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Showing posts from January, 2016

Paradoxically, Higher Capex is a Negative Unless Big New Revenue Streams are Created

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Paradoxically, heavy capital investment in telecom networks often is considered to be a negative in financial markets, even if such investment results in higher consumer welfare and an arguably better long-term strategic position.
So it is mildly surprising to hear Globe Telecom touting aggressive spending to improve services in the Philippines. Some might argue that is the only way Globe, and others, can prosper, long term.
Still, it is somewhat uncharacteristic to hear Globe touting a boost in its capital-to-revenue ratio up to 28 percent in 2015, after climbing to 27 percent in 2014.
Globally, telecom capex-to-revenue ratios have been running between 15 percent and 20 percent, with a declining trend.
There is a clear logic. Global telecom revenue growth has dropped to less than GDP growth, according to PWC.
“Some segments (e.g., fixed line) are already in absolute decline, and even global mobile revenue is expected to begin declining in 2018, according to some researchers,” says PW…

What Happens When Telcos Start Going Bankrupt?

One has to wonder what happens if many fixed network telcos essentially go out of business, even if that has not yet happened on a significant scale. That might have been unthinkable decades ago.
After all, one might have argued, people and businesses still will need to communicate, even if telcos go bankrupt. And, others might argue, assets do not evaporate, even in a bankruptcy.
So reformed providers would emerge from any bankruptcies of today’s telcos. In large part, that is what already happened with the former “long distance” giants, whose assets now are part of former Regional Bell Operating Companies.
It might be worth noting how wrong prognosticators can be, in that regard. At the time of the Bell system breakup, it was widely believed that the fast-growing, interesting parts of the former Bell system would reside in the separated long distance business, not the local communications business.
In other words, AT&T, freed to grow in the unregulated long distance business, wou…

TRAI Gets Ready to Outlaw Zero Rating

The Telecom Regulatory Authority of India appears ready to outlaw “zero rating” programs such as Free Basics or Airtel Zero, which allow consumers access to use of some apps without requiring either purchase of a data plan, or “usage” against a data plan.
It now appears we are headed for a lengthy period where the ramifications and extent of network neutrality rules get tested in a wider range of settings.
That seemingly always has been implicit in different understandings of what the concept entails, and might not be fully harmonized for quite some time.
For some, who favor a narrower understanding, network neutrality means that no lawful application can be blocked or slowed by the government or an Internet service provider for commercial reasons, though the difficulty has been that sometimes network management might have that effect.
Many would say it is simply prudent network management to take measures to preserve access to network resources at times of peak load, for example.
Supp…

India 700-MHz Spectrum Auction Faces Potential Buyer Strike

Minimum prices set for an auction of 700-MHz spectrum in India are so high (two to four times higher than prior auctions)  that many of the leading mobile companies will not bid. And, according to Fitch Ratings, the eventual spectrum winners might well regret having won. That “winner’s curse” has happened before, often with 3G spectrum auctions.
India's telecom regulator recommended a reserve price of INR115bn (US$1.7 billion) per MHz for nationwide 700MHz spectrum.
Fitch Ratings “believes that efficiency gains from deploying 4G services on 700MHz will be insufficient to offset the relatively high price.”
The reserve price is about twice the price set for 800-MHz spectrum, 3.4 times the reserve price for 900-MHz spectrum and four times the minimum prices set for 1.8 GHz spectrum.
Winning therefore “could exert further pressure on participating telcos' balance sheets and cash flow, and limit their ability to invest in capex over the medium term,” say Fitch Ratings analysts.
In fac…

"Long, Slow Decline" for Fixed Network Telcos, Says Moody's

Not every problem has a solution, at least not a solution satisfying to the entities with the problem.
In the U.S. market, for example, an entire category of service providers--”long distance” suppliers--ceased to exist. Sure, the assets remained in service, but the firms, and the category, essentially disappeared.
Recall that AT&T and MCI were stand-alone firms engaged solely in the long distance voice (and to some small extent in the capacity market). AT&T was bought by SBC, which took the name and assets.
MCI was purchased first by Worldcom and then Worldcom by Verizon. Sprint still owns its long distance assets, but it is a smallish and declining business with little impact on overall company financial results.
The same fundamental problem is faced by the larger fixed network U.S. telcos. “Slow yet steady decline” is the fate that awaits CenturyLink, Frontier Communications and Windstream Services, according to ratings agency Moody’s.
“Constraints such as capital allocation…

