The Sunday Brief: Data Rations For You!

July 10, 2011

Thanks for your continued interest in The Sunday Brief.  Between the RCR posts and your continued referrals to this website, we saw over 10,000 unique readers last week.  That’s pretty good for a boring telecom blog.

Many of you have asked me to write on the new data plan prices.  In the attached article, I explain the overall economics of data (which is largely misunderstood by most non-telecom folks), and talk about the margin implications to the wireless operators.  While many of you will question my cost assumptions (which may be a bit rusty), the point is that the threshold (gross) margin is 50% or so on a product with minimal billing, (direct) marketing and customer service costs.  Data, and specifically 4G data, is the new cash cow.  It’s hugely profitable for the low end (casual) plans, and with a “breakage” assumption, enormously profitable at the high end plans.

As a former telecom exec turned low-latency applications developer, the “rationing” concept is a whammy.  So many applications are based on a “free” or “unlimited” concept.  This is slowly being erased (and for good reason) by the carriers.  What to do for a next chess move – more caches?  Let’s start the conversation

Here’s this week’s Sunday Brief.  Thanks again for your support, trackbacks, and referrals.  I have also attached the table in the PDF below as a .png file – Jim

Accompanying data table:

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Posted by Jim Patterson

The Sunday Brief: The Decade of “C”

January 2, 2011

Greetings from Kansas City, home of the playoff-bound Kansas City Chiefs.  First, a
quick thank you for a terrific year for both Mobile Symmetry and The Sunday
Brief.  We started the WordPress version of this email, www.thesundaybrief.com, in January 2009 and have had about 1,000 unique visitors each week since then (last month was our highest month ever with 4,100 unique visitors).  I have talked to a couple dozen of you over the past month, and broached the idea of moving this to a bi-weekly format.  The response has been a unanimous “NO” so I will re-learn “brief” but continue the analytical rigor that makes TSB special.

The “twenty-teens” will begin my third decade in the telecom industry.  In the past 17 years, there have been a lot of changes. Broadly speaking, however, we’ve been through several large changes in each decade.

The nineties were the decade of “A.” In the telecommunications world, we began to attach the term “Advanced” to everything.  One of my first jobs at Sprint was helping to “Advance” their Intelligent Network.  This consisted of three things which would be considered to be elementary by today’s standards:  a) Local Calling Cards (neanderthal!), b) matching an actual address to your phone number so the emergency vehicle could get to your home (Enhanced or Advanced 911 services), and c) matching of name to your phone number for specific devices.  SkyTel introduced advanced paging services in 1996/1997 so I could see sports scores wherever I wanted to for an additional $8.95/ month.  These were considered “Advanced” services in the telecom industry in the 1990s.

Then came the second meaning of the word “A” which is access. This has a triple-meaning.  With the enactment of the 1996 Telecom Act,
telecom plant began to be broken into pieces called Unbundled Network Elements (UNEs).  Whole organizations began to form to take advantage of these regulatory changes.  Wireless access sprouted in the mid-1990s, and by the late 1990s, we started to see wireless data access begin to appear as a commercial product.

The most important use of the term access, however, was the rise of the Internet as a commercially available product.  We were able to access the Internet through the Mosaic browser.  This gave rise to the last “A” which all of us knew by their three letter acronym – AOL.

nineties:  We were advancing in our telecom services knowledge, redefining the term access, and beginning to access the internet with companies like AOL.

The naughties (what the Brits term the last decade) were definitely the decade of “B.” George Gilder warned us – speeds were going to get a lot faster – and, as I have said on numerous occasions, he was right, albeit a few years early in his predictions.  Every decade is marked by some consolidation, but with a Republican administration for nearly all of the decade, the last decade can best be summarized as “Buy.”  Telecom execs obsessed about the analysts’ view of their stocks (“How many have a buy rating on WorldCom?”).  A sleepy Regional Bell became the consolidator for the telephone industry, buying Pac Bell (1997), Ameritech (1999), AT&T(2005), and Bell South (2006).  Meanwhile, Cingular acquired AT&T wireless in 2004.

Verizon was born on June 30, 2000 with the merger of Bell Atlantic and GTE (which was largely shed by 2011).  In 1999, Airtouch and Vodaphone announced they would connect, and a few months later the current structure of Verizon took shape between Bell Atlantic and Vodaphone.  Verizon continued to grow through a series of smaller acquisitions until the ALLTEL acquisition in 2009 (ALLTEL previously being the subject of a management buyout).

Meanwhile, the rural local exchange providers were going through consolidations of their own.  Windstream, a spin off from ALLTEL,
and Century Telephone, a community-focused small town phone company, became players by the end of the decade (Qwest being the most recent acquisition by CenturyLink).  Frontier completed the earlier mentioned local phone assets of GTE to round out the playing field.  There was no standing still in telecom in the last decade – if you weren’t buying, you were contemplating the sale of assets.

