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50 Year Anniversary of "Moore's Law": Optimism or Pessimism for the Future? 21 Apr 2015

We are marking the 50th anniversary of the publication of Moore’s Law. This op-ed commemorating the event suggests that we have only experienced the early impacts and that the really profound changes are only just beginning if the Law continues its path.  Some may react to the vision pessimistically because it guarantees more creative destruction and dislocation.  But for optimists – which includes BuddeComm -  the best is yet to come and the future of today’s millenials is (apparently) bright under the optimistic view.

Some excerpts:

If some of the recent breakthroughs in atomic-level transistors, nanotechnology and biological computers prove fruitful, Moore’s Law could again accelerate, or at least continue to rule, for decades to come. It now seems more likely than ever that a thousand years from now, what will be remembered most about our time will be its stunning efflorescence of innovation and entrepreneurship. By then Moore’s Law will have become Moore’s Era.

But because the usual graphic presentation of the law is tamed by the format into a nice shallow line, we don’t get to see the awesome power of the raw curve—which, like all exponential lines stays shallow seemingly for a long time, then suddenly curves almost straight upward in a vertiginous climb. It is the curve of a rocket’s acceleration, of a pandemic, of the cells born from a fertilized egg.

The great turning took place a decade ago, while we were all distracted by social networking, smartphones and the emerging banking crisis. Its breathtaking climb since tells us that everything of the previous 40 years—that is, the multi-trillion-dollar revolution in semiconductors, computers, communications and the Internet—was likely nothing but a prelude, a warm-up, for what is to come. It will be upon this wall that millennials will climb their careers against almost-unimaginably quick, complex and ever-changing competition.

Moore’s Law has always induced de-massification: giant mainframe computers become smartwatches, giant vertically-integrated organizations are defeated by what Instapundit’s Glenn Reynolds has dubbed an “Army of Davids.”

Rigid command-and-control structures in every walk of life, from corporations to governments to education, become vulnerable to competition by adaptive and short-lived alliances and confederacies. Now that process is going to attack every corner of society.

Everything is now in play. Millennials face one of the greatest opportunities any generation has ever known: to completely remake the world through boundless digital technology.

The good news is that this generation seems to be already, often unconsciously, preparing for this adventure—through robotics competitions, gatherings of tech enthusiasts, engineers and tinkerers at Maker Faires and other do-it-yourself events, and playing with new applications for their drones and 3D printers. Having lived their entire lives at the pace of Moore’s Law, they seem to sense that the time has come to hit the accelerator. If millennials don’t entirely get it yet, they soon will.

The effect of big data on the advertising industry 20 Apr 2015

With profits down between 5% and 10% on an annual basis the performance of the traditional advertising market is under constant pressure. Advertisers continue to reduce their expenditure on old media formats like TV, newspapers and magazines, with fewer and fewer people using these media – or using them in totally different ways.

And, while online advertising is on the rise, it doesn’t provide the industry with enough financial compensation to stop the overall decline.

There has been a saying in the market for decades: half of the advertising money is wasted; however we don’t know which half.

We have now reached the stage where, with new developments in data analytics, we actually do know which half is wasted. And advertisers are adjusting their budgets accordingly. Perhaps the largest effect of this new level of understanding has been the decline of large-scale campaigns, such as brand awareness. There are now fewer – and less costlier - campaigns than in the past. Instead a more targeted – and cheaper - approach is being taken, aimed more at niche markets, with far more specific messages aimed at specific target groups.

What data analytics is doing is exposing the weakness of the traditional advertising business models and, like all of the other sectors affected by the digital economy, this means that these business models need to be changed. This is a very tough call for the industry, as the margins in the digital economy are lower than those achieved in traditional advertising business methods. This means cannibalisation and very few are keen to rush into that.

In the meantime companies such as Google and Facebook are increasing their share in the advertising market at lower margins – they don’t have an incumbent business to protect. Increasingly advertisers are demanding lower margins from their advertising agencies, which is reflected in the abovementioned pressure on profits.

