CSP Newsletter

August 2011

Newsletter August 2011

Welcome to the eight edition of our Communications Service Provider (CSP) Newsletter for 2011.  The Entertainment and Telco worlds become eclipsed as mobile online streaming shows signs of being a game changer, discussed in the article “Hooked on HBO Go”.  The delicate art of structuring data pricing tiers is discussed in the article “Tiered Pricing – A Balancing Act”.  Twitter and twitter opinions begin to dominate the brand awareness arena in “Welcome to My World“.  Finally, we present IBM’s Institute of Business Value paper on “Smarter Channels – Which Channels will you bet on?”

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Hooked on HBO Go?

Consumer habits are changing radically.  People are using their smartphones for a host of different activities other than voice.  For example, the analyst firm Chetan Sharma (2010), reported that iPhone users spend only 32% of their time talking, 36% is spent using Apps, 10% on SMS, 9% on Email, 7% on Music and 6% on Internet browsing.  Figures recently published by Allot for the first 6 months in 2011, show a marked increase in consumer behaviours with Instant Messaging and VOIP growing over the year by 101%.  These applications however only contribute to about 4% of the data bandwidth.  Of perhaps more concern to operators is the growth in online video streaming, particularly during peak hours.  Online streaming grew by 93% since 2009 according to Allot, while Peer to Peer transmission has decreased by 11% over the same period.   In its analysis of daily application usage, Sandvine reports that online streaming accounts for 49.2% of total application usage during the peak period, followed by peer to peer at 19% and web browsing at 17%.   One hour of online streaming consumes about 250-500Mb, which is actually less than 1 hour of video download at 750-100Mb.  Immediate gratification is the order of the day, with more and more people choosing to “watch now” instead of downloading for later viewing and applications such as HBO Go in the States are proving hugely popular.

The HBO Go app provides HBO subscribers free, unlimited access to all HBO’s content online and can be streamed anywhere on their smartphone or tablet. The success of HBO Go app, released in May 2011, demonstrates the massive demand for streaming-on-demand with 4 million app downloads in the first 4 months and with 85% watching more HBO content than ever before according to PBS.

HBO’s main source of revenue comes through its subscriber fees and the smartphone/tablet app is offered as an ‘add on’ bonus to premium content paying subscribers from the cable universe. Netflix and Hulu offer similar access applications for smartphone and tablet viewing to their premium content.  This means that subscribers can view content on any device, virtually anywhere.  However, Cable companies like Time Warner are beginning to publish looses in premium content and Video on Demand subscriptions heralding the migration of people to mobile only online viewing. Indeed, some analysts are reporting that 10% of U.S. homes will have discontinued their pay TV subscriptions by 2015.

This all sounds promising for mobile operators apart from the fact of course that spectrum bandwidth is finite.  The steady growth of online streaming usage, particularly at peak time (almost half of all data usage activity) means that many subscribers on tiered packages may begin to pass their thresholds very quickly.  Take a tiered package of $25 for 2G, watching 4 episodes of “Game of Thrones” and 2 of “Broadwalk Empire”. This quickly brings the subscriber to 1.5GB of usage, and if he is tempted to download a film and perhaps two earlier episodes, he is well on his way to paying an extra $20 in overage charges.  The question is therefore as viewers become somewhat compelled to watch these addictive episodes, will thresholds be enough to curb streaming usage?  And how much data will those early adopters with grandfather unlimited data plans use?  Will poor user experience due to peak hour bandwidth congestion force consumers back to their cable and desktop viewing?  Or will mobile operators be able to implement and adopt clever network optimization techniques, caching the popular content like HBO’s top view programs at the network edge in order to preserve on backhaul?

Thanks again to Apple, (and hats off to Steve Jobs), for pioneering the way with smartphones and tablets, the mobile operators will provide a critical role in the provision on online entertainment.  Embellished with the capability to communicate with social network groups, while viewing content, the future of mobile communication providers is entering a new dimension for entertainment.

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Tiered Pricing – A Balancing Act

Communication Service Providers (CSPs) have recognized that flat rate / ‘all you can eat’ pricing models are not sustainable. Ironically, flat-rate plans are contributing to the growth of over-the-top (OTT) application providers affecting the operator revenue model.   Unlimited data enables consumers to download and stream data from OTT providers however as traffic volumes grow, CSPs need to recoup revenue to sustain quality infrastructure and profit margins.  As stated by Lowell MacAdam, Verizon Communication’s CEO “Tiered pricing is like gravity. The industry has to get there eventually, because there just isn’t unlimited spectrum.”

Throughout 2010,  European operators like Telefónica of Spain, Vodafone, Deutsche Telekom and France Télécom’s Orange unit moved from unlimited data plans to tiered plans linking speed and downloads to higher costs,. While flat rate data plans have helped to fuel data traffic growth, they have done little to help grow the operator’s revenue according to Gartner (2010).  Similarly, the analyst firm, Chetan Sharma (2011) observes“ In countries where operators have a tiered pricing structure or have instituted stricter policy controls, the average consumption is less than 25% compared to operators who have had an unlimited pricing and policy structure on smartphones.”

Tiered pricing provides levels of download volume or quality access to match their personal budget and lifestyle needs.  Instead of one price for all, lower tiers of broadband access can become affordable for those on a tight budget.  As a result the operator is able to reach out to a wider segment of customers.  Additional granular segmentation also brings additional revenue opportunity.

