Percentage of Portential Video Cord Cutters Less Important than Widespread Adoption of the Behavior

In the past, 10 percent adoption of any new technology is an important milestone, as it tends to represent the inflection point, when adoption of some new innovation accelerates. Observers of technology adoption might say that happens because people adopt new technologies when somebody they know has done so.

But it also often is the case that it takes time for people to learn how to use a technology. Some would say a disjuncture between spending on new technology and measurable productivity gains can happen because the value of important new technologies often requires a redesign of business processes, not the automation of older practices.

One might also argue that technology sometimes leads to a change in consumer behavior only when a reasonable substitute product is available, and people have learned how to use the product or process.

Adopting a new technology is similar to  any other kind of investment, economists might argue. As in the case of the investment decision, the adoption of new technology entails uncertainty over future profit streams, irreversibility that creates at least some sunk costs and the opportunity to delay.

In other words, people can make a rational decision to delay adoption until it is clear of the value, and value outweighs the costs of acquiring and using the new technology.

If adoption of a technology requires complex new skills, and if it is time-consuming or costly to acquire the required level of competence, then adoption might be slow, in other words. 

In the case of online video, one might note that the investment in terminals (smart phones, tablets, PCs) already has happened, or is happening. So is the level of user familiarity with the process of finding and consuming online video.

In some ways, that is characteristic of consumer use of online video delivery, and the substitution of online video for traditional subscription TV.

In many ways, we are in a pre-adoption phase, in part because content owners will not support full online delivery of all content currently available as part of a video subscription. But what is happening is that people are learning to use the Internet, their PCs, smart phones and other devices as familiar ways to get and view entertainment video.

The point is that the habits necessary to underpin a massive change in business model are being created, little by little.

That is why the current, slow shift of some consumers to abandon traditional subscriptions is not the most important trend. What is more important is users gradual habituation to consumption of online video.

To be sure, willingness to consider video “cord cutting” is increasing, according to an analysis by Frank Magid Associates.

Magid says 2.7 percent of subscription TV customers say they are “thinking” about cutting the cord in the next year. That’s up from 2.2 percent a year ago, and 1.9 percent in 2011.

Skeptics will not those are relatively small percentages, and that more people “thinking” about cord cutting is nearly always less than the number of people who will actually do so.

That arguably is less important than the fact that people widely are becoming accustomed to finding and viewing entertainment video on smart phones, tablets and PCs.

More than half of the might-be-cutters say they would do consider video cord cutting because they get enough video to keep them happy via outlets like Netflix, Hulu and Apple’s iTunes, Magid says.

More than half also say they would do so for economic reasons. That further suggests there is latent demand for other ways to consume more-affordable video entertainment.

Either way, there is a growing sense that the value-price relationship is growing unattractive, for more people.

As you might guess, the study suggests 4.4 percent of 18-to-34-year-olds are thinking about cutting the cord, a higher than average finding.

Sports enthusiasts, as you also might guess, are less likely to say they’ would consider abandoning their video subscription.

Other studies also suggest who might guess is the case, namely that users who now have learned to rely on Internet video are more likely to say they would consider cord cutting.

According to a Diffusion Group study, 8.8 percent of adult broadband users with an Internet-connected TV and traditional video service report being highly inclined to cut the cord in the next six months. That compares to 3.5 percent of adult broadband users with video service who don’t use a connected TV.

AT&T "Open" to European Acquisitions

Major bouts of communications industry consolidation tend to occur in waves, often when regulatory and financial conditions are favorable, and when major competitors make major moves that realign market share. 

Some would say European regulators are signaling receptivity to more mergers, financial markets are signaling that money is available, and Verizon and Vodafone have made the first big move.

In the U.S. market, Sprint and T-Mobile US have made significant moves, though AT&T has been denied the chance to make a move of its own in the domestic market. That only makes European or other acquisitions more attractive, as expansion on a major scale among the four leading national mobile suppliers seems unfavorable, on the regulatory front. 

