Will LTE Help Fix "Dumb Pipe" Problem?

For industry observers or practitioners who dislike the notion that high speed access is an undifferentiated commodity, Long Term Evolution fourth generation networks might be one of the biggest marketplace changes to affect markets in 2013, not least of the reasons being that LTE sets the stage for a segmentation of the access market.

Observers will disagree about the potential impact of large telcos substituting LTE for fixed broadband, but such substitution could change local competitive dynamics.

Will customers readily adapt to high-bandwidth mobile networks as viable substitutes? And if so, what are the implications for all other competitors in those markets?

If you think about it, LTE now adds a mobile angle to the untethered way fixed networks have been used. Up to this point, 3G has been an unsatisfactory alternative to fixed network access, with the exception of the mobile use case. LTE 4G will change that, for many new scenarios.

The classic case, up to this point, has been the broadband market in Austria, where, sometime in 2010, mobile broadband passed fixed network broadband. Some might say that is not unusual, since the same thing is happening lots of other places as people adopt smart phones. That is true enough.

But it also is true that in Austria, consumers have been substituting mobile broadband for fixed broadband for their PC Internet access as well. To be sure, many will argue mobile broadband is complementary, not a substitute for fixed access.

According to Ofcom, about 19 percent of Austrian households are "mobile-only" for broadband. And if people will do that using slower 3G, one has to believe a greater percentage will do so if they have access to LTE and 4G.



Single-person, highly-mobile users who travel a lot, but don't watch much TV, are prime examples of consumers for whom LTE might emerge as the preferred choice.

On the other end of the scale, users who watch lots of Netflix or other video, support many devices and multiple users, will continue to find that a fixed connection with a large usage cap remains the best alternative, even when that connection is not as fast as some LTE connections.


Impressionistic reports from areas where LTE is available suggest speeds range from perhaps 3 Mbps to 6 Mbps on the low end and as high as 15 Mbps to 30 Mbps on the high end. For many users "speed" will be satisfactory. Price and usage caps will be the main issues.

In between will be lots of scenarios where other network alternatives make sense, based on the structure of retail plans, the size of usage caps and monthly pricing. 

Where available, cable high speed access might be the best choice for multi-user households that stream lots of video, and therefore need both speed and big caps. Price might not be as important as usage caps, for such customers. Speed generally might not be much of an issue at all.

Where cable is not available, fixed wireless might become more attractive, for many of the same reasons.

Users who want “speeds faster than my local DSL,” but using relatively low amounts of bandwidth, might turn to LTE.

Customers with low or moderate bandwidth consumption, and low to moderate speed requirements, might choose satellite or DSL.

Customers with moderate consumption, and moderate to high-speed requirements, might opt for fixed wireless, even where cable is available, for price reasons.

Mobile-only might become more attractive for smaller or single-person households able to use LTE networks and who already use smart phones. The incremental cost of a large LTE data plan, added to smart phone subscription, might make mobile-only a reasonable choice.

And there might be several options for users whose primary consideration is price, not speed or the size of usage caps.

There is no easy way to determine, everywhere, and for all classes of customers, how the competitive dynamics will shift over the next several years.

Some might legitimately argue that LTE will not be a reasonable substitute for fixed broadband services. And you might argue that retail packaging (price and usage caps) are the key issues, not “bandwidth.”

Ignoring price for the moment, consider that usage caps on mobile are two orders of magnitude lower than on fixed networks (5 Gbytes for mobile, 150 Gbytes to 250 Gbytes for a telco or cable modem service. That is hardly comparable, in one sense.

The issue is actual user behavior, though. Two orders of magnitude might not be an issue for some users. An order of magnitude less bandwidth won’t bother most users of fixed network broadband, one might argue.

The question is whether the service, and the retail packaging, can be adapted to fit the actual end user demands “most” potential buyers will have. It seems clear LTE will not be a viable choice for some users, especially those who watch lots of online video.