As an example of what data analytics can expose I refer to a test we did perhaps five years or so ago with banner advertising for our research reports. While click-through rates were between 3%-5%, we didn’t receive one single order from these campaigns.

Now, some years later, click-through rates on online ads in some industries are as low as 0.03%, with even the very highest-converting industry – telecommunications – still only laying claim to clicks from less than one per cent of all viewers. At the same time, however, researchers question how many of these click-throughs are accidental and how many are based on real buying interest. In our case the relatively high click-through rate was because we offered some free research material, but the people who were interested were only interested in the free bit.

Lessons having been learned, and with advertisers becoming more aware of the power of big data, they have started to demand more hard quantitative data on their campaigns. Increasingly campaigns are now linked to outcomes. These are predetermined and tested against the results, and payments are made to advertising agencies based on the success of these campaigns. This has also had its effect on the make-up of the advertising agencies. The creative factor still plays a key role, but a range of different skills has been added to the organisations, all to do with data analytics.

As a result campaigns are now far more cost-effective. They are based on more exact data, linked to well-defined businesses cases, and it is now possible to more accurately measure every dollar that is spent on such campaigns.

Online advertising does not improve the overall result for advertisers

Nevertheless online advertising campaigns do not necessarily supply a better overall outcome – in other words there is no indication that online advertising works better than traditional advertising. Simply moving advertising from the traditional platforms to online platforms is not delivering the results that advertisers would like to see: a more effective campaign resulting in predetermined outcomes.

For this to happen the industry will need to change quite dramatically. As mentioned before, the transformation of the industry is painful and the initial response is to dig in and protect the old models, as far as possible and for as long as possible. The word ‘quality’ is often used by the advertising industry to frighten the advertisers from moving away from the old advertising models.

So the next step has to be what we have described as ‘connected information management’. Other data sets from outside the customer and the advertising agency are added into the mix to see what other effects exist, or can be created, to get better results. We have talked about some of the connections that are made between airlines and retailers, telecom providers and mobile phone suppliers – and this is obviously only the beginning of this next level of information management. Within the advertising industry this will lead to collaboration between clients of the advertising firm, and with many of the larger advertising companies now being managed under a limited number of corporate ‘umbrellas’ there are significant opportunities here.

Cloud computing will be of great assistance in this respect, and, while there is still reluctance from within the advertising industry to use open-data cloud systems, the future most certainly does not reside in their proprietary-based data-based structures (silos).

Connected information management could well be the way of creating more effective campaigns, most likely leading to personalised advertising. Google and Facebook (as well as other online companies) have already embarked on this by providing a higher level of personalised advertisements during the times when customers are using their sites. This is backfiring on them, however, as the end-users don’t want to be treated as serfs of their business models.

These tactics are making customers wary and distrustful of these companies. What is still missing is what we have been talking about for more than decade – ‘permission-based’ advertising. This would require a much higher level of involvement by individual customers with individual companies and their products and services. In order to create better results the advertising models need to create a pull effect, rather than continuing to relentlessly use the push effect – a bit like continuing to bang your head against a brick wall. Here is a link to an article I wrote on this back in 2001. Obviously some things have changed, but the core of the permission-based marketing concept is as relevant today as it was then.

Paul Budde

See also:

Broadcasting sector adjusts to competition from OTT video services 17 Apr 2015

Free-to-Air TV now all-digital

The switch to digital broadcasting from analogue has meant that there is now a significantly larger number of FTA channels available. This has dispersed viewing preferences among consumers, with the result that TV programming is more fragmented. Although there are more channels available, the number of viewing hours has remained relatively stable for a number of years, and as a result individual channels, and particularly specific shows, have seen declining viewer numbers. The launch of subscription video services will further erode linear TV viewing, as subscribers choose instead to watch programs at a time of their choosing. The shift away from linear TV has seen the penetration of TV in households fall to about 88% by early 2015.

Further changes to the broadcasting sector may be expected if the government pushes through reforms to media laws. This could reshape the ownership of some regional broadcasters by overturning limitations on broadcasters’ population reach and rules which prevent media companies from operating in more than two platforms (printed media, FTA TV and radio) in any one market.