AT&T CEO Randall Stephenson also notes that Verizon's recent ability to sell $49 billion in bonds, to help fund its purchase of the balance of Vodafone's stake in Verizon Wireless that Verizon did not already own, shows there is capital available to fuel acquisitions. 

The bond offering was "eye opening," Stephenson said. "It allows you to think differently about things, different than you might have thought three weeks ago."

Some might look at revenue trends in the European mobile market and see weakness, as revenue seems to decline every year. But AT&T believes it could reverse that trend by investing more in Long Term Evolution 4G networks and thereby raise revenue, as it has seen is possible in the U.S. market. 

Major acquisition windows that rearrange markets do not open very often. When they do open, contestants need to move before the windows close again, as they will.

Separately, Telefonica will boost its stake in Telco, the holding company that controls Telecom Italia, to an initial 65 percent with an option to bring the stake to around 70 percent, according to Reuters.

Telefonica already own 46 percent of Telco, representing in turn about 10 percent of Telecom Italia shares. Telefonica says It will boost its stake in the Telecom Italia to nearly 16 percent.

Telefonica is set to acquire its additional shares from the other Telco shareholders, including Italian banks Mediobanca, Intesa Sanpaolo,  and insurer Generali.

That move might well be viewed as part of a coming merger wave in the European telecom market.

T-Mobile CFO Says Merger with Sprint Could Happen

T-Mobile US Chief Financial Officer Braxton Carter he expects  more consolidation in the U.S. mobile market, and some would say any significant further consolidtion could only mean a merger between T-Mobile US and Sprint.

Many observers would say that is not an immediate or even medium-term prospect, as U.S. antitrust officials believe the U.S. market already is too concentrated, and requires four competitors. 

Since 1991, most countries already have seen consolidation of suppliers in their mobile markets. 

AT&T Believes Economics of Gigabit Access Networks Increasingly "Look Good"

AT&T has said it will build 1-Gbps access networks in Austin, Texas, though some would say the specifics are lacking. That will  not surprise too many observers who follow the ISP business closely. 

No incumbent with a decent business selling access at about $3 to $5 per Mbps would be foollish to prematurely risk dropping those prices in a major way. 

And though many will criticize the language as not serious, AT&T CEO Randall Stephenson now says about gigabit access networks, at least in some cases, that "the cost dynamics look good, the revenue implications look good, the market implications look good, so you're going to see more of this over time and I fully expect you'll see us doing markets like this over the next few years."

Skeptics will say AT&T simply isn't serious. Optimists might be encouraged that revenue and cost implications are being looked at it a serious way, and that AT&T recognizes it has to look seriously at whether upgrades of more networks to gigabit speeds are feasible. 

AT&T Wants to Create Multicast Video Delivery Service

It isn’t clear what applications and revenue models would support any new multicast networks using 6 MHz of spectrum (up to 12 MHz in many markets) using the LTE-Broadcast protocol, but AT&T aims to find out.

By way of reference, 6 MHz is enough bandwidth to multicast one high-definition TV stream, or perhaps four standard-definition video streams, or any number of less data intensive test and image information streams.

What probably won’t work is some sort of video service on the model of cable, satellite or telco TV, as there simply isn’t enough bandwidth available, with one obvious sort of exception: the Super Bowl, streamed live to mobile phones.

Beyond that example--high value, highly-viewed events--the ultimate business model likely would be based on some sort of localized datacasting (to mobile users at a major live event of some sort) or other high-value content of interest to users.

AT&T is not the only firm that has been thinking about use of mobile networks as the foundation for video entertainment delivery.

Many observers might argue that Dish Network’s plans for Long Term Evolution would rely, to some significant extent, on delivery of video entertainment. That could take several forms, giving Dish its own facilities-based way to supply paid-for broadband access (mobile or fixed), and then the ability to create a national video streaming service over the top of the access connection.

The spectrum AT&T plans to use originally was used by Qualcomm to support its now-shuttered MediaFLO service.

60% of U.S. Mobile Phone Users Access Internet from Their Phones

About 60 percent of all U.S. mobile phone users make use of their devices to access the Internet, according to the Pew Internet and American Life Project. 

