Friday, November 6, 2015

Will Video Drive Fixed Network Adoption Towards 95% Levels?

Some might yet wonder what it will take to get adoption of high speed Internet access in the U.S. and other markets up to 90 percent or higher. The traditional answer has been “TV.” Eventually, consumers will shift to over the top TV and away from linear, making a high-capacity home Internet connection essential.

In other words, “use of computers” will not be the activity that drives the incremental adoption.

And substitution of smartphones for PCs or laptops might not change matters.

In fact, mobile phone ownership might now be cannibalizing some need to own a PC. Some 92 percent of U.S. residents own a mobile phone, 68 percent a smartphone and 73 percent a desktop PC or notebook PC.
The effect on demand for home Internet connections is clear. If perhaps seven to 10 percent of consumers say they rely exclusively on mobile for Internet access, then mobile access is a substitute for fixed network Internet access.

But it still is the case that video will drive incremental adoption of fixed network Internet access. The reason is that as entertainment video shifts to over the top delivery, a fixed network Internet access connection becomes a prerequisite.

At the same time, the fixed network allows offload of mobile data consumption to Wi-Fi.

The point is that video--one way or the other--will underpin incremental fixed network Internet access demand, even if primary demand is driven by Internet access itself.

At the same time, increasing ability to seamlessly switch access between mobile and fixed networks will complicate the matter.

Internet access already includes a mix of fixed and mobile access modes, but changes in video delivery might complicate usage patterns and therefore our sense of the extent of Internet access adoption and use.

In 2013, fixed network Internet access was purchased by about 74 percent of U.S. households.

In 2015, use of the Internet was higher than 86 percent, but that is not identical with the number of homes buying Internet access. If 92.5 million U.S. homes bought fixed Internet access, and if one assumes there are roughly 120 million occupied homes,  fixed Internet adoption might be 77 percent.

Some might argue that adoption already is at about the 90 percent level, but that an increasing percentage of consumers use mobile Internet access, and may not buy fixed access products.

About 10 percent of consumers say they rely exclusively on smartphones for Internet access.

The point is that use of television, not use of computers, might eventually drive fixed network Internet access adoption towards levels we used to expect of voice services, and more recently cable TV services (85 percent to 95 percent adoption).

The other possibility is that fixed access adoption never actually reaches those levels, since mobile-only is proving to be a viable form of Internet access for an arguably-growing number of consumers.

Whether that remains the case when a major shift to over the top video, and away from linear video, is the question.

Given the higher cost per bit of mobile Internet access, compared to fixed access, it would be difficult for mobile operators to supply, or consumers to afford, enough capacity to support a full shift of most TV consumption to mobile networks and devices.

At present retail tariffs and linear video consumption patterns, a full shift to consumption of TV on an on-demand, mobile basis would not be possible, one might argue.  

The networks could not handle the load, nor would consumers be willing to pay.
But it is hard to say how supply will change in the future. If one assumes a robust and seamless ability to offload heavy video consumption to Wi-Fi, a larger percentage of consumers might well conclude they can live without a fixed Internet connection, if they are willing to work around it.

The big issue is that the greatest volume of video consumption happens at home, the location where a fixed access service is essential for Wi-Fi access.

And that suggests incremental demand for fixed Internet access will grow, despite mobile consumption.  

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