Seattle's Gigabit Squared Fails: Sustainability Remains an Issue for Muni Access Networks

Seattle's Gigabit Squared network appears to have failed, illustrating a recurring problem with all municipal or joint venture Internet access efforts, namely creation of sustainable revenue models. 

Gigabit Squared had hoped to use municipal dark fiber as the backbone for a gigabit access network in parts of Seattle. But the effort seems to have foundered for financial reasons, even before any construction began.

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How Big a Revenue Stream Will Connected Cars Generate for Mobile Service Providers?

There’s an obvious reason why the “Internet of Things” and “machine-to-machine” services get so much attention from mobile service providers: once the industry has sold at least one mobile phone connection to just about every person, “line growth” has to shift to other “connectable devices,” especially those performing best with a full-time, dedicated connection.

Tablets, personal hotspots and game players are among the logical candidates for additional connections after the phone.

But vehicles are interesting for any number of reasons. For starters, vehicles always have been important media consumption platforms (radio, satellite radio). But with navigation and vehicle diagnostics assuming higher profiles, there are additional reasons for people to want Internet communications and content in their vehicles: cars are an excellent platform for mobile Internet and apps.

By some estimates, by about 2018 there could be 60 million connected cars globally using connected car services. In a mobile communications business with billions of users, that might not sound like much.

But those connected vehicles might create a new business collectively representing perhaps $51 billion in annual revenue.

Research firm SBD estimates the overall connected car market will be three times larger in 2018 than it was in 2012.

About 61 percent of projected 2018 global revenue will be generated from in-vehicle services, such as traffic information, call center support and web-based entertainment. In other words, apps and services will generate the majority of global revenue.

Hardware will generate about 17 percent of global revenue. Some 11 percent will be earned by providers of telematics services, such as customer relationship management, SBD predicts.

Connectivity will represent about 10 percent of total global connected car revenue of $40 billion to $50 billion.

Vehicle Internet connections alone then might be $4 billion to $5 billion by 2018. And the unknowable question is how much other revenue mobile service providers might be able to generate if they participate as equity owners in the apps and services that actually will generate most of the revenue.

The other angle is that in some instances, the mobile handset will be docked to the vehicle, becoming the access and application processor. That means there is potential indirect revenue to be earned, as well as account stickiness features, if the user finds the mobile handset also powers in-vehicle apps and communications, even when an additional “line” is not sold.

Such tethering is in many ways the faster way to gain market share (either for the vehicle manufacturer or access provider), since many of the details of negotiating operating agreements and adding new vehicle electronics are minimized.

Embedding offers integration advantages, but costs more, and will take time.

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Mobile Penetration No Less than 72%, Anywhere

Lots of stats in this presentation, including social, mobile and Internet access adoption rates across the globe. What might shock you is the high adoption of mobile service, everywhere. The lowest adoption rate is 72 percent, anywhere. 

Social, Digital & Mobile Around The World (January 2014) from We Are Social Singapore

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Sprint Redefines "Family" Plan with New "Framily" Plans

Sprint’s new “Framily Plan” takes the notion of a shared family plan one step further and allows accounts to include as many as 10 devices in a shared plan, including any users the account holder wishes to specify.

The plan appears aimed at the 60 percent of U.S. households made up of fewer than three people. The Sprint Framily plan allows creation of “family plans” with virtually any self-defined group of users who agree to be on a single account, though bills can be issued separately to any member of a group.

Sprint's Framily Plan is available to new and existing customers.

For one line of service, new Sprint customers pay $55 per month per line for unlimited talk, text and 1GB of data. For each additional new Sprint customer that joins the Framily group, the cost per person goes down $5 a month up to a maximum monthly discount of $30 per line.

Build a group of at least seven people and everyone gets unlimited talk, text and 1GB of data for $25 per month per line (pricing excludes taxes and surcharges).

For $20 per month per line, Framily members can buy up to unlimited data plus get a new phone every year.

Each account can be billed separately.

To participate, customers purchase an eligible wireless phone at full retail price or through the Sprint “Easy Pay” program and pay in 24 monthly payments. Customers also can activate an existing Sprint phone.

New customers will be given a unique Framily ID, at which point they can invite friends and family outside of Sprint to join their group. Or, new customers can easily join an existing Sprint Framily group within 14 days of account activation.

Existing Sprint accounts, though,  cannot be combined into one Framily plan unless both accounts are owned by the same person.

The price of the Framily Plan for customers currently on a plan with a discounted phone is an additional $15 per month per line for service until the customer’s line is upgrade eligible. For a limited time, Sprint will waive the $15 per month to move to the Sprint Framily Plan for customers who purchased a discounted phone before Jan. 10, 2014, and are not upgrade eligible.