Fixed Broadband Prices Have Dropped 82% Over 5 Years

Over the past five years, fixed broadband prices as a share of gross national income per capita have dropped by 82 percent, the ITU says.

In 2012, fixed broadband services remained expensive, though, accounting for 30.1 percent of annual monthly incomes in developing countries, compared to just 1.7 percent in developed countries), By the end of 2013, there will be more than three times as many mobile broadband connections as there are conventional fixed broadband subscriptions, according to the  International Telecommunications Union’s State of Broadband Report.

In 2012, the number of developing countries where broadband cost less than five percent of annual income remained the same as in 2011, at a total of 48.

In 22 developing countries, prices ranged up to two percent of average income, while in 26 countries prices were between two percent and five percent.

The point is that people can afford broadband when it costs less than five percent of their annual income. That implies that fixed broadband access is unaffordable for 3.9 billion people, and mobile broadband is unaffordable for over 2.6 billion people around the world.

The number of developing countries where broadband cost between five percent and 10 percent

of average income has increased from 15 in 2011 to 24 in 2012, the ITU says. In 18 developing countries annual cost is between five percent and eight percent of annual income, while in six countries broadband cost is between eight and 10 percent of annual income.

In 49 economies in the world, primarily developed economies, broadband access in 2010 cost less than two percent  of average income.

This compares to 32 economies in the world in 2010 where broadband access cost more than half of average national income.

In 2010, there were 35 developing economies (out of 118) where broadband access cost less than five percent of average monthly income, up from 21 two years earlier.

Current ITU development goals include a target of entry-level broadband services, available at less than five percent of average monthly income, in developing countries by 2015.

By the end of 2013, the number of broadband subscriptions in the developing parts of the world will exceed the number of broadband subscriptions in the developed regions of the planet for the first time, the ITU also notes.

Licensed spectrum has underpinned the growth of the mobile industry and remains essential, unlicensed spectrum (Wi-Fi, primarily) has become an important part of the way people get access to the Internet.

Other forms of spectrum sharing also are starting to get attention.

Mobile broadband also is the fastest growing technology in human history, according to the ITU.

By the end of 2013, the ITU predicts there will be 2.1 billion mobile broadband subscriptions in use, equivalent to one third of the total number of mobile cellular subscriptions in service globally. In 2011, mobile broadband was used by 20 percent of mobile customers.

Morgan Stanley estimates that the number of unique smart phone users is around 1.5

billion in 2013, with smart phone subscriptions estimated to exceed four billion by 2018. Mobile broadband is projected to reach seven billion subscriptions in 2018.

Mobile broadband subscriptions, which allow users access to the Internet from their smart phones, tablets and WiFi-connected laptops, are growing at a rate of 30 percent  per year, the ITU says.

Telefonica to Own Most of Telecom Italia

Telefonica will boost its stake in Telco, the holding company that controls Telecom Italia, to an initial 65 percent with an option to bring the stake to around 70 percent, according to Reuters.

Telefonica already own 46 percent of Telco, representing in turn about 10 percent of Telecom Italia shares. Telefonica says It will boost its stake in the Telecom Italia to nearly 16 percent.

Telefonica is set to acquire its additional shares from the other Telco shareholders, including Italian banks Mediobanca, Intesa Sanpaolo,  and insurer Generali.

The move might well be viewed as part of a coming merger wave in the European telecom market.

AT&T, Fon Sign Roaming Deal

AT&T and Fon, the Spain-based network of user-contributed Wi-Fi hotspots, now have a Wi-Fi network roaming agreement that allows users of Fon and some AT&T customers Wi-Fi access privileges on both networks.

AT&T customers can download the WiFi International App will gain access to hundreds of thousands of FonSpots internationally.

The AT&T Wi-Fi International App, which is available on iPhone, iPad and Android devices, lets AT&T customers on either the 300 MB ($60 a month) or 800MB ($120 a month) “AT&T Data Global Add-On” package access up to 1 GB of Wi-Fi each month at no additional charge.

Fon members will gain access to AT&T’s Wi-Fi network, including more than 30,000 hotspots at restaurants, hotels, bookstores and retailers throughout the United States.

