Gigabit Access Improves User Experience, But Only So Much

The growing embrace of faster Internet access in the U.S. market, and the growing supply of faster connections, despite all criticisms, has many drivers--on both the demand and supply side. But it is changes on the supply side that arguably are most important.

In the past, Internet service providers rightly have suggested there was not much demand for faster access (50 Mbps, 100 Mbps, 300 Mbps or gigabit Internet access), but that was in large part primarily because of retail prices.

It would have been more accurate to say there was, in the past, not much demand for Internet access costing $100 to $300 a month, when “good enough” services could be purchased for $40 to $60 a month.

All that is changing. When Google Fiber launched Google Fiber, offering a symmetrical access service for $70 a month, the key innovation might arguably have been the price.

True, Google Fiber offers very-fast access (two orders of magnitude faster than typical offers, and an order of magnitude faster than 300-Mbps services that had been available in some communities.

But the key innovation arguably was the price. A gigabit for $70 a month is not such a leap from the $50 a month level of “standard” Internet access.

Also, $70 a month is a huge change from the $300-a-month price of prior 300 Mbps offers, or $350 monthly prices for a few gigabit services that had been available.

So major changes on the supply side--dramatically lower prices and dramatically faster speeds--are spurring demand.  

In part, that is because the underlying technology is getting better.

“I joined AT&T in 2008 and I remember around 2012 looking at some charts and the cost of speed hadn’t really had a breakthrough, because 80 percent of your deployment in broadband is labor based,” said John Donovan, AT&T senior executive vice president for architecture, technology and operations.

“And then all of a sudden you have vectoring in small form factor stuff and all of a sudden a little bit of an investment by our supply chain a few standard things and we start to take a 25 meg on a copper pair and then we move it to 45 and then 75 and then 100 which is on the drawing board,” said Donovan.

The point is that the underlying technology used by cable TV operators and telcos has been continually improved, providing better performance at prices useful for commercial deployment.

Operating practices also are becoming more efficient. Google Fiber has been able to work with local governments to streamline permitting processes and other make-ready work in ways that can lower costs to activate a new Internet access network using fixed media.

Google Fiber also pioneered a new way of building networks, getting users to indicate interest before construction starts, and building neighborhood by neighborhood, instead of everywhere in a local area.

That changes gigabit network economics. As has been true for nearly a couple of decades in the U.S. market, for example, competitive suppliers have been able to “cherry pick” operations, building only enough network to reach willing customers, without the need to invest capital in networks and elements that “reach everyone.”

That makes a big difference in business models. A network upgrade that might not have made sense if applied across a whole metro network might well make sense in some parts of a city, where there is demand.

Also, every new supplier of Internet access goes through a learning curve, generally operating inefficiently at first, but improving as experience is accumulated.

“And then we are getting better at the deployment side of the business as well,” said Donovan. “So our average technicians and our best technicians are converging.”

But there is an important related issue. Customers who get gigabit service often cannot perceive a difference in experience as great as they might have expected.

“When we do the installs, we often have to stay and show them on a speed test is getting a gig,” said Donovan. That illustrates a problem we are going to be seeing more often, namely that gigabit access can only improve end user experience so much.

Access speed only improves experience so much because it is only part of the combined ecosystem, and only can affect a part of user experience. Remove the local access bottleneck on one end and all the other elements become visible.

Bragging rights and therefore marketing advantages are believed to accrue to Internet service providers with the highest perceived Internet access speeds.

Some--if not most--of that marketing hype apparently is misplaced, a new study by Ofcom, the U.K. communications regulator, might suggest.

The study found that “access speed” matters substantially at downstream speeds of 5 Mbps and lower. In other words, “speed matters” for user experience when overall access speed is low.

For downstream speeds of 5 Mbps to 10 Mbps, the downstream speed matters somewhat.

But at 10 Mbps or faster speeds, the actual downstream speed has negligible to no impact on

end user experience. Since the average downstream speed in the United Kingdom now is about 23 Mbps, higher speeds--whatever the perceived marketing advantages--have scant impact on end user application experience. Some 85 percent of U.K. fixed network Internet access customers have service at 10 Mbps or faster.

