Canadian Lawmakers to Introduce "A La Carte" Plan

With the caveat that lots of bills get introduced into national legislatures, with no chance of enactment, Canadian Parliament legislation to mandate a la carte retail packaging of video entertainment channels appears headed for introduction.

The legislation would mandate that video service providers provide a la carte video options for consumers of cable and satellite TV services.

The Canadian Radio-television and Telecommunications Commission already in 2011 had urged cable and satellite companies to adopt the a la carte pricing model.

If the legislation passes--there is no certainty about passage--it would provide a test of the economics of such unbundling, as well as a test of consumer appetite, that would certainly have at least some repercussions in the U.S. market as well. 

Nobody can be sure precisely what would happen to service provider and content provider revenues is such a change were to be made. 

There is a huge disconnect between consumer and content owner or service provider expectations about what a TV channel should cost, if it were possible to buy channels one by one. Consumers think they will save money; distributors and content owners are just as certain they would not save money.

A study by PricewaterhouseCoopers indicates that 44 percent of consumers would like a the ability to buy all their channels one at a time.

But it is not clear that the economics of the video subscription business can match consumer expectations about the retail price of a single channel. 

The expected pricing “per channel” is where the biggest disconnect exists. About 16 percent of respondents say they would not pay more than 99 cents a month for a channel. Some 24 percent will pay $1.99 and 22 percent will pay $2.99.

Studies by the Federal Communications Commission seem to have concluded that unbundling could save money, or wouldn't save money, depending on how many channels a consumer buys under an a la carte regime, compared to what they buy now.

One of the studies suggested “consumers that purchase at least nine networks would likely face an increase in their monthly bills" when buying a la carte.

Likewise, one of the FCC studies suggested bill increases ranging from 14 percent to 30 percent under a la carte, while the other suggests a consumer purchasing 11 cable channels would face a change of bill ranging from a 13 percent decrease to a four percent increase, with a decrease in three out of four cases.

The point is that it is very hard to tell, conclusively, what might happen if providers shifted to a la carte viewing.

When multichannel video distributors say a bundled approach creates economics that favor smaller, niche networks to thrive, they are right, economists might say.

Deprived of carriage on a broad "enhanced basic" tier, perhaps 60 percent of networks might find themselves immediately imperiled, as going concerns, some would estimate.

LTE a 'Huge Opportunity' in Europe?

AT&T CEO Randall Stephenson sees a "huge opportunity for somebody" in Europe to invest in mobile broadband, presumably given the relatively slow availability and uptake of Long Term Evolution in Europe, compared to the United States.

As do many other observers, though, Stephenson said spectrum policy adjustments were important, to realize greater benefits. Those changes range from longer spectrum license terms to harmonized spectrum plans. 


Up to this point, 3G has proven to be the mainstary for European mobile Internet access. 

Netflix Move Complicates "Internet TVs"

Netflix now is an app available to consumers who subscribe to Virgin Media cable TV services. And Netflix is said to be seeking similar deals with U.S. cable operators. At one level, the move simply would provide such cable customers more convenience when viewing Netflix on their TVs, turning the cable decoder into an Internet access device. 

At another level, Netflix becomes, if not a "cable channel," then at least a way to create more incentives for those video customers to buy faster broadband connections, and could provide another library of potential programming, as when a temporary programming dispute disrupts programming from one or more channels. 

The new capability, should a deal be worked out, also adds more value to a cable decoder, which otherwise remains largely a tuner and access control box. 

Such a deal also could affect end user appetite for "Internet TVs," as the use of the cable decoder in this way would enhance the experience of displaying Internet-sourced content for viewing on a digital, but not Internet-connected TV, much as an Internet-capable game player already provides such value. 

Though many cable operators might continue to worry about whether such a deal is the first step to Netflix becoming a bigger competitor, others might argue that trend is coming, in any case, and this approach at least makes it easy for cable video subscribers to use Netflix conveniently, as part of their video subscription. 

Dumb Networks, Smart Networks and SDN

It has been some time since there was any significant debate about whether next generation networks should be dumb or smart. 

The essence of the debate was whether it was better to create a flexible network, able to create and deliver new services very rapidly, using a network where control was at the edges, or whether it was better to embed intelligence in the network "in the core," some might have argued. 

As always, the debate was somewhat "religious." Also, as often happens, the debate has been superseded. The current thinking is that networks should operate in a way not envisioned when the earlier debates were happening.