As important as the changes in the competitive structure of the industry were the technological changes in the 2000s.  It was beyond a
doubt the decade of Broadband.  We started with 2G commercial deployments in the late 1990s, with the blossoming of data beginning in
2003/2004 with the deployment of 3G networks.  First the aircard, then the 3G phones.  Now we have 4G — at least, that’s what it’s termed.

I remember sitting at Lydia’s, a local Italian restaurant, waiting for some industry colleagues to show for dinner when I received a frantic call from my administrative assistant, Joe Vusich.  It was June, 2002 and a beautiful Kansas City summer evening.  “You’ve got to check out your Wall Street Journal feed – there’s something going on at WorldCom.”  So I went to wsj.com over my Sprint TouchPoint mobile phone (free at that time) to read all about it.  My friends arrived a few minutes later, clueless that the WorldCom treasury had just shut down and that Scott Sullivan had resigned as CFO.  “You’ve got to read this” I quipped, and thus began the age of mobile data access.  There were no mobile alerts, no Twitter, not at all how that news would be shared today.

However, the most important part of “B” was not wireless access but wireline.  I began the decade as one of the fortunate few – I
had Sprint ION (Integrated On-demand Network).  I had power with a screaming 1.5 Megabit per second speeds to my home.  I could do nothing with it – there was no YouTube (it would arrive several years later), no Google, no Hotwheels.com (which was an excellent early multi-player gaming site before they shut it down).  Just a stupid Superman video that I received when I clicked on the Broadband section of Yahoo (everything else was narrowband).

Wi-fi access was just starting to be commercially deployed, and NetFllix – who were they?  I had to go to Blockbuster.  There were no X-Box live capabilities even five years ago. Pandora was a box you did not want to open from Greek mythology (or a very expensive jewelry brand), not a popular app on most mobile phones.  None of these companies would exist without the rise of broadband.  Not one.

Where would app stores be without broadband?  How about the Content Delivery Networks like Akamai and Limelight? Where would YouTube be?  What about Hulu or ESPN360?  NFL games over Sprint and Verizon mobile devices?  Without the rise of broadband, and specifically cable broadband, we would be nowhere.  It’s why net neutrality matters to both sides of the issue.  Broadband gets bigger every year, and as a result, redefines how we live and communicate.

This brings us to the next decade – the best yet, in my opinion.  If the nineties were the decade of A (access, advanced services,
AOL) and the naughties were the decade of B (buy it now, broadband) then the next decade must be the decade of C.

The next decade will be marked by at least three factors:  customization (and its cousin – choice), connectivity,
and content.  Here’s our current situation:
Choice/ Customization. I have Friends who really aren’t friends but are followers.  In fact I need to just start over with a new Friend list, one customized by choices I make, not ones Facebook makes for me.  The thrill of social networking is gone – I  need to customize and personalize my groups.  Also,  I may want some things to remain strictly confidential.
Connectivity. I have apps on my phone that constantly need to be updated.  That’s good for games, but what about connected applications?  What about things that marry content with the speed of delivery of that content?  Our current networks cannot do this well, if at all.  Why have any software resident on any device by the end of the next decade?
Content. By the end of this decade, we will think differently about what content we (and our children) consume.  There will be a fracturing of content as the “Long Tail” meets mobile and bypasses cable.  YouTube (or Apple’s competitive offering) will become the new channel guide, and, thanks to help from Amazon, we will be able to view content that was generated in Spokane or Salt Lake City or Spartanburg, not Hollywood or New York City.  Cable will break from the cartel and be a willing participant in the distribution of this new media, leaving satellite with few choices.  It’s cash against tradition, and cash wins.  It might take until the end of this decade, but if my wife wants to learn Hindi from the leading experts in the world, she’ll be able to do it through her iPad, iPod, or High Def TV.

Looks like I’ve already broken my resolution to keep it brief in 2011, and, as many of you will surely note in your comments to this column, I’ve missed a lot.  We’ve spent 20 years redefining behavior (get on-line), and expectations (be more productive on-line) and are now face the
intersection of content, connectivity, choice, and customization.  Happy New Year!

*****************************************************************

Now for five you may have missed:

1.       Time Warner Cable and Sinclair Broadcasting agreed to extend their negotiations until January 14. Is there anyone who believes that they will reach an agreement?  Read more about it here.

2.       Another  new year – another China flap.  Has China shut off Skype?

3.       Groupon founders take some money off the table, according to TechCrunch.  A good payday for excellent marketing.

