Net Neutrality is a Fight Over Ecosystem Revenue Share

The net neutrality debate is, at its heart, an argument about the distribution of future revenues in the broadband ecosystem. Sure, there are technical issues, such as how best to manage scarcity of bandwidth at times of congestion.

And there are legitimate concerns about potential anti-competitive behavior.

But at its heart the arguments are about gaining the best positioning with the new ecosystem. Were it not for mobile services, communication service providers would be in big financial trouble.

Broadband services have helped, but are a fraction of the voice revenue now dwindling away. To replace lost voice revenues, access provider broadband revenues would have to triple. To many observers, that must mean revenue shared with business partners, as it is hard to see end-user payments tripling.

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Arab Phone Lines Continue Decline

Lower use of fixed voice lines is not a phenomenon limited to North America, Western Europe or Japan, it appears.

Surveying 20 fixed network operators in 15 Arab countries, the Arab Advisors Group finds 27.8 million fixed line subscriptions in use at the end of September 2009, down from 29.2 million at year end 2008, a drop of 4.6 percent.

Globally, wireless stands at 67 percent penetration, according to the International Telecommunications Union, compared to 18 percent fixed voice line penetration.

That means there are about four mobile accounts in service for every fixed line. In the broadband access area, there already is 9.5 percent penetration of mobile broadband, globally, compared to 7 percent penetration of fixed broadband access, the ITU says.

Any way one looks at the matter, it increasingly is a wireless world.

Global Voice Penetration Really is a Miracle

By the end of 2009, there were an estimated 4.6 billion mobile cellular subscriptions, corresponding to 67 per 100 inhabitants globally, says a new report from the International Telecommunications Union.

Last year, mobile cellular penetration in developing countries passed the 50 per cent mark reaching an estimated 57 per 100 inhabitants at the end of 2009. Even though this remains well below the average in developed countries, where penetration exceeds 100 per cent, the rate of progress remains remarkable.

Indeed, mobile cellular penetration in developing countries has more than doubled since 2005, when it stood at only 23 per cent.

Not many will recognize this success for the great achievement it really is. Policymakers of the 1960s, 1970s and 1980s would be, and probably are, shocked at what has happened. In days past, the thinking was that getting phone service to people who had never made a phone call would be stubbornly difficult. I do not recall anybody suggesting mobile technology would do the trick.

The broadband gap, though significant, also is showing dramatic progress, and again because of mobile networks.

There is a "problem" people and organizations who "solve problems" often have: they cannot recognize victory. Many difficult problems actually get fixed. When they do get fixed, rejoice and move on.

Getting voice services and now broadband broadly adopted throughout the world is a huge, miraculous success.

Consumer Price Points for Recurring Subscriptions are Fairly Clear

One might infer from average pricing for a variety of services ranging from fixed telephone service to broadband access, wireless and multi-channel video service that consumers have price sensitivity for any single service above $50 a month.

According to researchers at Pew Research and the Federal Communications Commission,  fixed voice costs about $48 a month. Wireless costs about $50 per user, while multi-channel video costs about $60 a month and broadband access costs about $40 a month.

Some of you immediately will note that your own spending is higher than these average figures suggest, with the greatest variability occurring in the mobile arena, as that is a service bought a person at a time, where the other services are bought household by household.

That's worth keeping in mind when surverys suggest there is robust consumer demand for just about any new application or service. Very few products ever have gotten mass adoption at prices above $300. Very few subscription products ever have gotten mass adoption at prices above $50 a month.

That doesn't mean it cannot be done; obviously it can. It simply is to point out that getting lots of consumers to buy a new recurring service at prices ranging from $5 to $10 a month is a big deal.

That's the reason so much consumer-focused content is advertising supported.

Mobile Terminations Now Exceed Fixed

Mobile subscribers have become a powerful force in the international voice market. In 2008, mobile-originated international traffic grew 19 percent, and accounted for 36 percent of total international traffic, up from 32 percent in 2007, according to TeleGeography.

Mobile terminated traffic grew 18 percent in 2008 and accounted for 48 percent of international traffic terminated in 2008. TeleGeography projects that mobile terminated traffic will exceed traffic terminated on fixed lines in 2009.

If you want to know why Sprint is selling "no incremental cost" calling to any domestic U.S. mobile, that is one of the reasons.

That would be a first. Up to this point, more calls have been terminated on fixed phone lines. To be sure, more calls still are originated on fixed lines than mobiles, but even that gap is narrowing.

Mobile phone subscriptions overtook fixed lines in 2002, TeleGeography notes.  By 2008, there were four billion
active mobile accounts globally, accounting for 77 percent of global phone lines. In recent years, growth has shifted to developing countries. Mobile subscriber growth in Africa has led the world in recent years, growing 35 percent in 2008 after having increased 39 percent in 2007.

While growth rates in Africa are tremendous, the subscriber base remains very small—mobile penetration in Africa is still only 39 percent.

Still, India gained 112 million new mobile subscribers in 2008, a net increase that exceeds the total number of mobile subscribers in Germany, says TeleGeography.

China gained 89 million mobile subscribers in 2008, and Brazil, Indonesia and Vietnam all gained more than 30 million mobile subscribers. Conversely, mobile subscription growth in more mature markets has slowed.

Good News for VoIP, Bad News for Wired Telecom Providers

"VoIP" was the "industry of the decade," according to IBISWorld, which says the industry earned that accolade because of its 1,655 percent growth rate between 2000 and 2009. IBISWorld notes that VoIP, as a new industry, only began to earn any revenue in 2002, so it is starting from a "zero" base.