An observer might be tempted to guess that Fon users will derive more value from the agreement than will AT&T users, for a couple of reasons, beginning with charging models.

Foneros have a couple of ways to gain access to other Fon hotspots, but the cost is free to low. That will not be the case for AT&T customers, who will spend at least $60 a month, and up to $120 a month, to gain access to Fon hotspots in countries where Fon operates.

Those partners include Belgacom (Belgium), BT (UK), Deutsche Telekom (Germany), Hrvatski Telekom (Croatia), KPN (Netherlands), MTC (Russia), Netia (Poland), Oi (Brazil), SFR (France), Softbank (Japan) and ZON (Portugal).

Still, the roaming deal is likely to be most valuable to a rather small but important subset of AT&T users, namely those who travel to Fon-served areas, especially business users.

The important nuance about Wi-Fi hotspot use is that the overwhelming percentage of smart phone Wi-Fi use happens on private hotspots, not public hotspots, even though, with very few exceptions, such as Japan, users in most developed countries consume well over 80 percent, and often over 90 percent, of their total mobile data on Wi-Fi networks.

According to researchers at Juniper Research,  almost half of all mobile data traffic will be offloaded to Wi-Fi and other local networks in 2013.

The bigger question is how much "out and about" usage might be shifted to Wi-Fi.  

NTT in Japan has tested the offload potential of dense Wi-Fi deployments and apparently has concluded that less than 25 percent of mobile data traffic can be offloaded to public Wi-Fi in the long term.

On the other hand, Mobidia already estimates a majority of total smart phone data usage occurs on Wi-Fi, for all of the top-four U.S. mobile operators, with AT&T having the largest percentage of Wi-Fi use, compared to mobile data.

So though Wi-Fi networks consistently accounted for well over 90 percent of the Wi-Fi traffic, according to Mobidia, perhaps three percent of that traffic used a public hotspot.

In other words, use of managed, public hotspots, as would be offered by Wi-Fi network providers (such as Fon) or mobile operators (such as AT&T), consistently accounts for very little traffic across all countries analyzed by Mobidia.

People make use of at-home and at-work connections, mostly. Even when traveling, it is likely most people will be using hotel or other residence-based Wi-Fi for the great bulk of their data consumption.

Still, the value of public hotspot access could be very high for some AT&T users.

The deal also illustrates the Wi-Fi revenue model and value, for a firm such as AT&T. Access to the Fon network requires that mobile users purchase an extra international data service costing $60 a month or $120 a month.

The use of the Fon hotspots provides value by allowing users to offload up to 1 Gb, each month they are roaming, but the revenue is driven by the need to buy the extra international roaming feature. 

Australia NBN Making Course Correction to Save $56 Billion

Australia appears to be making a switch of access topology for its planned National Broadband Network from “fiber to the home” to “fiber to the neighborhood.”

It appears most of the Australian National Broadband Network company's board members have tendered their resignations, at the request of the Communications Ministry.  NBN Company chairwoman Siobhan McKenna and all but one of her board colleagues have offered their resignations to the Communications Ministry.

The reason is that the new national government campaigned, in part, on a promise to get the network built faster, at far lower cost.

The change to a less fiber-intensive network is said to represent a final cost of A$20.4 billion (US$18.4 billion), well below the A$38 billion ($33.8 billion) originally stimated for the fiber to home plan, and far less than the $94 billion critics now say the former network would cost.

Some critics estimate that the Australian National Broadband Network (NBN) will cost A$94 billion dollars, not the A$44 billion its supporters have claimed. At least in part, that is because

of delays of several types and overly-optimistic assumptions.

The original business plan assumes wholesale revenue will start at $22 per month and then climb to $62 by 2020 or 2021 when the NBN is finished. That is growth of nine percent a year beyond inflation. Other major ISPs might say average prices for Internet access do not climb more than nine percent a year.

So critics say revenue projections are wildly overestimated.

Another assumption is that construction costs will average about $2400 per location. Critics say the actual cost will be closer to $3600. The cost and revenue assumptions also are contingent on completing the project on time, and so far the project has encountered significant delays.