4.       Craig McCaw steps down as Chairman of Clearwire.  What does this mean?  The take from BusinessWeek/ Bloomberg.

5.       The Amazon stats are always a fun end of year read.  Here’s their news release on the topic.

Hope your year gets started off right!

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Posted by Jim Patterson

The Sunday Brief: WWCD? (What Would Cable Do?)

November 21, 2010

Greetings from Kansas City, home of the Plaza Lighting Ceremony.  Yes, it’s turkey time, and, while I am tempted, along with my fine friends at Fierce Wireless, to crown the Turkey Products and Turkey Apps for 2010, I think we have more serious items left to discuss before the year comes to a close.

Christmas is certainly coming early for the smartphone world, thanks to Wal-Mart.  Not to be outdone by the other virtual or physical electronics stores, Wal-Mart is offering a $100 gift card in addition to ridiculously low prices on nearly every smartphone in the place.  You buy a Droid X, spend the entire $100 gift card (which at Wal-Mart would consist of buying groceries or Christmas gifts), and you’re still ahead $10.  Granted, you are committed to paying $80 or more to Verizon for the next 24 months, but if making money wasn’t enough to cause the change, I’m not sure what is.

And yet I digress.  After discussions with some of you on last week’s topic (which, in case you forgot, centered around the swirl of cheaply priced Android devices across Verizon, Sprint, and T-Mobile and the effect of price vs. the iPhone brand), I started to coin a mantra:  What Would Cable Do (WWCD)?  Given the problems in the wireless world of unstoppable data growth, re-regulation threats from Washington DC, and declines in traditional/ core services, would the traditional telco foes approach wireless differently?  Let’s have a look.

WWCD About Wireless Coverage?

Without a doubt, cable would have a different approach to wireless in your home.  Everything cable does today (at least, what they control as opposed to resell) is largely confined to the footprint of your home.  They have two existing sources of electronics into nearly every home they serve:  the set-top box, and the cable modem.  Either of these devices (more likely the set top box) could accommodate a femtocell, and could display texts or calls coming to my mobile (which is undoubtedly charging in another room) on my TV.  With a few modifications, the TV could also become my in-home Fring, Qik, or FaceTime device, made clearer in HD by the cable provider.

Wireless coverage would not be an issue in the home or small business.  On the contrary, it would be a superior experience.  Femtocells would be another way to cement my loyalty to the bundle of products and services I am currently buying from cable, and it would not be a stand-alone service.  It would have marginal costs (maybe 1x cost for the new equipment) and it would work on all phones.  Macro network usage would grow more slowly, pleasing homes associations and zoning commissioners nationwide.

While concerns about cannibalization of the local voice service (Comcast Digital Voice, Time Warner Digital Phone) would be prevalent, there’s no doubt that in-home coverage and pricing would change dramatically under cable’s control.

WWCD About Wireless Applications Tiering?

Outside of improved coverage, cable’s approach to content over the mobile device would be much different from what we see today.  We would see more products like Sprint ID, which, while a start, is inadequate for most Android users (if only I had a clone, I’d solve this Android conundrum once and for all).  Cable would have (broadcast) content that would be nicely organized into tiers with all of the apps available for no upfront fee and a small monthly fee (think premium sports tier).  Cable (and satellite) also has masterminded Pay Per View marketing.  WFC on my phone for $20, meaning I can travel over the river and through the woods this Thanksgiving and still keep all of the teenagers and older kids at bay?  And I can get whatever game I want on the way home!

Wireless carriers are definitely catching on here, but, as we have chronicled many times in this column, the wireless experience needs one overall responsible party.  Right now, I don’t know whether to blame the handset maker because of my Twitter experience, or Handmark (who does a great job of enabling Sprint ID), or even Twitter themselves.  When there are too many places to point the finger, and no one willing to assist, the user will either find someone who will make it simple and be accountable or find something else.

Under the current system, the wireless industry requires each and every store and customer service representative to be an expert on two networks, four operating systems, six handset manufacturers, and eight different rate plans across twenty featured devices.  That’s even before we get to hundreds of thousands of applications.  Cable would select, simplify, and serve the needs of wireless in a far different (and, IMHO, better) manner than the wireless carriers are doing today.

(So this is not taken out of context, I am not arguing that customer service would improve under cable.  Wireless applications service is non-existent from most carriers today.  Better is a relative term – the wireless industry has nowhere to go but up).

WWCD About Net Neutrality?