A single-line subscriber who is part of a seven-line Framily Group will pay $25 per month for unlimited talk, text and 1GB of data, a significant monthly savings versus what they would pay for a new line of service at competitors.

Sprint argues a seven-member Framily, at $25 per user, beats a T-Mobile Simple Choice (500MB of data) at $50 a month; an AT&T Mobile Share Value plan with 1 GB of data at $70 a month or a Verizon Share Everything account with 1GB of data at $90.

Those comparisons, one might argue, are not truly “apples to apples,” as Sprint compares per-user costs for a seven-member plan with single user plans.

A single-line subscriber at Sprint with no group members, a better comparison,  would have a single user paying $55 per month.

The Framily plan offers users more flexibility and possibly some recurring cost savings, compared to T-Mobile US, AT&T Mobility or Verizon Wireless plans, on a single-user basis. lt’s helpful, though not likely “disruptive.”

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Global Device Shipments Up 7.6% in 2014

Global shipments of devices including PCs, tablets and mobile phones are projected to reach 2.5 billion units in 2014, a 7.6 percent increase from 2013, according to Gartner. 

Among operating systems, Android is on pace to surpass one billion users across all devices in 2014. 

By 2017, over 75 percent of Android's volumes will come from emerging markets, according to Gartner.

Worldwide Device Shipments by Segment (Thousands of Units)

Device Type	2012	2013	2014	2015
PC (Desk-Based and Notebook)	341,273	299,342	277,939	268,491
Tablet (Ultramobile)	119,529	179,531	263,450	324,565
Mobile Phone	1,746,177	1,804,334	1,893,425	1,964,788
Other Ultramobiles (Hybrid and Clamshell)	9,344	17,195	39,636	63,835
Total	2,216,322	2,300,402	2,474,451	2,621,678

Source: Gartner (December 2013)

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Sony to Launch Streaming TV Service in U.S. in 2014

Viacom had in 2013 predicted at least one firm would launch a new streaming TV service in 2014, featuring the same kind of channels that now are only available to cable and satellite TV subscribers, and now Sony has done so.

Sony says it will start an Internet-based TV service in the United States in 2014, offering a mix of live TV programming and video on demand.

Andrew House, group CEO of Sony Computer Entertainment, says the service will have personalized channels reflecting the viewer's tastes.

Based on the number of homes with Internet-connected Sony devices, he says the service would be among the top five providers of TV programming in the country.

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Verizon and AT&T Have Captured Most of the U.S. Mobile Industry's Growth Since 2008

A new report on the U.S. mobile industry provides confirmation of the pervasiveness of the mobile business. U.S. mobile penetration at the end of 2012 was 102 percent and almost 40 percent of U.S. households are mobile only, IGI Group says. 

The report also shows how U.S. market structure has changed since about 2008. Verizon Wireless and AT&T Mobility still are number one and number two in terms of subscribers, and have captured most of the market's growth.

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Europe has Lowest LTE Retail Prices: Good for Consumers, Not Service Providers

Average Long Term Evolution 4G mobile service  pricing in the European Union  is $34.89 per month (average monthly data allowance of almost 20GB) and is the lowest of the six regions surveyed by Tariff Consultancy.

For consumers, that is the good news. For service providers, that is the bad news. In fact, LTE service providers in France offer LTE services without any pricing premium over 3G data plans.

And though observers and practitioners alike might have hoped that LTE could be uniformly introduced as a “premium” offer, that has not universally been the case.

In the United Kingdom, LTE prices are certain to come under pressure once 3 launches its LTE network, as 3 has said it will not charge a premium for LTE data access.

The pricing pressure should not be a surprise, as many surveys had suggested 4G service pricing would be an issue.

In most European markets, however, new adopters of smartphone service expected to pay less, about 28 percent to 31 percent less--than the amount existing subscribers said they were willing to pay.

And that rate typically was less than the current average market price for 3G service, researchers at McKinsey had found.

Should that trend spread, mobile service providers will find they have to work harder to reduce costs, since LTE might impose capital spending burdens with little direct revenue upside.

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AT&T Introduces "Toll Free" Data Service for Partners

AT&T has launched a “Sponsored Data” service that content or application partners can use in a way similar to “toll free” phone numbers,

With the new Sponsored Data service, data charges for participating apps and services will be billed directly to the sponsoring company, much as Kindle content downloads have been paid for by Amazon, directly to AT&T.

The Sponsored Data program extends that concept, allowing business partners to encourage usage, as mobile customer data plans are not charged for usage.

The Sponsored Data apps and services will be delivered at the same speed and performance as any other content, on a best effort basis, with no packet prioritization.