But “typical” users are a possibly different story. Single-user households are a different story. Nor should we automatically assume that today’s “mobile broadband” tariffs are the way future access tariffs are structured.

In other words, given a willingness on the part of LTE suppliers to create new “fixed” versions of LTE retail packages, quite a lot might be possible. FreedomPop, for example, has created both “fixed” and “mobile” versions of its wireless access service, using the Clearwire network. There is no reason in principle that such tariffs could not be created by LTE suppliers in rural areas.

That such tariffs have not yet been created does not mean they will not be created.

With some exceptions, the actual percentage of broadband users in developed markets who already use mobile broadband exclusively, in place of a fixed connection, is rather limited. A 2011 study by Ofcom, the United Kingdom communications regulator, suggests that single-digit percentages of users already are doing so, the exceptions being Italy and Austria.

In Austria, perhaps 19 percent of respondents to surveys say they are “mobile only,” while in Italy about 14 percent report using only mobile broadband. In Germany the percentage was about nine percent, while in the United States the percentage of mobile only users was about six percent.

But those figures represent 3G substitution, and will not fully reflect demand for LTE services that approach fixed network “wire speeds” in many rural markets.

We can be sure that people who stream lots of Netflix video will not be logical candidates. But that still leaves quite a lot of users for whom LTE might work. The key variables are of course typical monthly consumption and number of users on any single account.

Per person usage at the moment might range between two gigabytes a month up to about seven gigabytes a month. So a single-person account might plausibly find LTE a plausible alternative, especially at the lower ranges of usage.

But the wild card will be tariffs. If mobile operators figure out a way to offer a “fixed” alternative tariff, offering more bandwidth, but only usable within a local area, with some way to support mobile usage out of that area on a more-typical “mobile” tariff, demand could be quite substantial.

The key issues are retail packaging terms and conditions. If LTE mobile tariffs remain the “only” way to buy rural LTE, then the substitution market will be more constrained. 

But many of us would guess that will not be the case, over the longer term. Specific “fixed” services, offering usage caps and pricing more in line with fixed networks are likely. Those tariffs probably will not be identical to packages offered by fixed network operators.

They just have to be “close enough” to offer a viable commercial alternative.

Can Intel "Outside" Make a Breakthrough in Video Streaming?

If Intel can get the licensing agreements in place, and that is a tall order, consumers in some initial markets might be able to buy and stream discrete programming channels, and possibly single programs, to their TVs for the first time. That would make Intel's New IPTV service a potential game changer for the video subscription business.

The service will be provided by a new set-top box, possible Intel branded, that will feature a "cloud DVR" feature for better ease of use, as users will not have to program recording ahead of time. 

Intel Corp. has been developing an Internet-based television service that essentially would be a "virtual cable operator," presumably offering the same "bundled" approach to video entertainment as offered by cable, telco and satellite-TV operators. 

Whether Intel can convince programmers that now is the time to infuriate all the rest of their main distributors is the issue.

At stake are relationships, already testy, with cable, satellite and telco distributors who pay programmers $41 billion a year in licensing fees. Any significant deals with Intel for a streaming service would put huge pressure on those other existing relationships. 

Someday programmers will change their minds. But a rational person might argue that the time remains somewhere off in the distance. Ask yourself whether you would jeopardize a business worth billions to gain a new business of millions. 

But some argue Intel will succeed where Apple and Google have failed. We may know soon whether Intel will get a chance to try, at any rate. 

Who are Candidates for LTE Broadband Substitution?

Since major U.S. Long Term Evolution networks are still under construction in the United States, and since those builds naturally will occur first in the areas with greatest potential customers, LTE generally will be a market reality first in major and bigger market areas.

And since most people rightly assume that LTE might become a major broadband access alternative in rural areas where fixed networks are costly to build, we will soon start to get some idea of actual customer demand for use of LTE as an alternative to existing cable modem or digital subscriber line service.