Software defined networks, the new rage, retains the smart network, in the sense of control. But SDN also abstracts that control from the network. In essence, SDN is a smart network but with flexibility gained from an essentially "dumb" transport network. 

Intelligence is not so much "in the core" of the network, but at centralized points. The point is somewhat subtle. In the past, intelligence in the core meant that control was embodied in switches, routers or signaling points scattered throughout the network.

SDN centralizes control, but not using the embedded control points scattered throughout the network. Also, intelligent devices continue to operate in the network, but with their functions controlled from an essentially external and centralized controller.

The central idea is to abstract the network such that the operator can program services instead of creating static network overlays for every new service. 

All network services are moved from the network to data centers as applications on commodity or specialized hardware, depending on performance. The hoped-for advantage is a reduction of time to market from years to hours.

So the older debate about "smart or dumb networks" has in essence been transcended. Networks can be smart, but also transparent. Using SDN, the answer to "smart or dumb" is "both."

PayPal Beacon: Zero Touch Retail Payments

Much of the promise of retail mobile payment systems revolves around changing the checkout experience in some significant way.  As PayPal sees matters, better than swiping a credit card or debit card is a way to walk in a store, and, when you’re ready to pay, money is transferred securely and automatically.

PayPal Beacon is PayPal's answer for how this can be done. Beacon is an add-on technology for merchants that will enable consumers to pay at their favorite stores completely hands-free. 

Basically, users will check in when entering a store. Consumers will have a choice of setting that prompt them to confirm payment, or automatically pay.

The system still is under testing, and not yet a commercially-launched product. 



In the latter case, simply walking in a store will trigger a vibration or sound to confirm a successful check in. 

The buyer's photo appears on the screen of the Point-of-Sale system and the transaction is completed by verbal confirmation. Funds are deducted automatically from the user PayPal account. 

Any store running point of sale systems compatible with PayPal, including Booker, Erply, Leaf, Leapset, Micros, NCR, PayPal Here, Revel, ShopKeep, TouchBistro and Vend can enable the system by plugging a PayPal Beacon device in a power outlet in their store. 

Mobile Service Providers Now are ISPs, Voice and Texting are Features

AT&T has changed its retail packaging in a significant way, now requiring that all new customers buy shared data plans, though existing customers have the option of remaining on their current plans, even when upgrading to a new device carried on the existing plan.

The change begins for all new customers signing up on Oct. 25, 2013. To be sure, shared data plans, where the major variable cost is the size of the shared bucket of data usage, with flat fees for voice and texting and then a per-device charge, have become the most-popular AT&T retail plans. 

Verizon Wireless also requires new customers to buy a shared data plan, but unlike AT&T Wireless requires existing customers on legacy plans to adopt a shared data plan when upgrading a device. 

AT&T and Verizon Wireless believe the new plans provide more protection from customer churn, and also encourages users to add their tablet devices to existing service accounts, since the incremental cost per tablet is $10 a month.

By making data services the key variable component of end user cost, and typically the biggest driver of gross revenue, the shared data plans illustrate the shift of revenue sources in the U.S. mobile business to Internet access revenues.

In a very real sense, mobile service providers increasingly earn most of their gross revenue from operating as Internet service providers, since voice and text messaging services are bundled in with the data access bucket.

In other words, mobile voice and text messaging now are features of a mobile ISP plan. 

Mobile Market Might Require More Sophisticated Regulatory Treatment

The accepted way most people think about the structure of communications industries (to the extent they think about such matters at all) is that more competitors produce better consumer outcomes. In principle, that makes sense.

But that might not always be the case, and it matters greatly whether communications regulators have a sophisticated and analytically sound basis for thinking about issues of competition in markets where a greater number of providers automatically is assumed to be “better.”

In the mobile business, for example, when spectrum resources are constrained, the rules get turned upside down, in essence.

“Using the standard Cournot model of competition, a capacity constraint turns the standard antitrust analysis on its head—that is, under spectrum exhaust, fewer firms produce lower prices and more investment,” argue analysts and economists at the Phoenix Center for Advanced Legal & Economic Public Policy Studies.

In other words, under conditions where spectrum really is scarce and capital investment requirements are significant, better consumer outcomes actually result from fewer providers in the market, not more competitors.

That is a profoundly jarring conclusion, but matters greatly if what the Federal Communications Commission, for example, desires is a regulatory framework that promotes maximum feasible competition that leads to consumer benefits.