The NBN Co. claims it already is connecting locations for $2200 to $2500. Critics say those are costs for the easiest builds, and will not reflect average cost as the more difficult locations are tackled.

Some supporters argue there will be a learning effect, driving costs down over time. But several contractors have pulled out of their deals with NBN Co. because they cannot do the installs for the prices NBN says it is paying.

NBN Co had expected to have 566,000 active users by June 2013. It managed to sign up just 33,600.

Some have argued the operating risk is high as well. Among the key assumptions of the fiber to home plan are that 30 year incremental rate of return will be seven percent (7.1 percent) on a capital investment of $35.9 billion through 2020, based on wholesale access rates between $20 and $27 a month.

The current forecast calls for about 44 percent take rates in 2015.

Revenues to 2021 are forecast at $23.1 billion, with operating expense expected to be

$26.4 billion.

The latest version of the original business plan does suggest that the actual direct financial return from a fiber to home access network, built on a continental scale, is relatively small, despite its societal and economic importance.

With a seven percent incremental rate of return, over a 30 year period, a reasonable observer might simply note that there is little room for error where it comes to the base assumptions.

Rights to Supply TV Series to Support "Binge Viewing" is Part of Long-Term Video Trend

Video consumption has been moving steadily towards on-demand, non-real-time modes for  several decades. One might be tempted to say it was the availability of video on demand that has driven the trend, but cable, satellite and telco pay per view and VOD usage rates are relatively low, and always have been, in comparison to other video products and revenue streams.

The U.S. PPV and VOD market is a low single digit billion size market, compared to a U.S. video subscription service (cable, satellite, telco) annual revenue stream in the neighborhood of $90 billion.

In fact, VCR, DVD and Blu-ray players drove the rise of on-demand viewing, using physical media, while Netflix and others are driving the shift to streaming.

The point is that the direction of video entertainment consumption is towards “on demand” modes. YouTube, Hulu, Amazon Prime, Netflix, mobile video, TV Everywhere, even “binge viewing” all are examples of that trend.

Almost by definition, those changing modes of consumption create the possibility that leading providers in the video entertainment business can change their shares of market.

To be sure, the historical record suggests new technology creates new modes of consumption, and consequently new revenue models, virtually always driven by changes in consumer demand.

In the near term, one additional change is consumer appetite for “binge viewing” of TV series content. Where in the past distributors have relied on the pull of a popular series to keep viewers coming back to a network, Netflix has pioneered the concept of binge viewing of multiple episodes at a time, or even a whole year’s worth of episodes over a weekend.

Until now, Comcast and other pay-TV providers have generally offered four or five episodes of a current show on a rolling basis, with an older episode dropping off the on-demand menu as a new one is added. Under the new arrangement, every episode will be available after it airs all season.

Now cable TV operators are trying to get rights to offer TV series content in ways that allow customers to binge view. That is viewed as a way to shift viewer attention and increase the value of a video subscription service, compared to Netflix. Netflix obviously would prefer to keep its exclusive in that regard.

Some content companies, such as 21st Century Fox and NBCUniversal, are more willing to give expanded on-demand rights to their cable, satellite and telco TV distributors. Others such as Walt Disney Co. and CBS Corp.are more reluctant to do so.

Because of the way content release windows are structured, on-demand services get content sooner than Netflix. So Netflix argues, reasonably enough, that TV series exposure on on-demand services will reduce the value and size of the audience when Netflix can show the episodes.

Such skirmishing over “when” one outlet can get access to fresh content has been, and will remain, a key weapon for distributors of every sort.

Content rights also play the key role in shaping competitive potential for some distributors with geographically-limited footprints, especially Verizon Communications. By definition, all fixed network video distributors require video franchises to operate, and hence are geographically bound.

But Verizon, among others, is seeking content rights that allow sales anywhere in the United States, a licensing mode that is quite helpful to well-heeled distributors who face significant geographic limitations.