Current experience with 3G substitution for fixed broadband is probably not going to be a very precise indicator of potential LTE substitution, for the simple reason that 3G is “slow,” compared to 4G. If you have used a 3G mobile connection (tethered or using Wi-Fi) as a substitute for a fixed connection, you know what I mean.

With some exceptions, the actual percentage of broadband users in developed markets who already use mobile broadband exclusively, in place of a fixed connection, is rather limited. A 2011 study by Ofcom, the United Kingdom communications regulator, suggests that single-digit percentages of users already are doing so, the exceptions being Italy and Austria. 




In Austria, perhaps 19 percent of respondents to surveys say they are “mobile only,” while in Italy about 14 percent report using only mobile broadband. In Germany the percentage was about nine percent, while in the United States the percentage of mobile only users was about six percent.

Still, those 3G figures suggest mobile executives are not wrong to think there is a substantial market for LTE broadband. The issue is how much demand, and what types of customers will be most receptive.

We can be sure that people who stream lots of Netflix video will not be the most logical candidates.

An analysis by the U.S. Federal Communications Commission suggested that, in the first half of 2009, the median (half used more, half used less) broadband user consumed almost two gigabytes of data per month.

The “average” (arithmetic mean) user consumed over nine gigabytes per month. Keep in mind that such “mean usage” is driven by a very small set of users who consume large amounts of data.

The 2009 study suggested that, overall, per-person usage is growing 30 percent too 35 percent per year. Also, keep in mind that the FCC study does not directly correlate a single person’s usage with the account details. In other words, a single user might have one access account, while a family might have three to five people sharing a single account.

So “typical” usage per account could be different from typical usage per person. As a rough metric, a typical 2.5-person household, sharing one account, might have consumed about six gigabytes a month, based on the 2009 data.

If the 30 percent annual growth rate remained intact through the end of 2012, that might imply 2014 median usage of about seven gigabytes per person, or 17.5 Gbytes per household account, using the 2.5 persons per home assumption.

Other 2010 estimates for current consumption were roughly in the same range as the 2009 FCC figures, adjusted for annual growth.  Comcast said in December 2010 that a typical user consumed about two to four gigabytes a month, far below the 250 gigabyte cap for a Comcast residential account.

That would be right in line with the FCC’s base of two gigabytes, and a growth rate of 30 percent annually.

About the same time, AT&T said its typical user (account, so that in many cases is a multiple-person household) of fixed high speed access consumed about 18 Gbytes a month. Assuming that figure also is for a 2.5-person household, per-person consumption would be about 7 Gbytes per person.

Per capita data consumption was in 2010 about 10 Gbytes a month, by some accounts, in France, the United States and Canada. Consumption per capita was more like 33 Gbytes a month in South Korea, but below nine gigabytes in many other countries. But those are arithmetic averages, and less accurate than the “mean” figure would show.

Actual data consumption for most users of fixed network broadband is not all that high, in other words.

Granted, the “typical” consumption tends to increase over time. In fact, it is not hard to find predictions that per person data consumption on fixed networks will exceed or approach 35 Gbytes by about 2015. Keep in mind those “per person” estimates are not necessarily directly related to “households or accounts,” though.

But the ability to substitute LTE mobile broadband for fixed network access hinges significantly on the “mean” usage. Though it once was difficult to buy (in the U.S. market) a mobile broadband plan of 5 Gbytes, those plans now routinely are available up to about 10 Gbytes.

Mobile broadband is more expensive than fixed broadband, on a cost per gigabyte, but the ability to substitute does exist, for at least some users who are at or below the “mean” levels of use.

Leaving aside cost, at least for the moment, it does seem feasible for a user to substitute LTE for a fixed connection in a single-user household that routinely consumes data at about the mean, or below the mean.

Multi-person households might find the substitution more challenging and heavy online video users will likely find substitution technically impossible or too costly, compared to a fixed connection of some sort.