The point is that “maximum feasible competition” might not mean “as many providers as possible.” That is counter-intuitive but no less valid for that reason.

In some cases, regulatory bodies might even conclude, after rigorous analysis, that “doing nothing” is preferable to “adding more regulations” to enable additional competitors in the mobile market.

And that will be a jarring approach, for some. “For example, it is entirely legitimate for the FCC to decide that no feasible regulatory solution exists, whether there is market power or not,” the Phoenix Center argues. “

Some things just cannot be fixed, in other words, whether we wish to fix them, or not. One example is the typical market structure in a capital-intensive industry facing huge transitions of its products and revenues, either mobile or fixed.

In other words, no matter what we might prefer (many competitors), the economics of the access networks business (as distinct from the economics of applications that use such networks) virtually everywhere leads to only a few leading providers in each market.

European regulators are grappling with that issue now. Many observers say the only way European service providers can stop losing money is to merge to gain scale. That will have the effect of reducing the number of service providers in most national markets.

At the same time, some regulators maintain that four mobile service providers is the minimum necessary to ensure the benefits of competition. But that’s the rub. In many markets with four contestants, the market is shrinking, as measured by collective service provider revenues.

In principle, we might argue that four competitors leads to better outcomes for consumers than three competitors. We might argue that three contestants is better than two.

But industry economics may not allow that many viable contestants, over the longer term. As we might well find, in most markets, that there is room only for a single facilities-based telco, a single cable company, a single satellite provider and two or three leading mobile providers.

To the extent that the benefits of competition are obtained, it will be on an inter-modal basis, not intra-modal. In other words, telcos, cable, satellite and mobile providers will compete to provide all the core services a customer can buy from any of the suppliers.

It likely will not be common to find intra-modal competition between multiple telcos, multiple cable providers, multiple satellite providers in a single country or market.

“The Commission may also conclude that consumers are better served by fewer competitors than many,” a conclusion that will startle some, and rankle some.

But that might be the wisest course, when no matter what is done, the fundamental number of fixed network suppliers will be quite limited.

“The Federal Communications Commission is viewed as the ‘expert’ agency which not only uniquely understands the complex economics of communications industries, but also knows how and when to apply this knowledge to achieve Congress’s (sometimes incompatible) policy goals as articulated in the Communications Act,” the Phoenix Center says.

In other words, traditional antitrust considerations might still be the primary concern of agencies such as the U.S. Justice Department. The FCC’s concerns arguably are different, namely applying appropriate regulation to industries that are convulsing.

Voice had a Life Cycle; Does TV Also Have a Life Cycle?

It has been a shocking revelation that voice service is a product like any other, with a product life cycle. Up to this point, it has been fixed network voice that has encountered the cycle.

Mobile voice is on the way, as is text messaging.

Now TV is starting to look as though it will demonstrate it also is a product with a life cycle. 

As with voice and messaging, the maturation of a particular product doesn't always mean people abandon an activity, but that the activity occurs in new ways.

Those new ways of behaving often change the business and industry context, as a result. People still talk, but use Skype. People still send messages, but use WhatsApp.

As television starts to change, people will still watch video and films. But they might consume that video in different ways.

So there are many good reasons why John Malone, Liberty Media chairman, now argues U.S. cable operators need to band together to create a single content-buying entity. 

Among the advantages would be the ability to create a branded over the top video service that could compete with the likes of Netflix.

That likely will be more important in the future if people continue to shift viewing towards online content, and especially if content owners decide to shift more content availability in the online direction.

The evidence for a shift in behavior continues to mount. And though content owners will not move prematurely, so as not to upside their lucrative deals with cable, satellite and telco TV distributors, sooner or later they will have to move.

A third (34 percent) of Millennials surveyed on behalf of the New York Times watch mostly online video or do not watch broadcast television.

The study of more than 4,000 online video users also found that news sites were more popular than sports for online-video watchers, but they were far less popular than video hosting sites like YouTube.

Millennials generally are defined as people born between 1980 and 2000 and includes over 75 million people.

The data likely would not surprise many, given the widespread shift to use of online video. In fact, so common is online video consumption that the next frontier has become mobile consumption of video, and that also is growing significantly.

About 10 percent of all video viewed in the first quarter of 2013 globally was watched on a mobile or tablet device, representing an increase of 19 percent, year over year.

In the U.S. market, the trend is even more pronounced. Mobile consumption of video in 2013 in the United States probably will surpass time spent watching traditional TV screens.