Competition for viewers sees falling prices for SVoD services

Competition from OTT providers, which offer basic packages at about $10 per month, have obliged established operators such as FOXTEL to reduce pricing in a bid to compete for viewers. High pricing for packages had previously helped to retard subscriber growth, but with the advent of cheaper access to content, and with a greater choice of provider, the pay TV market is on the cusp of sustained growth in coming years. However, though the number of subscribers should increase steadily, competitive pricing will ensure that revenue growth for providers and broadcasters will not be reflected proportionately.

Given the increased choices available from a variety of players, the number of subscribers willing to pay the price demanded for high-end packages, which include a large number of channels unwatched by many viewers, will dwindle. If business models adapt to customer needs, the greater take-up of low-end packages will see a slow increase in overall pay TV and SVoD penetration rates.

The market for digital radio in limited to the five mainland state capitals of Adelaide, Brisbane, Melbourne, Perth and Sydney, though trial broadcasts services are available in Canberra and Darwin. Service availability in the rest of regional and remote Australia continues to be negotiated with the Federal Government. Within these capital cities consumer take-up of digital radio has been strong in recent years, and the number of regular listeners is expected to reach 3.8 million by the end of 2015.

A new BuddeComm report provides an extensive overview of Australia’s FTA and pay TV broadcasting market, including subscriber numbers and penetration rates as well as forecasts for subscription TV uptake based on anticipated market trend over coming years. It also reviews the major commercial and public broadcasters, as well as affiliated regional players, and community and indigenous broadcasters. It includes a range of statistics related to digital TV sales and take-up, as also penetration rates in metro and regional areas. Developments in digital radio are assessed, including listener statistics, device sales and regulatory measures.

For detailed information, table of contents and pricing see: Australia - Broadcasting - Digital TV, Pay TV

Nigerian telcos looking for post-election stability in northern states 16 Apr 2015

Given its potential for further growth, Nigeria’s large and fast growing telecom markets continues to attract considerable foreign investment. Far reaching liberalisation has enabled hundreds of companies, operating under a unified licensing regime, to provide a full range of telecom and value-added services. Mobile and broadband services are being rolled out rapidly, backed by new national and international fibre links. Competition has eroded the dominance of the incumbent national telco Nitel, and after a decade of failed privatisation attempts the troubled and indebted telco has been sold.

Despite the pace of change in telecom infrastructure development, many areas remain underserved. In some regions of the predominantly Muslim north of the country where the Boko Haram group is active there has been disruption to telecom services, largely caused by the destruction of equipment and the difficulties faced by operators in accessing plant and repairing damage.

The broadband sector has seen some consolidation among players, though there remain more than 100 ISPs active. Most broadband accesses are through mobile networks, though there are a number of WiMAX operators which have found niche markets. The landing of international submarine cables since 2009 broke the monopoly on fibre access held by Nitel. Additional capacity has revolutionised the market: the 90% reduction in the cost of international bandwidth, coupled with improved domestic infrastructure, has brought broadband affordability to a greater proportion of the population in recent years.

Supported by the expansion of competing national fibre backbone networks, applications such as e-commerce, online banking and e-payments, e-health, e-learning and e-government are rapidly evolving. The government in early 2015 also committed to increasing broadband penetration from about 8% to 36% by 2018.

Nigeria is Africa’s largest mobile market, with some 140 million subscribers and a market penetration above 100%. The rapid growth has led to problems with network congestion and quality of service, prompting the telecom regulator to impose fines and sanctions. Network operators invest billions of dollars in base stations and fibre optic transmission infrastructure to support the ever increasing demand for bandwidth.

Efforts are also being made to encourage infrastructure sharing and to outsource the management of towers to third parties. Much of the remaining addressable market is in rural areas where providing network infrastructure and operations is expensive. In combination with falling ARPU, this is forcing network operators to streamline and to develop new revenue streams from mobile broadband and data services such as m-payments and m-banking.