Investing too much in high speed access is, as a business issue as investing too little. The important insight is that it is perception that now matters most in the United Kingdom and United States, not the actual threshold required to provide reasonable end user experience of Internet applications such as web browsing and streaming video.

Average access speeds in the United States are 10 Mbps, according to Akamai. Average speeds are 32 Mbps, according to Ookla. Another study shows that average Internet access speeds in the United Kingdom and United States are equivalent, in fact.  

The quality of the upstream path and in-home network have some impact, at all speed ranges, but at a dramatically lower level as speeds climb above 10 Mbps.  

One finding was surprising. The Ofcom tests of end-to-end user experience suggest that web browsing is significantly affected by upstream and downstream access speeds, the home network and the Internet service provider’s network interconnection policies.

Both the upstream and downstream speeds affect user experience of streaming video, while voice experience is, relatively speaking, barely affected.

Those are important findings. The quality of the broadband experience is not solely dependent on

access speed. In-home wiring (including Wi-Fi performance) and peering arrangements etween internet service providers can also be important.

“Indeed, for connections with a download speed greater than 10 Mbps, access speed appears to become less significant than these other factors,” Ofcom says.

At connection speeds above the range of 5 Mbps to 10 Mbps, though, the relationship breaks down and broadband connection speed is no longer an important determinant of performance, Ofcom says.

The important observation is that elements of the end-to-end value chain--other than access speed--now are becoming greater bottlenecks.

Despite Gigabit Hype, Internet Access Speed is Not the U.K. or U.S. Experience Bottleneck

Bragging rights and therefore marketing advantages are believed to accrue to Internet service providers with the highest perceived Internet access speeds.

Some--if not most--of that marketing hype apparently is misplaced, a new study by Ofcom, the U.K. communications regulator, might suggest.

The study found that “access speed” matters substantially at downstream speeds of 5 Mbps and lower. In other words, “speed matters” for user experience when overall access speed is low.

For downstream speeds of 5 Mbps to 10 Mbps, the downstream speed matters somewhat.

But at 10 Mbps or faster speeds, the actual downstream speed has negligible to no impact on

end user experience. Since the average downstream speed in the United Kingdom now is about 23 Mbps, higher speeds--whatever the perceived marketing advantages--have scant impact on end user application experience. Some 85 percent of U.K. fixed network Internet access customers have service at 10 Mbps or faster.

Investing too much in high speed access is, as a business issue as investing too little. The important insight is that it is perception that now matters most in the United Kingdom and United States, not the actual threshold required to provide reasonable end user experience of Internet applications such as web browsing and streaming video.

Average access speeds in the United States are 10 Mbps, according to Akamai. Average speeds are 32 Mbps, according to Ookla. Another study shows that average Internet access speeds in the United Kingdom and United States are equivalent, in fact.  

The quality of the upstream path and in-home network have some impact, at all speed ranges, but at a dramatically lower level as speeds climb above 10 Mbps.  

One finding was surprising. The Ofcom tests of end-to-end user experience suggest that web browsing is significantly affected by upstream and downstream access speeds, the home network and the Internet service provider’s network interconnection policies.

Both the upstream and downstream speeds affect user experience of streaming video, while voice experience is, relatively speaking, barely affected.

Those are important findings. The quality of the broadband experience is not solely dependent on

access speed. In-home wiring (including Wi-Fi performance) and peering arrangements etween internet service providers can also be important.

“Indeed, for connections with a download speed greater than 10Mbps, access speed appears to become less significant than these other factors,” Ofcom says.

At connection speeds above the range of 5 Mbps to 10Mbps, though, the relationship breaks down and broadband connection speed is no longer an important determinant of performance, Ofcom says.

The important observation is that elements of the end-to-end value chain--other than access speed--now are becoming greater bottlenecks.

Implications of "Pervasive" High Speed Access

Though some might focus on findings related to typical high speed access speeds, use of smartphones, cost per delivered megabyte or investment in next generation networks, some might say the key strategic point raised in a new study of G7 high speed access is the movement to “pervasive” access.

And that point is that high speed access evolves over time to a stage where “most end-user connections are wireless, at speeds produced only by wired systems in earlier stages,” the study argues.