On the other hand, some users at the mean, or below it, might opt for substitution in cases where the local fixed network is slower than LTE. How fast the user experience really is will vary from place to place.

In some areas, LTE might provide 3 Mbps to 6 Mbps. In other areas, speeds between 15 Mbps and 30 Mbps might be seen.

What that means for real-world customers is that the decision to substitute LTE for fixed broadband will depend on how much data the account must support, the available local speeds, the price equation and the number of users on a single account (assuming the buyer will use Wi-Fi for local distribution).

The most logical candidates are consumers who already rely on smart phones, are single-user accounts and at the mean, or below it, in terms of consumption. The most challenging use cases will be moderate online video consumers.

Heavy online video users will find the substitution opportunities very challenging. That also means the patterns will not be clear for some time. In the meantime, there will be experimentation, and a fair amount of customer churn, as users decide to try and see if it works.

Email Has Gone Mobile

Since 2011, the share of email opened on a mobile device has surpassed email opened on a desktop client or using web mail, Litmus says. That is just one indicator of the role mobility has grown to assume in just a year's time. 

In June 2011, about 53 percent of email was opened on a desktop machine. By February 2012, just eight months later, mobile and desktop email openings were about equal. 

Can Intel Web-Based TV Service Do What Nobody Else Has Done?

Intel Corp. has been developing an Internet-based television service that essentially would be a "virtual cable operator," presumably offering the same "bundled" approach to video entertainment as offered by cable, telco and satellite-TV operators. 

Some believe the venture will launch, or at least be announced, in January 2013 at the Consumer Electronics Show.  Whether program suppliers are any more willing to license their key programming assets to Intel remains to be seen. 

Intel is trying to provide a sort of "beta test" environment by introducing the service "city by city," rather than nationally. Whether Intel can convince programmers that now is the time to infuriate all the rest of their main distributors is the issue.

At stake are relationships, already testy, with cable, satellite and telco distributors who pay programmers $41 billion a year in licensing fees. Any significant deals with Intel for a streaming service would put huge pressure on those other existing relationships. 

Someday programmers will change their minds. But a rational person would argue that the time remains somewhere off in the distance. Ask yourself whether you would jeopardize a business worth billions to gain a new business of millions. 

That isn't to say you would make the same decision if the choice were "a new business worth billions" to replace a "declining business worth billions." But nobody thinks that is today's choice. 

So it remains to be seen whether Intel will have more luck than the others who have tried, even if Intel tries a subscription model featuring whole channels and not an "on-demand" model that allows consumers to buy single shows or programs, single channels or single genres.

While Intel might like to do so, it is doubtful programmer thinking has changed on those subjects. 

Time Warner Cable Takes Tough Line on Programming Costs, But How Important is Video, Anyway?

For an industry known as "cable television," the notion that "television" is becoming steadily less important is a bit of a shock, at least in one sense.  Television revenues are shrinking as a percentage of total revenue as new sources, such as broadband access and voice services, continue to grow. The latest driver of growth, if not yet gross revenue, are business services. 

Video still drives a big chunk of revenue, though, as does voice for most telcos. But cable is losing subscribers. And since volume affects profit margins (fewer subscribers means higher per-unit costs), that means the business case is under pressure. 

Of course, for their own logical business reasons, programming networks find they have to invest more in original programming, which is highly expensive and results in demands for higher payments from cable operators. 

That means a more-intense negotiating environment than traditionally has been the case. 

Time Warner Cable and AMC Networks have temporarily extended a carriage agreement for AMC's We TV and IFC channels ahead of a midnight deadline, to allow time for contract renewal talks to continue. 

To be sure, tough contract negotiations are nothing new for the cable TV industry. It is not uncommon for deals to be reached at the last moment, or even only after some period of lapsed carriage, when channels actually go dark.

But those traditionally tough negotiations now occur in a new environment. First of all, demand for the basic product suffers from steady erosion of share to satellite and telco competitors. Also,  there is growing concern within the industry that the product simply is becoming too expensive for many would-be buyers. 