Wireless telecommunications ranked eighth for industries of the 2000 to 2009 period, posting revenue growth of 183 percent.

IBISWorld also predicts VoIP will show the most revenue growth in the coming decade as well, growing 150 percent between 2010 and 2019.

The bad news for the 2010 to 2019 period is that wired telecommunicatons carriers will show negative 52 percent revenue growth. Telecommunications resellers likewise will show negative 26 percent revenue growth over that same period.

Americans are Happy with their Products and Services, Sort Of

A new study by the Government Accountability Office suggests 84 percent of U.S. wireless users are "very" or somewhat" satisfied with their wireless phone service. That isn't to say there are no issues: there are.

The GAO says 10 percent of users are "dissatisfied" with their service. About 12 percent say they are dissatisfied with billing, 14 percent are dissatisfied with terms of service, 11 percent unhappy with call quality and 12 percent dissatisfied with customer service.

But 76 percent of respondents are satisfied with billing; 72 percent satisfied with terms of service, 85 percent satisfied with call quality and 70 percent satisfied with customer service.

In terms of complaints received by the Federal Communications Commission from end users, 55,000 were unhappy with billing and rates. About 14,000 were unhappy with call quality, 13,000 complained about contract early termination issues and 12,000 were unhappy with customer service, GAO says.

In terms of complaints, billing issues were more than 400 percent more common that complaints about call quality, contract termination or customer service.

In some ways, in fact, the GAO study suggests a higher degree of satisfaction with wireless service than other surveys might suggest. The American Consumer Satisfaction Index, which ranks consumer satisfaction on a scale running from zero to 100, with 100 being the top score, might suggest less happiness, not only with wireless, but also with cable TV and satellite service, with declining scores for wired voice service.

FCC Seeks Input on Transition to VoIP

The Federal Communications Commission wants public and industry comment on the policy framework for a transition from circuit-switched to voice services on all-IP networks. The FCC will use the comments to issue a possible "notice of inquiry" on the subject.

"In identifying the appropriate areas of inquiry, we seek to understand which policies and
regulatory structures may facilitate, and which may hinder, the efficient migration to an all IP world," the FCC says. "In addition, we seek to identify and understand what aspects of traditional policy frameworks are important to consider, address, and possibly modify in an effort to protect the public interest in an all-IP world."

Among other issues, the FCC will be looking at consumer protection issues such as how the needs of people with disabilities can be assured. A look at the role of "carrier of last resort" obligations in an all-IP framework also is expected.

All comments should refer to GN Docket Nos. 09-47, 09-51, and 09-137 and title comment filings
as “Comments – NBP Public Notice #25."
 
Filers using the Commission’s Electronic Comment Filing System should enter the following text in the “Custom Description” field in the “Document(s)” section of the ECFS filing page:  “Comments – NBP Public Notice # 25."

The ARPU Gap is the Issue

One might quibble with the precise Yankee Group numbers indicated here for voice and data average revenue per user. What remains incontestable is that there is a revenue gap between voice and data services, on either the wired or wireless business segments. So as broadband starts to become the foundation service upon which other applications and revenue streams are built, there is immense work to be done. I suppose everybody knows this, by now.

Voice is Not a Commodity

New communication modes complement, rather than substitute for, older modes, says Stefana Broadbent, who leads the User Observatory at Swisscom. That ought to lead service providers to think in different ways about the "commodity" nature of voice, for example, since it does not appear that voice and new forms of communication, though widely used, are consumed in ways that make them functional substitutes. And if they are not substitutes, neither are they commodities.

Different modes are viewed as best for some sorts of communications, and get usedthat way, she essentially argues. And while you'd expect wired voice, mobile, email, text messaging (short message service) and instant messaging to be key modes, you might not expect blogging to be a communications mode, though Broadbent says blogging is, in fact, a form of communications, not media.

So what are the key user perceptions of appropriateness (Broadbent studied consumers, not enterprises)? Wired phones are for "public" communications and intended to communicate lots of information that is of general use to all members of a family, for example.

Mobile voice, on the other hand, is a personal channel. About 80 percent of calls from any user's handset are with just four other people, Broadbent finds. Mobiles are used for regular communication with best friends and family.

SMS is seen as more intimate channel, oddly enough with more perceived "emotional capability" than voice. SMS gets used only with best friends and family and "grooming" messages ("thank you", "I love you") represent about half of the messages. SMS is seen as a way to keep relationships alive. More than 50 percent of all grooming communications happen through SMS.

Email is used as an administrative channel to get tasks accomplished and share attachments such as photos with networks of friends or social groups. Email also gets used for communications of an "impersonal" nature (contacting retailers, for example).

Instant messaging tends to be a multitasking medium, with a live channel opened in the background while a user does other things. People just step in and out of conversations.

Blogging is a "networking channel," used in place of email in many cases and a way to extend the total number of "friends" one can interact with, as it allows one-to-many communications much more simply than email.

Significantly, says Broadbent, the new forms are not substitutional. Each new channel slowly redefines the uses of older media, and uses are very sophisticated about the strengths and weaknesses of each form. SMS gets used with people one knows very well because they have the context to decipher very short and cryptic messages.

A key takeaway from Broadbent's research is that though "price" is a factor in just about any purchase, communications are about other things as well, providing some space to innovate on the value front to create new levels of comfort with "price."