Note the prediction: untethered access speeds eventually approach wired network speeds. That has potential implications for the ability to substitute mobile or untethered access for fixed access, as well as for the strategic value of all fixed networks.

Obviously, the speed match will be highest for optical-to-Wi-Fi connections than for optical-to-mobile connections, partly because of distance effects, partly because of spectrum constraints and partly because for reasons of network architecture.

Basically, bandwidth and speed are inversely related, so short Wi-Fi links will supply faster access than mobile macrocells spanning distances of miles. Additionally, local Wi-Fi has access to more spectrum than any single mobile service provider.

Also, mobile networks reuse spectrum in ways that mean all the available spectrum cannot be used at any single location. Wi-Fi networks can use all available spectrum, at every location, subject to interference issues.

The shift to “pervasive” networking also is significant because it points to the future evolution of the high speed access business: from fixed to mobile and untethered, with a key role played by the fixed infrastructure as a way of extending core network access close to network edges, allowing a high degree of untethered access.

Prior high speed access networks featured a high-performance wide area network optical core, a regional distribution network and then a mid-speed copper access network extending core network transport for distances of perhaps 3.5 miles, in suburban areas.

Increasingly, the optical network core extends deep into the metro-area distribution network, and in the case of optical fiber access networks, to a neighborhood or single location, with copper or radio distribution on a local basis.

That is the case for “fiber to neighborhood” networks that use optical media to an area of a score, or perhaps several hundred homes, with copper media for a kilometer to perhaps a mile, and then local distribution typically using Wi-Fi within a location.

Mobile networks have been built with optical cores connecting to microwave, fiber or copper distribution, and then radio access for towers reaching a few to several miles. More heterogeneous networks now are appearing in dense urban areas, in some cases using small localized cells that cover small areas.

Fiber to home networks extend optical media to actual end user locations, with local distribution typically using Wi-Fi rather than the older Ethernet cable interfaces.  

The study argues that high speed access develops in three distinct phases. At the “basic” stage  

wired telephone, cellular telephone, and cable TV networks are coupled with broadband electronics to provide a basic level of connectivity 10 to 100 times greater than voice networks.

At an “advanced” stage, after more optical fiber deployment, better modulation techniques, more sensitive radios, better signal compression and signal processing, as well as additional spectrum allocation for untethered and mobile use, speed improves another 10 to

100 times.

At the “pervasive” stage, most user connections are mobile or untethered and access speeds better approach fixed network speeds.

Beyond the matter of access speed for untethered and mobile devices, the "pervasive" access also points to expected changes in "fifth generation" mobile networks and application development. When access is pervasive, mobile devices will increasingly represent the way people use the Internet and applications.

And that suggests app development increasingly will revolve around "mobile" interfaces, form factors and input-output methods. Also, as increasingly is the case, apps will shift in the direction of location-specific, activity-aware and sensor-assisted app features.

High Speed Access Strategy Key for Telcos as Video Shifts to Over the Top Mechanisms

Many observers believe that, in the future, the lead revenue generator for U.S. cable TV companies will in fact be high speed access, not video entertainment.

Whether that is the case for telcos is harder to predict, though most would argue high speed access likewise will be foundational for fixed network telcos.

But the latest data from the Sandvine first half 2014 Global Internet Phenomena Report show the implications of a future shift to significant over the top, Internet-delivered video content of the sort people typically have purchased as part of their linear video entertainment services.

For starters, U.S. subscribers with “cord cutter” behavior consume 11 times--more than an order of magnitude-- streaming content and over seven times as much total data as a “typical” subscriber, Sandvine says.

Real-time entertainment is responsible for over 63 percent of downstream fixed network bytes during peak usage periods.

During peak period, real-time entertainment traffic also accounts for over 40 percent of the downstream bytes on North American mobile networks as well.

And all of that is happening even before most of the content provided by linear video subscriptions has been made widely available for over the top Internet-based viewing.

If U.S. cable TV operators continue to lose market share, in part because of competition from satellite and telco TV providers, but more significantly long term because demand for traditional linear video subscriptions erodes, and if consumption of new products shifts to Internet delivery, then high speed access revenue potential grows.

