In an industry that changes so rapidly, it often is useful to remember just how much has changed in telecommunications, globally, in a few short decades, and how busincess choices are affected by the scale and pace of change.
The broad context is that service providers have to make key decisions about when to harvest, and when to invest, in various products in their portfolios, as end user demand changes.
Consider use of fixed line voice, across a range of nations.
In the United States, customers buying fixed network voice now number about 42 percent of the population. In Italy, that figure is just 37 percent.
In the United Kingdom, customers number 59 percent of the population, 60 percent in France and 45 percent in Germany. Some might argue the numbers are that high in substantial part because of rules on line bundling related to purchases of high speed access, namely that purchase of a voice line is required to buy high speed access.
The main observation is that fixed network voice is a product in the declining phase of its adoption cycle. That poses key questions for suppliers.
How much more innovation should be attempted for fixed network voice? How much should harvesting” be the dominant strategy?
Some will argue for increasing investment to change the value proposition and therefore allow price increases. Others might argue for harvesting the legacy revenue as long as possible.
Contrast that with mobile adoption (measured in terms of active accounts), which stands at 106 percent in the United States, 159 percent in Italy, 140 percent in Germany, 117 percent in France and 130 percent in the United Kingdom.
Those adoption figures might suggest a similar “harvesting” strategy, but that would not be correct. Mobile, unlike fixed networks, are replaced about every decade. For that reason, a first generation or second generation network sells a different product than a third generation or fourth generation network.
In the mobile services sphere, “investing” in the next generation–not harvesting–is the typical, and arguably correct strategy.
In developing countries, strategics are just as clear. In India, fixed voice adoption is just two percent of the population, but mobile adoption is at 91 percent. In Brazil, where fixed voice lines are purchased by 22 percent of people, mobile is bought by 137 percent of people.
The point is that it typically does not make sense to invest very much in fixed networks, when a similar investment in mobile will produce outsized revenue gains.
Mobile voice is approaching a peak of adoption in many countries, even in many developing nations. So how does the “invest or harvest” decision play out?
In some ways, Voice over LTE can be viewed as an investment in “next generation” voice.
In other ways, VoLTE can be viewed as a cost-saving measure, allowing operators to eventually decommission 3G networks (often used to support voice services) nd redeploy 3G bandwidth to support 4G.
Mobile Internet, on the other hand, remains a major growth opportunity in developing nations, while some forms of mobile Internet access, in most developed markets, already are nearing a peak.
Mobile Internet access adoption is 100 percent in the United States (again, measured in terms of active subscriptions), 113 percent in Japan, 130 percent in Sweden and 110 percent in South Korea.
Mobile Internet access (using third generation platforms, generally) has a bit more growth left in other countries, including the United Kingdom, where adoption is at 77 percent, France, at 64 percent adoption, Germany, at 51 percent adoption and Italy at 74 percent take rates.
But it is fourth generation Long Term Evolution that will be the potential growth driver in most developed countries. LTE represents four percent of U.K. and French mobile Internet accounts, five percent of German accounts, three percent of Italian and Spanish accounts and four percent of Netherlands mobile accounts.
In the United States, LTE represents 23 percent of all mobile accounts in service, in Japan 22 percent, in Austria 20 percent. In India and China virtually all the growth lies ahead.
Fixed high speed access connections represent a harder-to-describe situation, as service is purchased “per location,” not “per person.” The key implication is that adoption “per person” is not as relevant measure, as the issue is more accurately “adoption per household.”
Fixed broadband adoption “per person” was 36 percent in the United Kingdom, 38 percent in France, 34 percent in Germany, 23 percent in Italy and 29 percent in the United States. But consumers buy fixed network high speed access “by location,” not “per person.”
In 2012, for example, U.S. household adoption of high speed access was 73 percent. As a percentage of population, high speed access stood at 29 percent. Obviously, “per capita” adoption doesn’t accurately reflect the number of people able to use the services.
In 2013, high speed access per household stood at 93 percent of households in South Korea, 90 percent in Switzerland, 83 percent in Japan, 82 percent in Canada and 75 percent in the United States.
In other words, “per capita” or “per person” measures of fixed network high speed access do not accurately portray the true state of adoption.
The point is how much has changed over just a couple of decades. Fixed network voice, the driver of industry revenue, already is becoming a relatively limited driver of total revenue, as the product is purchased by less than half of all households.
Meanwhile, revenue gains are paced by Internet access, video entertainment and mobile services. In some cases, it still makes sense to measure adoption and revenue on a “per account or per household” basis. Fixed network Internet access and video entertainment provide examples.
Increasingly, though, the more-important metric is revenue per user, revenue per account or revenue per device, as more services are sold in the mobile domain.
But revenue per account also makes more sense for fixed network services when the primary retail packaging is a bundle of three or four services.
And traditional “invest or harvest” decisions have a different context in the mobility business, where whole networks are replaced about every decade. For a mobile service provider, it will always make sense to invest in the next generation. Harvesting is a temporary expedient until the older platform can be retired.