Tiered pricing enables more sophisticated tailoring of packages based on quality or price sensitivity and these packages vary from operator to operator, for example:

•  AT&T provides three speed tier options: $15 for 200MB; $25 for 2GB; or $45 for 4GB
•  T-Mobile USA has four tiered data plans for smartphones, ranging from $10 for 200MB/month to $60 for 10GB/month, all of which include unlimited Wi-Fi access at T-Mobile hotspots all over the US.
•  Telenor Norway has announced new “multi-sized” (S, M, L, XL) price plans that bundle voice, messaging and mobile internet with fair usage quotas ranging from 50MB to 3GB
• Singtel Mobile is also introducing mobile broadband speed tiers which will let high-end plan customers receive higher speed connections, regardless of network demand.
• Verizon announced new usage-based pricing in July 2011, allowing users to choose one of four options: $10 for 75 MB per month, $30 for 2 GB, $50 for 5 GB, or $80 for 10 GB. There will be an overage charge of $10 per GB of data

As reported by Chetan Sharma (2011) there is a direct link between consumption and data speed.   As devices enable the consumption of online streaming services and operator speed provides an acceptable quality of service, more and more data is being consumed in an effort to quench the unlimited appetite of consumers.  The growth in streaming consumption however may find many subscribers exceeding their volume thresholds very quickly, forcing expensive overage costs.   As a result, operators may observe an increase in churn of customers between tiered packages or in requests to adjust bundle deals as usage patterns change.

Indeed with consumer behaviour and consumption dynamics, coupled with an ever increasing adoption of data services and devices, Operators need to become far more sophisticated in how they construct and manage their broadband packages.  Tiering can condition consumption of valuable bandwidth, offering the operator a protection mechanism for the network.  Also stream lining the tiers based on service types, segment types, location, device types and lifestyle needs will need to become highly advanced, as network speeds evolve, to preserve profit margins.  The ability for an operator to model and predict uptake based on tiered structures and to predict direct network investment cost and revenue impact to the business will also play a key role in maintaining profit margins.

Data pricing is extremely complex for operators.  As stated by Thomas Tschentscher from the analyst organization, Freshfields “Traditionally, operators’ competitive concerns tended to drive pricing strategies, but we now increasingly see pricing used as a tool to manage traffic and data consumption. We expect this approach will have an impact on a number of regulatory issues, such as net neutrality or wholesale regulation.”  98% of AT&T’s customers use, on average, less than 2GB of data per month and 65% use less than 200MB.  “If current trends continued, AT&T will carry more data in the first two months of 2015 than in all of 2010. Pricing is a balancing act,” Mark Segal, AT&T.   And indeed an art that operators will need to perfect.

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Welcome to My World

People are not just consuming content they are creating it. According to  Allot’s recent Mobile Trends report, YouTube is responsible for 22% of total global mobile bandwidth, and remains the world’s most popular video streaming website with 52% of global video streaming traffic.  According to Forrester, 68% of online Europeans used social technologies during 2010, up from 61% in 2009. Not only has the use of social networks grown significantly— from 30% in 2009 to 41% in 2010 — but a new social behavior, based around rapid conversations on Twitter and social networks, has quickly established itself as a mainstay of the social space. Almost one-third of European online adults participate in these rapid public conversations every week while the percentage of online Europeans who post their own blogs, videos, photos, or other media, the “Creators” — hasn’t grown in either of the past two years.  A similar trend can be observed in the US.

So why is Twitter so popular?  According to Twitip, it is because users can ask a question and get an instantaneous response. Twitter appeals to individuals who  crave the ability to “tap into the collective consciousness” of others on the network. Twitter addicts claim it’s like the old fashioned water cooler, where people can gather to shoot the breeze on whatever topic is on their minds. “Twitter is like a communications stream you dive into for an invigorating swim.”

In a recent report by Exact Target, daily active Twitter users are three times more likely to “amplify the influence” of brands than a Facebook or other social network user.

According to Mashable,of the users who are active on Twitter daily:

• 72% publish blog posts at least once a month
• 70% comment on others’ blog posts
• 61% write at least one product review a month
• 61% comment on news sites
• 56% write articles for third-party sites
• 53% post videos online
• 50% make contributions to wiki sites
• 48% share deals found through coupon forums

Mashable reported recently that the  world’s largest social network, Facebook, soared past its competitors to reach half a billion users in July 2010,  fueled by strong international growth, it is poised to reach 700 million in August 2011.

However, according to data from Inside Facebook, Facebook’s growth in April and May 2011 slowed considerably. It gained 11.8 million new users in May, and 13.9 million in April — compared to a typical month in the last year when it grew by at least 20 million users.  The US lost nearly 6 million users from 155.2 million to 149.4 million, while Canada dropped by 1.5 million users from 18.1 million to 16.6 million

A JeffBullas report presented figures from Nielsen, highlighting flat growth trends in Australia, where Facebook use and penetration is one of the highest in the world, bouncing around between 8.7 million and 9.6 million over the last 13 months. Other parts of the world however show great potential for continued growth of Facebook.  India, with its population of over 1.2 billion and China with 1.3 billion are ripe for the social media giant. However until Facebook  is allowed to operate in China then that potential will never be realized.

So while Facebook growth may be reaching a plateau in major markets, the twitter bug continues to grow and is becoming a major brand influencer.
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 IBV Paper – Smarter Channels: Which Channels will you bet on?

Within the last few years we have witnessed unprecedented growth in the choice of channels that customers can use to interact with a business. What was a fairly straightforward collection of predictable interactions – face-to-face, mail, phone, fax, web – has become far more complex with the advent of mobile, social media and virtual worlds. Couple this complexity with customers’ unrelenting desire for an integrated, end-to-end multichannel experience and the need for organisations to shape and manage the right channel mix has never been more urgent. IBM’s recent research confirms our belief that while the accelerating pace of channel innovation and transformation is generating substantial challenges, it is also creating opportunities for organisations to redefine where and how they want to compete. Click here.

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