But that shift also suggest the exposure telcos face on the fixed network front as fixed Internet access networks become primary means of watching video content, including real-time events and content, not just pre-recorded or archive material.

The big issue is how much capability is required for telcos to remain competitive in the high speed access market, under conditions when some would argue cable TV operators and some ISPs, are better placed to upgrade efficiently.

Cable operators and Google Fiber already are taking most of the net new additions in the high speed access market, with the possible exception of Verizon, where it provides FiOS Internet services.

But Verizon already has halted further FiOS deployments, in large part because the business model is questionable. AT&T recently has decided to invest more heavily in its high speed access networks, with spot deployments featuring speeds as high as 1 Gbps.

Cable operators and some independent ISPs might well have an edge over the telcos in terms of business model, and might be able to justify significant investments where telco planners might struggle to justify capital investment.

And, to be sure, “raw speed” might not be the key business model issue to be faced. Instead, it is other matters such as the fundamental value-price relationship, charging by usage, and consumer ability and willingness to pay, that are more crucial than actual potential top speeds, even if marketing platforms are affected directly.

Indeed, one might argue telcos would be better off to craft retail offers that are good enough to support streaming video access and mobile Internet traffic offload, at reasonable prices, rather than compete head to head with the cable companies, Google Fiber and others, for headline speed.

But that will require a sober assessment of perceived value. If others provider gigabit access for $70 to $80 a month, and if telcos match those prices, as AT&T is doing, then prices for slower-speed packages will have to adjust lower as well.

Where a 20-Mbps or 40-Mbps package might cost $40 to $50 a month, in markets where gigabit access is available for $80, 50 Mbps service might have to be priced at just about $4 (assuming the cost of a megabyte of speed “costs” about eight cents) to $8 a month.

That would represent an order of magnitude less revenue per subscriber, per month, unless pricing were somehow shifted in such a way that consumers were comfortable with a “usage” billing model, and stopped evaluating offers based on headline speed.

But there are ways to do so. Mobile Internet access already generally has moved to a consumption-driven model, not a “peak speed” model, with little subscriber resistance.

And that is a likely key component of future retail packaging by telcos: de-emphasis on headline speed and a concurrent shift to volume of consumption. That largely is the shift already made in the mobile business.

In other words,  “raw speed” improvements might not be as crucial for telcos as the cost and packaging of Internet access plans. In other words, telcos might not generally be able to compete with cable headline speeds.

Instead, telcos will likely have to emphasize “good enough” speeds supporting all key end user apps, at prices that reflect usage, which compare favorably with alternative offers.

In that regard, the most destabilizing offer is the unlimited usage, $70 a month, symmetrical gigabit offer fielded by Google Fiber and some others.

The other alternative is simply to avoid selling lower-speed offers, shifting to a simple 50-Mbps, 100-Mbps, 300-Mbps or 1 Gbps offer, as local market competition requires, with no slower speed options, as is the case in the mobile Internet access market.

de-emphasize their competition in consumer high speed access, instead operating access networks suitable for offloading mobile traffic, and instead shifting capital to mobile and other revenue segments with higher revenue and growth potential.

When Might Cable, Telcos Devote 100% of Bandwidth to High Speed Access?

Tier-one U.S. cable TV companies and telcos face interesting access bandwidth challenges as demand for high speed access requires more capacity, while linear video also competes for that bandwidth.

Eventually, one might surmise that nearly all bandwidth on the access networks could be devoted to Internet access, that occurring when the linear TV business has become so challenged by on-demand delivery that virtually all entertainment video is delivered using streaming, rather than dedicated linear bandwidth.

The transition is the issue. U.S. cable TV operators, still the leading providers of linear programming, are steadily allocating more bandwidth for high speed access, in an incremental way that makes more efficient use of available bandwidth on hybrid networks.

Verizon, where it has FiOS deployed, reserves 870 MHz of bandwidth for linear video, but does so using a separate optical wavelength from that used to deliver high speed access and voice services. That means, as a practical matter, that linear video does not compete with bandwidth required to deliver high speed access.

In other words, linear TV and high speed access are not in a “zero sum” situation where more bandwidth for high speed access must come from bandwidth used to deliver video.