Nigeria also has a competitive fixed-line market, with a second national operator, Globacom, competing with Nitel and over 80 other licensed fixed-telephony providers. Combined, these alternative carriers provide around 85% of all fixed connections.

For detailed information, table of contents and pricing see: Nigeria - Telecoms, Mobile and Broadband - Market insights

The changing face of the global mobile market in 2015 15 Apr 2015

Mobile services have revolutionised our world, and promise to be a key to future transformation. The global mobile broadband industry has become an incredible spectacle to observe, from the many competitors vying for position, the amazing apps streaming into the market, and the constant appearance of new devices.

Mobile penetration, however, continues to vary widely throughout the world. In Europe, nearly 80% of the population were unique mobile subscribers at the end of 2014, while in Sub-Saharan Africa the figure was only 39%. But the developing regions are where we will see most growth in the years to 2020.

Mobile broadband access using the 3G and now the 4G/LTE networks has continued to expand as users continue to add tablets, modems and phones to use alternative communication methods and cloud based services. In the longer term, with the increased availability of mobile devices such as tablets and smartphones, the amount of mobile data downloaded is likely to at least double yearly for the next few years.

The global smartphone market has slowed from its boom years to a more modest but still significant growth. With mature markets becoming increasingly dependent on replacement purchases rather than on first-time buyers, the industry is shifting its attention to emerging countries in Asia, Latin America, and Africa, where much of the population either does not own a mobile phone or has yet to move from feature phone to smartphone.

A major threat to the smartphone business arises from the limitations of the mobile broadband infrastructure. The mobile industry can develop all of these new applications and services, but if the infrastructure cannot handle the capacity, there will be little use for them. Developed markets are eating up new spectrum with a voracious appetite. WiFi could be a good customer access alternative; it is already used to access mobile broadband in the home, but mobile operators have problems with the idea of changing their business models to better utilise WiFi.

Driven by the growing usage of smartphones and mobile broadband services, mobile messaging continues to gain popularity throughout the world. But the scene is changing. The traditional SMS market, which peaked in 2012 and is now gradually shrinking, is being replaced by Over-The-Top (OTT) social messaging and messaging apps. This decline in traditional SMS usage is particularly evident in countries and regions where there is high smartphone and mobile broadband penetration.

In spite of some commentators spelling the death of email in favour of social media and other forms of messaging, there is yet no sign that our email boxes will lie empty anytime soon. In fact, the number of emails being sent worldwide continues to grow, and global revenues from email are forecast to almost double between 2014 and 2018. The biggest change is that almost half of all emails are being accessed from a mobile device globally.

Despite the positive future ahead for the mobile sector, it must also be acknowledged that many carriers are currently facing financial woes, with stagnating revenues, declining ARPUs and increasing competition.

Average Revenue per User (ARPU) is a key performance indicator for mobile operators and used as an important benchmark by investors and analysts. The current economic climate has driven down ARPU for operators around the world. But besides the economic downturn, there are other factors at work. Price pressures due to competition and multi-SIM users are also contributing to weaken ARPU – as is the fact that most new mobile subscribers come from lower-income segments. If we look at Average Revenue per unique Subscriber (ARPS), however, the downward trend is less pronounced, as this measure removes the effects of multi-SIM ownership.

Roaming prices are a controversial issue around the world, with customers complaining that roaming prices are too high. Many mobile users are turning to alternatives solutions such as Wi-Fi hotspots and local SIM cards. Regulators in many countries have ordered companies to lower their roaming fees and increase billing transparency, thus lessening the chance of bill-shock. However, for mobile operators, roaming remains an important source of revenue.

Customer experience has become a key issue in the overall retail market, not just in telecoms – and dissatisfied customers are no longer taking a passive approach. In search of better prices and better services, more and more mobile subscribers around the world are opting to change service providers. As a result, churn rates are on the rise. Bearing in mind that the cost of acquiring customers is expensive, reducing churn rates can offer significant savings to telcos.