And since programming contract discounts are based on volume, lower volume means higher prices, all other things being equal. 

There also is another argument, though. Strategically, revenue growth in the U.S. cable industry is no longer driven by video entertainment at all, but by data and voice services, especially services aimed at the business market.

As the proportion of revenue earned from the new sources continues to grow, cable operators might arguably gain more leverage, eventually. 

Consider Comcast, the largest U.S. cable TV company. Comcast now relies on its core legacy service, video entertainment revenues, for about 33 percent of total revenue. 

Comcast has done so in large part by becoming a programming supplier in its own right, as it now owns 51 percent of what once was known as NBCUniversal. And make no mistake, NBCUniversal executives think their programming is undervalued, and plan to press for higher prices.

How Time Warner Cable could get to similar levels now becomes the issue. Oddly enough, Time Warner Cable once was a fully-owned division of Time Warner, and was spun out as a public company in 2009. 


In its second quarter 2012 earnings report, Time Warner Cable earned about 57 percent of its revenue from legacy sources (video entertainment subscriptions and advertising). 

So 42 percent of revenue earned from "new" sources other than video entertainment. And many would note that economics of the broadband business are better than those of the video entertainment business. 

In fact, many would say the incremental cost of providing high-speed access ranges between three percent and six percent of revenue at the largest firms, not including the cost of network upgrades to provider higher speeds. 

Excluding the impact from acquisitions, residential services revenue growth was primarily driven by an increase in high-speed data revenues, partially offset by a decline in video revenues, Time Warner Cable says.

Time Warner Cable lost 169,000 video subscribers during the quarter.

The growth in residential high-speed data revenues was the result of growth in high-speed data subscribers and an increase in average revenues per subscriber (due to both price increases and a greater percentage of subscribers purchasing higher-priced tiers of service), Time Warner Cable says.

Residential video revenues decreased driven by declines in video subscribers and revenues from premium channels and transactional video-on-demand, partially offset by price increases, a greater percentage of subscribers purchasing higher-priced tiers of service and increased revenues from equipment rental charges, Time Warner Cable also reported.

Residential voice revenues remained essentially flat as growth in voice subscribers was offset by a decrease in average revenues per subscriber.

How Soon Will Video Join Voice and Messaging as a Declining Service?

Sooner or later, every legacy service offered by cable TV or telco service providers will face competition from rival services or simply dwindling demand. Up to this point the material impact has been seen most clearly only in voice, where serious financial losses have been felt for more than a decade. But disruption now is being seen in the text messaging space as well.

Globally, telecom revenue is growing. But not in Western Europe, it appears. The mobile industry’s combined revenues from voice, messaging and data services in the EU5 economies (United Kingdom, France, Germany, Spain and Italy) will drop by nearly 20 billion Euros, or four percent a year, in the next five years, and by 30 billion Euros by 2020, according to STL Partners.

The obvious implication is that mobile service providers in the United Kingdom, France, Germany, Spain and Italy will have to create new revenue streams worth 30 billion Euros, just to stay where they are, by 2020.

Though the trend is not always quite so obvious in the U.S. and Canada telecom markets, erosion of fixed network voice lines is assuming alarming proportions in some markets, including the United Kingdom.  

Some 65 percent of 500 U.K. chief information officers surveyed by Vanson Bourne on behalf of Virgin Media Business believe fixed network telephones “will disappear from everyday use within five years,” Virgin Media Business says.

Separately, analysts at STL Partners estimate that, with 2009 representing an index point of 100, U.K. fixed network voice revenues will have shrunk by 50 percent by 2014. Keep in mind, that is an estimate that use of fixed network voice lines will be cut in half in just five years.

The latest report on U.S. fixed network voice connections by the Federal Communications Commission suggests that voice connections declined three percent between June 2010 and June 2011.