AT&T, on the other hand, uses an access technique similar that of the cable TV operators, where all services are delivered over a single physical medium, with bandwidth shared between all applications.

Like the cable TV operators, AT&T (except where it is deploying fiber to the home), has to make “zero sum” decisions about allocation of its access bandwidth. More bandwidth for high speed access must be created or taken from video bandwidth.

Should AT&T succeed in buying DirecTV, one potential future development, aside from the ability to compete for nearly 100 percent of the linear video business, nationwide, is to reclaim nearly 100 percent of access bandwidth to deliver high speed access services, as video might be delivered using DirecTV. That might not happen right away, as regulators require a transition period where AT&T is barred from switching existing U-verse video customers to DirecTV.

Cable TV operators switched from a mix of analog and digital TV signals to “all digital,” in part, to free up bandwidth for high speed access.

AT&T might eventually be able to act in the same way to reclaim bandwidth, by shifting all linear video to the separate satellite network.

Cable operators might someday shift even more bandwidth, if streaming delivery becomes the norm. That would be a radical step, and would be contemplated only at the point operators concluded they would be no worse off, in terms of revenue, by switching to streaming delivery on an all-IP network, and abandoning linear formats.

Cable operators do not seem to anywhere close to that point, yet. But they already foresee the possibility. The DOCSIS framework aims for 10 Gbps downstream, one Gbps upstream. It is hard to see how that could happen unless virtually all bandwidth were devoted to high speed access.

In that regard, Broadcom has announced gigabit speeds on hybrid fiber coax networks using its new DOCSIS 3.1 cable modem system-on-a-chip capability.

The new chip relies on use of two OFDM 196 MHz downstream channels and two 96 MHz OFDM-A upstream channels. Modern HFC networks feature something up to 948 MHz of total downstream bandwidth.

So two 196-MHz OFDM channels would represent consumption of about 392 MHz of downstream bandwidth, or about 40 percent of total available downstream bandwidth on an HFC network operating up to 1002 MHz in a standard frequency plan.

source" Volpefirm

The objective, eventually, is support for 10 Gbps downstream and 1 Gbps upstream. But that likely would occur only after the linear video subscription model has run its course, and been abandoned for streaming access.

High Speed Access Soon Will Be Biggest Revenue Source for Cable TV and Telcos

High-speed data subscriber numbers will surpass video subscribers for Moody's-rated cable companies in the next year, says Karen Berckmann, Moody’s senior analyst.

The longer-term revenue and profit impact is a bit unclear at the moment. Video average revenue per customer is higher than that of high speed access--nearly double--but net revenue after paying content costs is nearly the same.

Assume a monthly average of about $80 a month for a video subscription. Content providers typically $35 of the billed amount. So “net” revenue for the distributor is about 56 percent, or roughly $45 a month, before operating and marketing costs, depreciation and amortization or taxes.

By way of comparison, a typical monthly high speed access account might generate $45 or so, monthly.

The point is that both revenue streams are roughly equivalent, on a per-account basis, even if video generates more gross revenue.

The other issue is the strategic importance of high speed access as the future revenue driver for any provider of fixed network services. For a cable operator, voice remains a distant third as a driver of revenue, behind video and high speed access.

For most telcos, voice still represents more than half of total revenues, but is declining steadily, while high speed access and video revenues are climbing. At some point, it seems inevitable that voice becomes the smallest of the three anchor services (high speed access, video, voice) for either telcos or cable TV providers.

Ability to substitute other video providers also arguably is easier than switching high speed access providers, as satellite is not competitive.

“An operator that loses a customer to FiOS or uVerse is likely to lose that customer entirely, whereas one losing a customer to Dish Network or DirecTV could still maintain a broadband relationship,” Berckmann says.

That is another way of illustrating the strategic importance of high speed access: it is a service satellite providers, or most fixed wireless providers, will not be able to replicate, as speeds climb to gigabit levels.

“Fewer video customers means lower programming costs (which are paid on a per subscriber basis) and servicing the video product tends to be the most challenging and costly part of the business, so margins could benefit from the mix shift,” Berckmann says.

The downside is the loss of scale, which could lead to higher per-customer costs in the video segment.

