FiOS covers about 17.8 million homes, so the two telcos will pass about 51 million U.S. homes, by 2015, out of perhaps 145 million U.S. homes by 2015.

That implies coverage of about 35 percent of U.S. homes. Other telcos will sell telco TV as well, but collectively could only theoretically reach about 14.5 million homes, or so, by 2015, best case.

Even under the best of circumstances, it is unlikely U.S. telcos will be able to pass even 45 percent of U.S. homes by 2015.

Cable companies face similar barriers, ranging from lack of spectrum to domain knowledge to inexperience running a truly national business that competes across all cable operator boundaries.

But significant market share gains likely cannot be gotten in the voice and high speed access product segments.

Voice is shrinking, while broadband access is growing slowly. Though cable operators had gained substantial voice market share over the last decade, for the most part cable operators now face very slow rates of growth, while telcos are losing share.

Voice is not a growing business for cable operators or telcos, while the high speed access business is growing about three percent a year.

The top cable companies added nearly 2.2 million broadband subscribers in 2013, while the top telephone providers added 480,000 net high speed access subscribers in 2013.

Cable companies have 49.3 million broadband subscribers, representing 58 percent market share, while telephone companies have 35 million subscribers, representing 42 percent market share.

In the high speed access market, cable operators are winning 82 percent of the new customers, according to Leichtman Research.

The point is that voice and high speed access likely offer mostly incremental market share shift opportunities.

For cable operators, it is the “untethered” Internet opportunity that, it is hoped, will create sizable revenue, based on national public Wi-Fi capabilities.

For mobile service providers, untethered and mobile access to entertainment video, it is hoped, could allow an aggressive nationwide pursuit of a new “watch anywhere” video business, overcoming the geographic limitations that in the fixed network business mean AT&T and Verizon cannot reach most U.S. households at all, with a linear video product.

So mobile might prove to be the means by which telcos could make dramatic gains in the video entertainment business.

Just as possibly, national public Wi-Fi networks could give cable operators a new role in the untethered Internet access and apps business.

U.S. cable operators have tried for decades to create a winning wireless strategy without success.

They have purchased spectrum, partnered with Sprint to create something of a share in a national brand, and Cox Communications briefly tried launching its own facilities-based network. But those initiatives have lacked both for scale (a coalition is hard to run as a national business, and Cox has found, as have other smaller telcos, that mobile really requires scale.

Separately, U.S. telcos, though making slow, steady progress in the video entertainment market, have managed to gain about 11 percent market share.

In 2013, cable operators had 52 percent market share, while satellite providers had 36 percent share, according to Leichtman Research.

So the point is that mobile is strategic for telcos in the video services, while public Wi-Fi is strategic for cable companies.

by Gary Kim

“PCS” is Coming Again

Sometimes good ideas in the communications business fail the first time, only to succeed later. Prior to the Internet bubble burst of March 2000, application service providers were thought to have a bright future. Nearly all failed.

But now cloud services flourish routinely.

In the early 1990s, it was thought there was room for a new type of communications service with wider cordless coverage than a home phone, but without high-speed call hand off as provided by mobile networks.

Such a “personal communications service” might, it was thought, allow people to talk on phones while out and about on sidewalks, for example, but not while inside cars moving along streets or highways. The costs would be far less than full mobile service, which still was expensive at the time.

Such ideas made sense at a time when few people used mobile phones, and when mobile service still was quite expensive.

In 1990, for example, there were only about 5.3 million U.S. mobile phone subscribers. That represented about two percent penetration of the U.S. market.

In 1990, mobile penetration was one percent among Organization for Economic Cooperation and Development countries. Worldwide, in 1994, mobile adoption still was less than five percent.

Whatever market opportunity PCS might have had was foreclosed by the rapid adoption of full mobile service.

The point is that older ideas sometimes have great merit, but are simply too early to commercialize on a wide scale.

As ASPs and PCS were simply too early, now it appears that the fundamental idea behind personal communications service–localized public access to communications without using the mobile network–is about to reach its first commercial success.

PCS became an impossible business model  in the 1990s simply because demand could be satisfied by the adoption of full mobile services, which became much more affordable.

But “personal” communications now is multimedia communications and content access. These days, mobile phones get used about 15 percent of the time for talking, among youth in South Korea, for example. About 42 percent of the application instances do not involve any form of traditional communication, but instead involve content consumption.

source: Wall Street Journal

And Wi-Fi access, by definition an untethered but not mobile form of access, accounts for nearly half of all U.S. smartphone Internet access time.

The fact that smartphones now are multi-function devices, with much of the value flowing from Internet apps and content, is the big change that makes PCS a viable idea again.

Also, the fact that consumer behavior already shows strong preference for untethered but not full mobile use means that the consumer behavior, installed base of devices and apps, as well as infrastructure is in place.

We might not call the new revenue opportunity “PCS,” as we do not call cloud services “ASP” services. But the fundamentals of the business case–untethered public access–are the same.

There is an emerging new business case for untethered Internet access provided by public hotspots, just as supporters once envisioned a similar role for untethered “voice access” for mobile phones.

This time, the end user value will be driven by demand for low-cost or no-incremental cost access to the Internet, not use of voice services, on an untethered, not full mobile basis

In the United Kingdom, voice comprises only 12 minutes of daily use, about 11 percent of total usage time. U.S. users likewise use many features of their smartphones other than voice, all the time.

by Gary Kim