Iliad Ponders U.K. Mobile Market Entry

Iliad’s Free Mobile, eyeing asset disposals a Three UK and O2 merger would entail, is considering entering the U.K. mobile market.
European Union regulators will give the proposed merger close scrutiny, as the merger would reduce the number of facilities-based national mobile providers from four to three.
That is a key reduction, as many observers and regulators think four is the minimum number of contestants to promote robust competition. An entry by Iliad might, some could argue, immediately bring the number of leading providers back up to four.
Others might argue the U.K. market already has Virgin Mobile and other mobile virtual network operators, with future entry by Liberty Global a virtual certainty. Sky might be interested in any divested transmission and customer assets as well.
Ironically, no matter what regulators or incumbents seem to desire, new competitors seem able to enter mobile and Internet access markets rather frequently, despite the high barriers to entry that many …

Telco Success in New Markets Can Take a While

As mobile and fixed network telcos gear up for coming Internet of Things opportunities, it will be helpful to remember that success will take time. That same admonition applies for mobile video services or any other over the top efforts telcos ultimately will undertake.
Rarely do telcos achieve success right out of the gate. In fact, it can take a decade or two before it is clear they have obtained a sustainable position in a new market.
A few will remember the skepticism many had a few decades ago about prospects for telco to succeed in entertainment video, especially in roles other than as distributors of subscriptions.
The argument had been that telco ownership of content assets would not work well, as content was not a core competence. Skepticism about telco roles in the over the top app (OTT) arena are similar, and early efforts in OTT sometimes have suggested skepticism is warranted.
But it also is fair to recall that it has taken decades for telcos to position themselves for a …

In Many Cases, Key Result of Gigabit Internet Access Will be Uptake of "Less Than Gigabit" Services

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Gigabit internet access connections might seem a clear case of abundance way beyond a user’s ability to consume such bandwidth.
Nevertheless, Deloitte Global predicts that the number of gigabit per second Internet connections will climb to 10 million by the end of 2016, up an order of magnitude from the 2015 level.
About 70 percent of those connections will be bought by consumers, about 30 percent by businesses.
Greater availability and reasonable prices will drive adoption. Perhaps of equal importance is the prediction that, in 2016, some 250 million consumer locations will be able to buy gigabit connections, and will not.
By 2020, some 600 million subscribers may be on networks that offer a Gigabit tariff as of 2020, representing the majority of connected homes in the world, Deloitte says. Of those 600 million potential connections, between 50 and 100 million consumers might actually buy gigabit services (between five and 10 percent of the potential buyer base).
At the end of 2012, the…

Shift Away from "Calling" Continues

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Though, globally, mobile calling volumes continue to climb, developed market users often are using voice less, messaging more. Mobile voice volumes as measured in minutes have increased by 20 percent between 2012 and 2015, for example.
Deloitte Global, for example, predicts that, in 2016, 26 percent of smartphone users in developed markets will not make any traditional phone calls in a given week.
“They have not stopped communicating, but are rather substituting traditional voice calls for a combination of messaging (including SMS), voice and video services delivered over the top,” Deloitte Global says.
In 2015, some 22 percent of all smartphone users behaved that way, up from 11 percent in 2012.
The percentage of adults using instant messaging, for example,  more than doubled from 27 percent in 2012 to 59 percent in 2015.
source: Deloitte

New Networks Often Do Not Drive New Revenues

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Incumbent telcos often face business model challenges when evaluating next generation network platforms. The biggest problem is that investments sometimes have to be justified on a number of drivers, since the incremental revenue is questionable.
Fixed network telcos, for example, have struggled to justify fiber to the home investments strictly on the basis of incremental revenue (linear video entertainment has been the one new revenue stream).
There is little advantage in the voice segment, and while FTTH or other fiber access networks underpin higher Internet access speeds, telcos generally have been unable to match the faster increases provided by cable TV operators.
Voice over LTE provides another example in the mobile business.
Deloitte Global predicts about 100 carriers worldwide will be offering at least one packet-based voice service at the end of 2016, double the amount year-on-year, and six times higher than at the beginning of 2015.
That will mean some 300 million customers w…

Public Wi-Fi Will Help Some Rearrange Mobile Service Provider Markets

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Disagreements about what network neutrality legitimately entails aside, trends in the Wi-Fi hotspot market are trending in the direction of quality assurance and “carrier grade” rather than “best effort,” a concept at the heart of the network neutrality debate.
“The Wi-Fi market is undergoing a major transformation driven by the introduction of carrier grade Wi-Fi networks which offer improved security, QoS (Quality of Service) and an enhanced user experience compared to best-efforts Wi-Fi,” say researchers at Juniper Research.
That change will affect business models in both the fixed and mobile domains, allowing some fixed network owners to create new revenue streams, while enabling lower-cost mobile business models.
Cable TV providers will be primary beneficiaries of both trends, while mobile operators largely will benefit from the latter trend.
Critical enablers of the carrier grade Wi-Fi capability and developing revenue streams and business models include IEEE 802.11 protocols such…