Any way one looks at the matter, high speed access is emerging as the anchor product for cable TV and telcos. Video entertainment will emerge as the second largest revenue source for both cable TV and telcos, while voice is the smallest revenue source.

Several trends are responsible for those changes. Voice has shifted decisively to mobile, shrinking the total fixed network voice market. And mobile-enabled texting and messaging apps have displaced demand for voice sessions, as well.

At the same time, over the top product substitututes are displacing voice, and eventually video entertainment, increasing the value of a high speed access connection.

At the same time, Wi-Fi has become a key access method for computing, mobile apps and other content, including video entertainment. That means more of the value of a fixed high speed Internet access connection is driven by the ability to enable content and communications apps.

Fundamentally, the only key service not expected to see either wholesale displacement or significant reductions in demand is high speed access.

Cable is Winning Access Speed Race, But for How Long?

source: National Broadband Plan

If U.K. trends in high speed access are an indicator of what is happening in the United States, cable operators are providing a disproportionate share of the fastest connections.

Average telco ADSL speeds were 6.7 Mbps in November 2013 compared to 5.9 Mbps in May 2013, according to Ofcom.

In the U.K. market, the average download speed of residential cable broadband connections was 40.2 Mbps in November 2013 compared to 34.9 Mbps in May 2013, an increase of 5.3Mbps over six months.

But U.K. buyers of 120 Mbps cable access services got peak-time speeds of 108 Mbps.

Buyers of 60 Mbps cable connections got  58.4 Mbps at peak hours. Buyers of 30 Mbps cable access services got peak-hour speeds of 30.2 Mbps.

In other words, cable connections were markedly faster, “on average,” than all-copper connections, and also faster than optical fiber connections, in the United Kingdom.

In November 2013, the average actual download speed over optical access connections in urban areas was 46.8 Mbps, according to Ofcom, the U.K. communications regulator.

So it matters whether one buys a cable TV high speed access service, or a telco fiber connection or a telco all-copper access service.

“We consider the increased take-up of superfast connections to be a key factor driving the increase in average actual speeds across all connections,” Ofcom says. In other words, a disproportionate share of the speed growth comes from connections at the high end.

The issue is whether this also is happening in the U.S. market. The longer term issue is whether the pattern will continue, as Google Fiber enters more markets and telcos including AT&T respond in kind.

In the United States, cable TV providers of high speed access already have about 58 percent share of the installed base, but also are getting at least 82 percent of the net new additions in that market.

Some might argue cable is getting as much as 100 percent of net new additions.

Already dominant, the cable industry is growing much faster in high speed market share than telcos are growing.  

Also at least for the moment, U.S. cable providers have a higher share of the faster access connections. That was not always the case.

In 2004 the mean advertised download peak speeds of cable and telco high speed access services were similar, and the maximum and minimum advertised peak speeds were identical.

By 2009, the average (“mean”)  advertised cable speed was about 2.5 times higher than DSL, while the maximum peak advertised speed was three times higher than DSL, though the minimum advertised peak speeds remained identical.

The past is no solid predictor of what might happen in the future, though. Google Fiber is having a dramatic impact on speeds and prices, in some markets, resetting market prices to a level of a gigabit per second symmetrical service for $70 a month.

source: Infinera

Though Verizon’s major optical access infrastructure is largely completed, AT&T is making new commitments to boost speeds across the board, and spot deploying gigabit access services where it faces Google Fiber.

Still, at the moment, cable seems to have the clear upper hand where it comes to top speeds, in most markets, the exceptions being markets where Google Fiber operates. In areas where Verizon FiOS is available, Verizon might have an edge.

What also is clear is that the strategic value of high speed access for a cable operator arguably is higher than for AT&T and Verizon. Virtually 100 percent of cable TV revenue comes from services provided over the fixed network. That would not change much, even if cable operators launch mobile services using a Wi-Fi-first model.

AT&T and Verizon, on the other hand, earn less than half their total revenue from the fixed network, and almost none of the revenue growth.

That tends to affect supplier thinking about when and where to invest in faster speeds, one might argue. So far, cable arguably has had higher incentives, and enjoyed lower costs, to upgrade access networks.

UK residential broadband connections, by headline speed Source: Ofcom