Industry Voices—Madden: Entertainment eats the phone business

iPhone 7 (Apple)

The typical American consumer pays for a staggering number of “communications” items every month:

  • Mobile phones
  • Mobile data
  • Home/office phone
  • Calling Card for International calls
  • Broadband access
  • Cable TV
  • Extra Cable TV channels
  • Netflix, Amazon Prime, Hulu Plus, or other streaming video
  • Redbox
  • Pandora or other Internet radio

The striking conclusion is that communications and entertainment have become a large collection of subscriptions, totaling more than $320 per month for a single person. Sixty years ago, my parents paid a phone bill, but TV and radio were free. About $6 per month in 1957 (the equivalent of $53 today) was the total, not including long-distance calls.

Thirty years ago, I simply paid a home phone bill and a cable TV bill. Total cost was about $125 in today’s dollars. Okay, sometimes I went to movie theaters, so let’s say $150. Looking at it in this simple way, we’re paying a lot more than we did before.

Clearly, we have more choices today. We could choose to pay about $18 per month for a basic feature phone, and simply watch broadcasted radio and TV. From this point of view, “inflation” has been severely negative. But that’s not how Americans live… so a typical family pays for a big data plan, plus Cable, Netflix, Amazon Prime, and Spotify or Pandora… then drives over to Redbox when the desired content is not available online. Total monthly cost: about $570 for a family of four.

It’s a huge increase. When I analyze how it changed, it becomes clear that the telephone portion of spending has stayed low… $44 inflation-adjusted dollars in 1987 dropped to $18 in 2017. (Note that we now pay for multiple lines per family, so we still pay a bit more for phones today).

Attribution/Copyrights: Mobile Experts

On the other hand, the money spent on entertainment has increased dramatically. Americans now spend about 7-8 times more on entertainment than on basic phone service.

So let’s not fool ourselves. Verizon, AT&T, and T-Mobile US are not in the telephone business anymore. They are already in the entertainment business. Ninety percent of your mobile data is related to Internet usage of some kind — Facebook, YouTube and random web browsing. More than 70% of your mobile data is delivered as video.

Mobile operators are already in direct conflict with cable operators, as both try to control access to video content. The battlefield will shift from technology (fixed vs mobile) to content (who provides the show I want to watch).

This analysis is intended to illustrate what 5G is all about. There’s no growth in the phone business – the phone line is simply a tether that keeps a subscriber connected to an access provider. Prices for data keep coming down, so while there is potential growth in delivery of data, the future profit potential is weak. On the other hand, people that produce quality video programs are all migrating to Netflix and Amazon, and making more money than ever before.

Ten years from now, I don’t think the phone will be a meaningful part of the market. Instead, the battle to control high-quality movies, shows, games, and VR will define the winners and losers. Mobile operators need 5G to make video delivery cost-effective — but they also need to work just as hard on developing their menu of entertainment choices.

Joe Madden is Principal Analyst at Mobile Experts LLC, a network of market and technology experts that analyze wireless markets. The team provides detailed research on Small Cell, Base Station, Carrier Wi-Fi, and IoT markets. Mr. Madden currently focuses on trends in 5G, IoT, and Enterprise markets for wireless infrastructure. Over 26 years in mobile communications, he accurately predicted the rise of Digital Predistortion, Remote Radio Heads, Small Cells, and the rise of a Mobile IT market. He validates his ideas with mobile and cable operators, as well as semiconductor suppliers to find the match between business models and technology. Mr. Madden holds a Physics degree from UCLA. Despite learning about economics at Stanford, he still obeys the laws of physics.