That is an important dimension of the Verizon Communications effort to provide, for the first time, out-of-home access to live TV feeds. Verizon has not yet gotten such rights, but might someday be able to sell Internet-based video entertainment of the sort it now sells to FiOS TV customers within the geographic footprint of its fixed network.

We aren’t there yet, but Verizon is making progress, launching an upgraded version of its FiOS Mobile App that, for the first time, provides out-of-home access to live TV feeds, starting with nine channels: BBC America, BBC World News, EPIX, NFL Network (tablet only), HGTV, DIY, Tennis Channel, Food Network and Travel Channel.

The FiOS Mobile App also delivers select local channels depending on where they currently are in New York, New Jersey, Philadelphia, and Washington, DC.

Verizon’s browser-based FiOS TV Online service now offers 69 live TV channels that are accessible by authenticated customers in the home or on the go.

Verizon FiOS customers have been able to watch live television on their iPads, while connected to their in-home broadband access networks.

So far, no video service provider has permission from all programing networks to stream all standard fixed network service everywhere.  Time Warner Cable, Comcast, DIsh, Cablevision, and DirectTV all offer some level of live content that can be watched outside of the home.

Beyond the implications for the way people consume TV services, the coming change will be that fixed network service providers will be able to sell that content to customers anywhere in the United States, so long as they have access to a suitable broadband connection.

That could have important implications for the addressable market available to Verizon, which has a relatively limited U.S. fixed network footprint. AT&T also would benefit, but AT&T has a bigger network footprint.

One reason video service market share for AT&T and Verizon has slowed, though the telcos continue to take market share from cable operators, is that they cannot offer service everywhere.

An out of market capability could accelerate market share gains by telcos.

Will Telco Video Services Go Nationwide, as Mobile Services Have?

There is an important dimension of the Verizon Communications effort to provide, for the first time, out-of-home access to live TV feeds its FiOS customers have paid for as part of their TV services, that has nothing to do with streaming and linear video.

That new dimension is an ability by Verizon or other place-based service providers to escape the bounds of their local operating territories. In other words, Verizon might someday be able to sell Internet-based video entertainment of the sort it now sells to FiOS TV customers within the geographic footprint of its fixed network.

We aren’t there yet, but Verizon is making progress, launching an upgraded version of its FiOS Mobile App that, for the first time, provides out-of-home access to live TV feeds, starting with nine channels: BBC America, BBC World News, EPIX, NFL Network (tablet only), HGTV, DIY, Tennis Channel, Food Network and Travel Channel.

The FiOS Mobile App also delivers select local channels depending on where they currently are in New York, New Jersey, Philadelphia, and Washington, DC.

Verizon’s browser-based FiOS TV Online service now offers 69 live TV channels that are accessible by authenticated customers in the home or on the go.

Verizon FiOS customers have been able to watch live television on their iPads, while connected to their in-home broadband access networks.

So far, no video service provider has permission from all programing networks to stream all standard fixed network service everywhere.  Time Warner Cable, Comcast, DIsh, Cablevision, and DirectTV all offer some level of live content that can be watched outside of the home.

Beyond the implications for the way people consume TV services, the coming change will be that fixed network service providers will be able to sell that content to customers anywhere in the United States, so long as they have access to a suitable broadband connection.

That could have important implications for the addressable market available to Verizon, which has a relatively limited U.S. fixed network footprint. AT&T also would benefit, but AT&T has a bigger network footprint.

One reason video service market share for AT&T and Verizon has slowed, though the telcos continue to take market share from cable operators, is that they cannot offer service everywhere.

An out of market capability could accelerate market share gains by telcos.

How is Home Automation, Security Business Different from a Decade Ago?

What makes the home automation and home security business different from the business that existed a decade ago? The ability to use broadband, and therefore, video, as a part of the security system. What makes the business different from two decades ago?

The ability to use a smart phone to control settings, from nearly any location, using only the device in a pocket or purse.

And that explains the new interest being shown in the home security and home automation business by ISPs.

"Already 10 percent to 12 percent of broadband households in the U.K. and France own a home control solution where they can control a device such as a thermostat or security camera via a smart phone smart phone or PC," said Stuart Sikes, president, Parks Associates.