BuddeComm’s new report, Global Mobile Communications - Market Insights, Statistics and Regional Trends, provides important insights into the worldwide mobile communications industry and includes trends, analyses, statistics and unique regional insights for North America, Europe, Latin America, Middle East, Africa and Asia Pacific. The report provides valuable information on the mobile communications industry including key industry statistics at a global and regional level; insights into the activities of the operators and identification of trends and opportunities. It also includes a global overview of handset, smartphone, touchscreen tablets and wearable technology. The report contains unique insights into regional developments written by BuddeComm’s experienced Senior Analysts, including insights into the BRIC markets and a case study on the emerging market of Myanmar. Please note: Mobile broadband is covered in detail in a separate annual publication.

For detailed information, table of contents and pricing see: Global Mobile Communications – Market Insights, Statistics and Regional Trends

Kenyan government disagrees on terms of sale for Orange Kenya 14 Apr 2015

Kenya’s telecommunications market has undergone considerable changes since the landing of four fibre-optic international submarine cables in recent years. The dramatic increase in international bandwidth not only ended the country’s dependence on limited and expensive satellite bandwidth, but the 90% fall in the cost of broadband access ensured that services have been made affordable for a large section of the population.

The country’s incumbent fixed-line telco, Telkom Kenya, has revamped its infrastructure and services under the Orange Kenya brand, having benefited from fresh capital from its 70% majority shareholder, the Orange Group. The company has also re-entered the mobile market, recently closing its CDMA network to focus on 3G and LTE. Orange Group’s plans to sell its stake in Orange Kenya have faltered in early 2015 over the failure of the government, as a 30% shareholder, to extend Telkom Kenya’s licences for a further 15 years and sell an additional 10% stake to the potential purchaser, Viettel.

A simplified and converged licensing regime introduced in 2008 has lowered the barriers to market entry and increased competition by allowing operators to offer any kind of service in a technology- and service-neutral regulatory framework. As a result, a number of operators continue to roll out national and metropolitan fibre backbones and wireless access networks. Companies that started out as ISPs, including such as AccessKenya, Kenya Data Networks and Wananchi, have transformed themselves into second-tier telcos.

Kenya’s mobile market has continued to show strong growth in the number of subscribers. This has translated into sustained revenue growth for operators as they develop services on the back of heavy investments in technologies and in infrastructure upgrades. Some market consolidation has occurred following the regulator’s approval of the acquisition by Airtel and Safaricom of Essar Telecom’s yuMobile business. Competition has nevertheless presented challenges to the profitability of network operators, encouraging them to streamline operations and develop revenue streams from services such as mobile data, m-commerce and m-banking. To develop LTE services the government has pursued an open-access approach, though Safaricom pulled out of the proposed consortium which would operate the network. A number of MVNO licences awarded since 2014 have added to the competitive mix.

For detailed information, table of contents and pricing see: Kenya - Telecoms, Mobile and Broadband - Market insights

Ferocious FttH competition in China 13 Apr 2015

Most of the discussions, analyses and comments regarding the strategic issues in telecommunication are still focussed on the mature markets in Europe and North America, where there are well-established policies and regulations with institutions that have been in existence for many decades.

Occasionally one hears claims that we are reverting back to old telecoms policies and regulations, as, for example, was the case with the FCC proposal for its Title II legislation. Most commentators wrongly label this as net neutrality legislation, but it actually has far more to do with competition regulation. In this case the intent is to ensure that broadband access can be under more scrutiny by the FCC, so that if the incumbents are deemed to behave in a monopolistic way the FCC will, with the new legislation, have the tools to intervene. This pussyfooting around the monopolistic nature of the American broadband access market – something that is clear to all – is increasingly what is taking place in the telecoms market in 2015.

The reality is that in most developed markets there is still a lack of broadband access competition – the incumbents are as powerful in the access market as they were two decades ago. So, with so few strategic changes happening in these markets it might be interesting to see what we can learn from markets elsewhere.

The most competitive market at the moment is probably the Chinese market. In the absence of decades-old legal telecoms structures and regulations – and with perhaps the most competitive people in the world operating in markets with very little effective oversight – we do see some real cowboy stuff happening here, and I am certainly not advocating that we should follow the Chinese way of competition. Nevertheless it is very interesting to observe this market.