AT&T believes the program will be attractive for partners in industry verticals including healthcare, retail, media and entertainment and financial services, to encourage sampling of new apps that otherwise might strain data plan allowances, especially video apps such as movie trailers and games.

If users are able to browse mobile shopping sites without incurring data plan charges, that likewise should encourage usage of the sites offering the feature.

For business customers, the feature might be a way to support essential work-related apps without necessarily subsidizing all other consumption.

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Winners and Losers in Content

Any specific regulation or law normally produces winners and losers. Consider the impact of copyright law. You might instinctively assume that when copyright produces more revenue, the result is more content production.

Some might argue the relationship between revenue and creative output is not so simple. In other words, less copyright protection arguably can lead to more content production by at least some producers.

Broader copyright may thus entail a trade-off between two marginal effects: More original works from new authors along one margin, but fewer original works from the most popular existing authors along a second, argues Glynn S. Lunney, Jr. of the Tulane University School of Law.

If the second effect outweighs the first, then more revenue (produced by greater copyright protection) may lead to fewer original works. Conversely, less revenue (produced by less copyright protection) may lead to more original works, albeit by newer artists.

“While this may seem radically counterintuitive, it also happens to be true,” Lunney argues.  

Lunney studied the relationship between copyright protection, revenue, and creative output, by looking at file sharing and the parallel fall in music industry revenue.

Looking at songs in the top fifty of the Billboard Hot 100 from 1985 through 2013, Lunney found that the sharp decline in music industry revenue that paralleled the rise of file sharing was associated with fewer new artists entering the market, but also more hit songs, on average, by those new artists who did enter.

Moreover, because the second marginal effect was larger than the first, the decline in revenue since file sharing began was associated with a net increase in the number of new hit songs.

“Thus, for the music industry, the rise of file sharing and the parallel decline in revenue has meant the creation of more new music,” says Lunney.

Those findings will provide little comfort in some quarters. As with many other phenomena related to the Internet ecosystem, more usage does not translate directly into “more revenue” for some participants, even if it means more revenue is earned by other participants.

In other words, there are some winners and some losers.

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Some Pro-Competitive Policies Just Don't Work

Political rationality and economic rationality sometimes are in conflict. In other words, public policy sometimes (perhaps often) is applied in ways that actually are counter productive, whether that is communications policy or social policy.

One example: nearly two years after the official end of the "Great Recession," the U.S labor market remains historically weak. Counter intuitively, dramatic expansions of unemployment insurance might be prolonging the problem.

In other words, not only do our efforts to ameliorate distress do very little, those efforts actually cause the problem to become worse.

To be specific, a study by the National Bureau of Economic Research suggests that

unemployment insurance extensions had significant but small negative effects on the probability that the eligible unemployed would exit unemployment, concentrated among the long-term unemployed.

In other words, UI benefit extensions raised the unemployment rate in early 2011 by about 0.1 to 0.5 percentage points.

National policies to promote competition in telecommunications markets suffer from similar dangers. What “seems reasonable” to promote consumer welfare might in fact lead to the opposite effect, namely a reduction in long term consumer welfare.

The practical example is policy affecting the number of providers in any market segment. And just how few service providers are necessary to provide meaningful competition in any segment of the telecommunications business is a thorny question.

Many observers would say the empirical evidence is fairly clear when the number of suppliers is “one or two,” based on the history of monopoly fixed network communications, or sluggish adoption, high prices and limited innovation when just two mobile service providers operated in any single market.

But there is more controversy about the minimum number of contestants required in the satellite TV segment, fixed network business and mobile business, under present circumstances.

Intermodal competition (competition from other suppliers outside the segment) is the difference. A few decades ago, one might have argued, as did U.S. antitrust regulators, that the satellite TV market would be insufficiently competitive if the two suppliers merged.

These days, satellite TV competes directly, and successfully, with cable TV and telco TV suppliers, at least for the video product. But satellite providers are at a clear disadvantage in the areas of broadband Internet access, voice and interactive services generally.

So “two becoming one” in the satellite segment might not be as challenging as in the past, in terms of impact on consumer welfare.

The other key challenge is the minimum number of service providers necessary to maintain effective or reasonable levels of competition in the core fixed network and mobile service segments.

In the fixed network access market, that minimum number today is “two.” Google Fiber will provide a key test of whether the long-term number of sustainable providers can become “three.”

In the U.S. mobile communications business, the developing issue is whether three major providers will provide sufficient sustainable competition. To be sure, there will be a common sense belief that four providers provides more competition than three providers.

That, in fact, is a common belief for regulators in some European markets.