Sooner or later, video entertainment services will hit a wall as well, and the price-value relationship is the problem. Every January, it seems, providers of video entertainment raise their prices, typically outpacing the rate of inflation.

For the most part, that remains the case for 2013.

DirecTV plans to increase the prices of its programming packages by an average of 4.5 percent, starting Feb. 7, 2013, a move DirecTV attributed to  higher programming costs.

The company said the programming costs it pays to owners of television channels will increase about eight percent next year, the Wall Street Journal reports.

Dish Network will increase the price of its core TV bundles between seven percent and 20 percent in January 2013, with most packages rising $5 a  month.

AT&T U-verse prices also are going up in 2013.

In 2012, Comcast, DirecTV and AT&T  raised rates as well. If nothing changes, NPD expects the average subscription video bill to reach $123 by 2015 and $200 by 2020.

Bernstein Research analyst Craig Moffett points out that, over the last five years, programming costs at DirecTV have risen 32 percent, for example.

But perhaps more importantly, those increases are accelerating, with costs rising upwards of 10 percent year-over-year. "This is a train wreck in the making," says Moffett.

Some programmers point the finger at ESPN and the other sports networks. ESPN says its prices are justified by the high ratings the network gets. Some might say sports programming constitutes as much as half of all programming expenses.

But prices, in relationship to value, are becoming a bigger problem.

Can the Cable Industry Save Itself?

Sometimes an industry seemingly is incapable of saving itself. Some might say the video entertainment business could be among them. The issue is less the long term future, where consumers increasingly have the ability to buy what they want, item by item, and more the intermediate period, where rising costs might encourage quite a few consumers to stop buying.

To be sure, it is hard to see much material impact from “video cord cutting” so far.

Though some would say there is clear evidence of “cord shaving,” where customers drop premium services even while keeping “basic” video services, most “hard numbers” (subscriber counts, for example) suggest that abandonment fo video services remains a potential threat, but is not a clear present danger.

But even cable operators know that costs are rising at dangerous rates, and will make the product less attractive. Speaking about the problem of sports programming costs that threaten to undermine consumer appetite for the video entertainment product, Liberty Media CEO John Malone said it “might be time for the Federal Communications Commission or Congress to step in.”

“The only way it is going to change in the short run is for government to intervene,” Malone said.

If you know anything about Dr. Malone, you know what a truly astonishing statement that is.

Lots of observers think video subscription costs, and especially sports network costs, are out of control.

But when a legendary industry executive and notable opponent of government regulation says something like that, you know something profoundly important is going on.

Malone is warning that the business faces big trouble, and might not be able to save itself without direct intervention by regulators or Congress to restrain programming costs. Of course, it also should be noted that Malone calls for regulators to restrain programmers, not distributors.

But Liberty Media has stakes in both programming and distribution, so the observation is not the sort of “help my business, and hurt the other guy’s business” talk one often hears in troubled industries.

Of course, over the longer term, Malone seems to agree that the business will be changed, in any case.

"People will watch and pay for what they want, it is kind of inevitable," he said. In essence, that could undermine much of the business model for subscription video services. It remains possible that today’s video entertainment suppliers remain key distributors, but perhaps more along the lines of Netflix.

But whether those changes will be good for all distributors or programming suppliers is the issue. A reasonable person would argue that programmers will not be able to charge as much as they can at present, if users are able to buy what they want, and only what they want.

Nor, one might argue, will distributors make as much money, either. If consumers can buy direct, and save money, they will.

Some distributors, ranging from Time Warner Cable to Dish Network have made efforts recently to begin dropping networks, moves intended to send signals to programmers that the days of ever-climbing programming costs are coming to an end. 

Even the head of the major U.S. cable trade industry association says there is a growing threat of regulator intervention if the industry cannot restrain price inflation.

One wonders whether the industry can save itself.

If January is Coming, So are Video Subscription Price Hikes

Every January, it seems, providers of video entertainment raise their prices, typically outpacing the rate of inflation.

For the most part, that remains the case for 2013.