Let’s look at the fixed telecoms market in China, and the FttH market in particular.

What we are seeing here are hundreds, if not thousands, of small companies falling over each other to link individual households in thousands of new, and even not so new, apartment blocks to an FttH service. Those who have travelled through China will no doubt have seen these large complexes of multi-apartment buildings, housing sometimes tens of thousands of people within one estate.

It is interesting to see the broadbanding scenarios that are playing out here. It resembles the situation that occurred in Korea in the early 00s (and look at how that country has been leading the broadband world ever since).

Within the private estates in China the current property law trumps the telecom regulation – that is, it is private property.

China Telecom and Unicom, as public utilities, can lay fibre on public property until they reach the kerb of these private estates. For them to go further – to lay fibre into the homes – requires them to enter the private estates, and for this they need to get permission from estate owners or managers.

Some of these estate managers do provide access to their properties and work with the leading telcos China Telecom and Unicom.  Some of them charge to have fibre laid across their estates; others lay their own fibre and then lease it back to the telcos; and some of them lay their own fibre and become an ISP on their own.

This has resulted in hundreds, and indeed thousands, of mini-ISPs popping up all over, many affiliated with estate builders and managers.

Technically, this is not legal, as only basic telecom licence-holders such as the incumbents China Telecom and Unicom (as well as other licensed companies) can lay fibre. But these companies did it anyway. Therefore, in the beginning of the year the Chinese government, through the Ministry of Industry and Information Technology (MIIT), made plans to issue a new licence for the last mile, mainly to legitimise a market norm that used to fly under the radar.

This legal opening leads in many cases to a large number of smaller players installing their own cabinets in the basement of the apartment building; some do this professionally, others do it in a completely shonky way – at that level there is little or no oversight. From here they pull their own cables to the units they have been able to sell their services to. There could be a dozen of more providers in one single apartment building.

With little effective oversight all kinds of deals are done with the building owners to get access to their residents. A typical FttH service of around 20MB/s will cost the equivalent of $8 a month.

Existing copper and coax networks are operating under slightly different regulations. In order for a new building to be "certified" as ready for occupation, the owner need to guarantee a certain minimum of basic utilities, including water pipes, electricity grid and copper wire. As such, the incumbents get access to the buildings (without any special permission)  but this is for copper cables only so if they want  to put in a DSLAM, they would still end up negotiating with the estate managers and as such similar 'cowboy' activities as mentioned above occur here as well. However, the real game in town is FttH.

While all the large network operators also install their own cabinets the smaller companies can in most cases offer more competitive prices than the incumbents. Furthermore the Central Government has set national targets for FttH installations and it is probable that the incumbents will not be able to reach these targets; so they let these smaller companies in on the business in order to do so.

Obviously the way this business works in China would not be acceptable in more developed markets and would certainly not be possible under the well-established rules and regulations in those countries. Sales practices that are often used in China, which include actively boycotting competitors, interfering with their services, using questionable network equipment, and illegal business deals, would not be acceptable in other markets.

Nevertheless ‘the system’ works and more customers are linked to FttH in China than anywhere else in the world, and at prices that customers in the developed world can only dream of.

At the same time, more countries should look to China for elements of these developments that could apply to their markets, where most of the incumbents are reluctant to build FttH networks, not necessarily because it can’t be done, but because they want to protect their incumbent networks.

Despite all the unsound elements you can point to in the Chinese rollout, this country will soon lead the digital economy. They know – as do we – that the key to a lower cost economy is digital and that the sooner people can be connected to an FttH infrastructure the sooner that new economy will kick in. High-speed broadband access is the key and, albeit in sometimes questionable ways, China is building this at a very rapid pace.

At the same time, it is obvious that all of those thousands of small players can’t survive, so massive consolidation is taking place, and over time this will increase the level of professionalism in the market and, heaven forbid, could lead to a more monopolistic environment, similar to the ones that are hampering competition and innovation in the developed market.

Paul Budde

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