Nowhere is the “Mars/ Venus” relationship different than in the area of Net Neutrality.  This comes from the fact that cable operators, despite their efforts in recent years to reorganize, think about their worlds as a collection of local franchise territories.  This is a deep knowledge of the economics of operating in Emporia KS (Cable One), Massillon OH (Massillon), Amarillo TX (Suddenlink), Vicksburg MS (Wehco), Granby CO (Comcast), Hays KS (Eagle), St. Joseph MO (NPG), and even San Jose (no, not that one, but the one smack dab in the middle of Illinois, proudly operated by Mediacom Communications).  And, unlike the 35,000 individuals shed by Verizon in the past 12 months (this number excludes the GTE properties sold to Frontier), the cable companies are replacing resources in most of their territories as people retire, keeping the local presence and knowledge intact.

What does all of this have to do with net neutrality?  First, cable (Comcast a possible exception) would solve neutrality issues at the local level, which is where it should be solved.  Neutrality in rural Missouri might cost more than in St. Louis City.  That’s OK, and we need to get over the fact that equal bytes does not necessarily mean equal bills.  Cable companies know how to balance the equation in the rural communities well.  They receive little if any phone subsidies ($2-5/ line for local incumbents including access fees and Universal Service Fund payments), have very open skies ready to receive a signal from Echostar or DirecTV, and have regional ISPs ready to eat their lunch if they get greedy on data rates.

These cable companies also sponsor the local school sports program, run advertisements for the local tire store, and have local offices on Main Street.  They cannot hide from any issue, let alone ones around privacy, “deep packet inspection” and “bit prioritization.”

Cable would solve net neutrality in Massillon OH in the following manner:  a) put up more fiber to the cell sites in Massillon, removing all backhaul contention; b) build content servers at the local cable head end that cache the sites most commonly accessed in Massillon; c) make sure that they keep up with local demand; d) set up a special service line/ email for issues in the Massillon area; e) Free Femtocell coverage for everyone who has Triple Play (Video + High Speed Internet + Local Phone), and f) a handset strategy that focuses on a few high performing wireless devices, not 20.  This in addition to wireless local DVR replay (GPS driven to keep the content replay in their franchise), and a killer app that doubles as a remote control and allows me to play Angry Birds in 42 inch high definition.

The Internet will never be fully neutral.  However, alleviating the concerns about bandwidth to the home, be it wireless or wired, can only be solved by operators that know my home.  T-Mobile can’t do it.  Sprint can’t do it.  For most of the US, Verizon can’t do it.  But in St. Joseph (MO), NPG can do it.  Simply put, the net would be more neutral because cable would look at the issue differently.  They have dealt with bandwidth differently as High Speed Internet has grown.  This is a good proxy for how they would deal with wireless.

To be clear, there are a lot of things that the wireless industry would do far better than cable (having a business strategy that serves more than the regional printing company would be a start).  But imagine a series of personnel changes, e.g., Tony Melone from Verizon Wireless or John Donovan at AT&T taking Mike LeJoie’s role at Time Warner Cable, or David Juliano at Comcast filling the shoes of the recently departed Kevin Packingham at Sprint, and I think you get the drift.  It would be different – a lot different.

What would cable do with wireless?  They would fuse it to High Speed Internet.  They would fuse it to their content strategy.  And they would keep it very local.

Now for five you may have missed.

  1. No transaction is small enough from the scrutiny of the Committee on Foreign Investment in the United States (CFIUS), as Huawei is learning.  More here in the Wall Street Journal article.
  2. Cox introduces its wireless service and plans for their service territories.  More details from Fierce Wireless.  (BTW – we have the perfect tool at Mobile Symmetry to allow Cox subscribers to see if they are calling another Cox subscriber – it’s called an in-network call indicator).  Some of the things Cox is introducing follow the themes described above – more to come when they launch LTE.
  3. ISIS.  No, it’s not “Is-Is” which we thought we knew the meaning of until a former President cast doubts, but ISIS. (No, that’s the show that followed Shazam! — For us Gen Xers.)  Seriously, it’s a very big deal and an example of how wireless companies must come together to solve common problems.  In this case, they are dealing with the issue of mobile payments.  I am jaded by large, cross-company initiatives, but please – Verizon, AT&T, T-Mobile (and hopefully Sprint in the future) – get this one right!
  4. Yes, there are more map ads coming, according to a recent Android Community article.  Let the infighting begin!  Oh yeah, there’s another T-Mobile ad – hot pink motorcycle and sex appeal vs. orange mini-scooter.  It’s got a chance…
  5. Finally, we have a hopeful end to the Mediacom saga.  Congrats to Rocco, John, Calvin and the whole team.  Someone is benefitting from the low interest rate environment.

And one: We are up to 150 Alpha testers on the Mobile Symmetry platform.  Being a slow week, this would be a perfect time to set up your Mobile Symmetry profile.  If you are interested in taking it for a test drive, please email me and we’ll get you invited to a group this week.

Thanks, and Happy Thanksgiving to everyone!

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Posted by Jim Patterson

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