DirecTV plans to increase the prices of its programming packages by an average of 4.5 percent, starting Feb. 7, 2013, a move DirecTV attributed to  higher programming costs.

The company said the programming costs it pays to owners of television channels will increase about eight percent next year, the Wall Street Journal reports.

Dish Network will increase the price of its core TV bundles between seven percent and 20 percent in January 2013, with most packages rising $5 a  month.

“As an industry we have seen increases in double-digit percentages,” said Dish spokesman John Hall. 

AT&T U-verse prices also are going up in 2013. 



In 2012, Comcast, DirecTV and AT&T  raised rates as well. If nothing changes, NPD expects the average subscription video bill to reach $123 by 2015 and $200 by 2020.

Bernstein Research analyst Craig Moffett points out that, over the last five years, programming costs at DirecTV have risen 32 percent, for example. 

But perhaps more importantly, those increases are accelerating, with costs rising upwards of 10 percent year-over-year. 

"This is a train wreck in the making,"  Moffett has said. 

Dynamic Pricing Rankles Some, but it is Just Supply and Demand

SideCar, a peer-to-peer instant ride-sharing app, plans to double its suggested donations for drivers on New Year’s Eve, effectively instituting “surge pricing.”

Uber, a similar service, used dynamic pricing in 2011, on New Year's Eve. The practice will bother some, but in principle it is simply a way of matching supply and demand. Some will say it borders on price gouging, or is, in fact, price gouging.

It's hard to say where the boundary between "gouging" (with its implication that a supplier is taking unfair advantage of buyers) and "supply and demand" (the price of a scarce commodity will rise when demand rises and supply is fixed) lies, but supply and demand fluctuations are a reason why prices for virtually any product tend to shift up or down.

Communications service providers tend not to have such flexibility, in part because regulators will only tolerate so much fluctuation, in part because users tend to prefer fixed and known pricing, even when their usage might vary, and in part because the ability to dynamically price communications products at the retail level is not always possible (rating systems or billing systems might not be able to do so).

Up to this point, service providers have used a simpler "differentiated" pricing scheme, the perhaps-classic example being pricing of voice calls on mobile phones. International calling is most expensive, domestic calling tends to be modestly priced while calling during off-peak periods (evenings and weekends) can be nearly or virtually "free."

Some might suggest that "congestion" pricing (bandwidth becomes more expensive at times of high demand) is a similarly beneficial way to match supply and demand on broadband access networks.

"Value" pricing is another concept that incorporates supply and demand dynamics, but also seems to provoke opposition from some who think it is another form of gouging.

Any number of observers have speculated or argued for "innovative" pricing models for broadband access services, with some arguing for  "value-based" pricing. Some might argue mobile service providers are using Long Term Evolution to shift in that direction.

Based on a survey of 65 mobile operators offering LTE services, about half "have used the deployment of LTE as an opportunity to introduce a new form of pricing for mobile broadband services."

The new strategy, which supersedes the earlier unlimited data model, uses download/upload speeds as well as data allowances to differentiate on price, says Wireless Intelligence.

The speed-based tariffs are most common in Europe, where 90 percent of mobile service providers surveyed offer them. These tariffs are less popular across the Middle East, Asia Pacific and Africa, and least prevalent in North America and Latin America.

That’s a step in the direction of using tariffs that match service features in a more-differentiated way, even if not such a major step towards dynamic pricing.

Malaysia to Subsidize Smart Phones for Youth to Encourage 3G Use

One basic "rule" of economics is that consumption of any product or service for which there is demand can be increased by lower prices. And that is what Malaysia will do to encourage younger users to ditch their 2G feature phones for 3G smart phones.

The Malaysian Communications and Multimedia Commission, as part of its "Youth Communications Package," will subsidize  (MYR 200 or ($65 US) purchases of 3G smart phones costing no more than MYR 500 ($163 US).

The idea is to encourage use of mobile broadband and encourage youth in rural areas to get connected.