To the extent that is true, the issue is whether competition is sustainable over the long term. Highly fragmented markets can be relatively stable over long periods of time, so long as capital intensity is low. Most packaged consumer products categories provide examples.

But access networks are capital intensive, limiting the number of viable providers over the long term, even if, in the near term, competition can temporarily support more competitors. And that’s the conundrum.

It is difficult to say what the minimum number of providers must be to provide the benefits of competition, beyond the number “one.” One is tempted to argue that “more providers” provides greater benefits than “fewer” providers.

That might even be the case, in the short term. Over the long term, sustainable competition might feature fewer competitors. The reason is simple enough: capital intensive businesses require enough profit margin to allow robust investment in the business.

Having “too many” providers in a market tends to reduce profit margins so much that no providers, at least theoretically, can earn enough to sustain themselves over the long term.

So although “more” sounds like a better recipe for competition than “fewer,” fewer might be the way to sustainable long term competitive benefits.

Sure, it sounds crazy that “fewer” competitors might produce better consumer outcomes than “more” competitors. But the problem is that a highly capital intensive business requires methods to earn enough money to build the next generation of networks. And “excessive” levels of competition might be quite detrimental in that regard.

In the end, perhaps political rationality wins, at the expense of economic rationality. But there is no reason to pretend that some policies designed to promote competition and consumer welfare actually will do so.

Some policies designed to ensure competition might actually do so at the expense of the ability to invest in the next generation of networks. In that sense, some touted pro-competitive policies might lead, in the long term, to sub-optimal consumer welfare.

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Verizon Wireless, T-Mobile US Want to Swap Spectrum

Verizon Wireless and T-Mobile US have asked the U.S. Federal Communications Commission to exchange blocks of spectrum, generally on a one-for-one basis, in hundreds of U.S. counties.

Such spectrum swaps are not unusual in the mobile business. In 2012, five mobile service providers agreed to trade blocks of spectrum, acquiring spectrum from Cox Communications.

The Verizon and T-Mobile US exchanges would both firms to operate more efficiently, since after the exchanges each firm would have larger blocks of contiguous spectrum. In some cases, the additional spectrum is contiguous to spectrum each carrier already is operating.

In either case, each carrier would benefit from using larger blocks of spectrum, and in some cases also benefit from contiguous spectrum.

The moves are mostly tactical, allowing each service provider to operate more efficiently, since the deals do not change the aggregate amount of spectrum holdings of either carrier.

The FCC’s initial review of the applications indicates that, after the transaction, Verizon Wireless would hold 67 MHz to 149 MHz of spectrum and T-Mobile would hold 30 MHz to 100 MHz of spectrum in the 518 counties covering parts or all of 133 different cellular markets.

Since the swaps generally are one for one, those holdings reflect the initial amount of spectrum licenses held by each mobile service provider.

The exchanges will not affect any current subscribers of either network, and involve blocks of spectrum not yet activated by either mobile operator.

In the case of the intra-market exchanges of equal amounts of PCS spectrum, Verizon Wireless
and T-Mobile would exchange 5 MHz to 20 MHz  of PCS spectrum in 153 counties across 47 market areas, the FCC notes.

In addition, in 11 counties across three markets in Texas, Verizon Wireless would assign 20 megahertz of PCS spectrum to T-Mobile, and would receive 10 megahertz of PCS spectrum in return.  

Also, Verizon Wireless would assign 5 to 10 megahertz of PCS spectrum to T-Mobile in an additional 34 counties across 13 market areas.

In the case of the intra-market exchanges of equal amounts of AWS-1 spectrum, Verizon
Wireless and T-Mobile would exchange 10 to 20 megahertz of AWS-1 spectrum in 285 counties across 59 CMAs.  

In addition, in the Vineland-Millville-Bridgeton, NJ market, T-Mobile would assign 10 MHz to Verizon, and would receive 20 MHz of AWS-1 spectrum.

In the Oxnard-Simi Valley-Ventura, Calif. market, as well as the Eugene-Springfield, Ore. market, T-Mobile would assign 40 MHz and  would receive 30 megahertz of AWS-1 spectrum.  

Further, Verizon Wireless would assign 10 MHz of AWS-1 spectrum to T-Mobile US in 16 counties across four markets.

T-Mobile US would assign 10 MHz to 20 MHz of AWS-1 spectrum to Verizon Wireless in 26 counties across nine markets.

The swaps reflect a rationalization of spectrum each carrier had acquired in various auctions, but do not, in and of themselves, change market dynamics in the local markets or nationally. The swaps instead allow each mobile service provider to operate more efficiently, wringing more bandwidth out of the same amount of licensed spectrum, compared to the original set of holdings.

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