The rebate is available for buyers earning less than RM 3,000.

According to the MCMC, 89.6 percent of users polled earn less than RM 3,000. And some 87.3 percent of mobile users surveyed are still using basic or fearture phones without smart phone capabilities.

The rebate is also only allowed for Malaysians between the ages of 21 and 30.

Internet is Splintering, Irrespective of ITU Decisions

Is the Internet splintering? The question has been relevant for parts of the last decade, and some observers might argue there are reasons why a fragmentation of the Internet could happen, or has already happened.

One recent development--an International Telecommunications Union conference that many see as leading to government censorship of content--illustrates the issue.

Some argued strongly that allowing governments to control and censor content could spit the Internet into two parts: One free and open one, the other closed and censored, depending on which country you are in.



But such legitimate concerns also have other somewhat more logical drivers as well. One might argue that even when any human being can communicate with any other human being, the original and still most-powerful value of the Internet, as a practical matter, users are functionally self-segregated, most of the time, by shared language, culture, economic relationships, friendships, application preferences, devices, operating systems and so forth.

In fact, one might argue that the formation of communities, which does not conflict with the "any to any" nature of the Internet, itself creates practical and self-chosen "islands."



In other words, although it is important that "anybody can connect with anybody else," as a practical matter people communicate and share with a fragment of all Internet users. And there are powerful commercial reasons for doing so, as the notion of an "Internet platform" suggests.

That does not mean a free and open Internet is incompatible with use choices to self segregate. The former is the capability that allows the latter. The point is that legal (de jure) Internet freedom has the logical corollary of a tribalized (de facto) use of that fully open resource.

Yes, the Internet should remain an "any to any" medium. But people will naturally form communities on a voluntary basis. Formal limits on the "any to any" communications function are harmful.

But on a practical level, people will voluntary fragment their use of the Internet. In that latter sense, the Internet will inevitably lead to "fragmentation," in the sense of people forming voluntary communities.

Dish Challenges Softbank Purchase of Sprint

As expected, Dish Network is raising public policy questions about the wisdom of the Federal Communications Commission approving the SoftBank investment in Sprint. 

The raising of such objections is not unusual whenever a material event occurs that one or more contestants believes will be, or could be, harmful to its own financial interests, irrespective of any larger public policy interests. 

In the case of Dish, which plans to launch its own Long Term Evolution fourth generation (4G) network, the SoftBank purchase of Sprint allows Sprint to create its own LTE network faster, and to use much more of Clearwire's spectrum assets. 

A stronger Sprint means a stronger competitor to Dish, which will need to get traction in the highly-competitive LTE and mobile markets rather quickly, and will likely face Sprint as a major competitor in the "value" segment of the market.  

Dish wonders in a formal filing to the FCC whether a foreign company should "control more spectrum below 3 GHz than any one other company in the United States?"

Dish asks whether Sprint staggered its acquisition of Clearwire "in two steps in an effort to avoid  meaningful Commission review?" 

Dish also raises the question of whether the FCC needs to look at the competitive implications of the changed spectrum ownership. 

Some of the potential objections are procedural, some relate to evaluating the impact of the merger on market competition and some raise "foreign ownership" or broader "fair trade" issues.

The filing of such comments is a normal and expected part of the review process. A similar flurry of comments and questions were raised by competitors who objected to AT&T's bid to buy T-Mobile USA. But virtually every proposed FCC action will have consequences for contestants in some section of the communications business, and that always leads to filing of comments.


Even apparently "operational" issues, such as the accuracy of maps, can be the subject of serious filings with the Commission. The reason is that those maps play a role in helping the FCC determine where to allocate support for rural broadband. 

Contestants who want to stave off funding for competitors will try to point out that a particular area is in fact not "under-served," and therefore the local telephone company does not need more support. Telcos, on the other hand, have a vested interest in proving an area is under-served, and furthermore that the telco is the best recipient of the funding.