U.S. adults will in 2013 spend an average of two hours and 21 minutes per day on non-voice mobile activities.

That includes mobile Internet usage on phones and tablet, while mobile device is up nearly an hour from 2012 levels.

The share of viewing on smart phones and tablets is still rising at a pace similar to that of 2012, according to Ooyala.

The kind of video being watched online is changing as well. Viewers are watching more longer-form video. About 25 percent of the content watched on tablets globally in the first quarter of  2013 was 60 minutes long or more (long form content).

And nearly an additional 20 percent was at least 30 minutes long. In all, more than 50 percent of all content watched on tablets was more than 10 minutes long or longer.

To be sure, the New York Times survey excluded people who say they do not watch online video. But one wonders how many people are in that category. A Canadian study confirms that people of every age group watch online video. So does a study of U.K. Web users.

Cable Needs Content Buying Entity, and its Own Netflix, Says John Malone

John Malone, Liberty Media Chairman, is a foremost proponent of the idea that U.S. cable TV business has to consolidate further, in part to allow the leading suppliers to gain more leverage in negotiations with progreamming suppliers.

Now Malone also suggests U.S. cable operators band together to create a national buying consortium that would amass the ultimate in scale. Also, such a buying consortium would amass in one place the content rights needed if cable operators want to create their own branded streaming service on the model of Netflix, with rights to operate outside the subscriber premises on a national basis. 

Because cable operators operate on a defined geographic basis, they can't buy programming nationally, he said, and often lack scale to invest in research and technology. 

He said cable companies should "get behind" a service, either one already existing or started by an outsider, which could buy programming nationally.

Such a national buying entity presumably also could allay fears that one or more operators would move to sell such a service on its own, over the top and outside its own geographic boundaries, bringing competition between cable operators to a head for the first time. Comcast likely is the firm most smaller operators might fear, in that regard.

Those notions point to the growing importance of scale in the U.S. communications and entertainment business, both for tactical and strategic reasons. 

For cable operators, it is tactically important to gain negotiating leverage over programming suppliers. Strategically, such a buying consortium and a branded streaming entity would be necessary in the future if and when streaming begins to displace traditional video services to a significant extent. 

But cable operators also are hampered in creating and selling services to enterprises that operate regionally or nationally, as well, because of service footprints that are fragmented. 

There are other implications within the ecosystem, including changing imperatives on the regulatory front. 

As the video business changes, so should the rules and regulations that traditionally have been applied to cable, telco and ISP providers of video services. In fact, many could argue, the traditional franchising rules do not apply at all to over the top providers.

That doesn't mean the place-based access networks will be unimportant. In fact, high speed access will be the foundation for all fixed network revenues. But "video entertainment" could substantially shift to an over the top application. 

CenturyLink to Deploy 1-Gbps Network to a Few Thousand Homes in Las Vegas, More to Come

CenturyLink says it will deploy a 1-Gbps service to some neighborhoods in Las Vegas, Nevada in the fall of 2013. to “a few thousand homes,” with a “significant” increase in 2014."

CenturyLink also has a gigabit service in Omaha, Neb., where it had inherited a fiber-to-home testbed of about 48,000 homes.

The service will start at $79.95 per month with a 12-month contract, or $124.94 when paired with Prism TV, the telco's IPTV service, along with a six-month contract.

CenturyLink will deploy first in areas with the most demand.

CenturyLink says it has about 73 percent of its access lines capable of 6 Mbps speed, over 61 percent of lines capable of 10 Mbps and 32 percent capable of 20 Mbps. Some areas of CenturyLink metro areas can be served as speeds up to 40 Mbps.

Many observers would credit Google Fiber for the new interest in gigabit services. Many also would say the new value-price relationship--a gigabit service for $80, when bundled with video--also is a response to the new price umbrella Google Fiber is creating.

34% of Millennials Do Not Watch Broadcast TV

A third (34 percent) of Millennials surveyed on behalf of the New York Times watch mostly online video or do not watch broadcast television.

The study of more than 4,000 online video users also found that news sites were more popular than sports for online-video watchers, but they were far less popular than video hosting sites like YouTube.

Millennials generally are defined as people born between 1980 and 2000 and includes over 75 million people.

The data likely would not surprise many, given the widespread shift to use of online video. In fact, so common is online video consumption that the next frontier has become mobile consumption of video, and that also is growing significantly.

About 10 percent of all video viewed in the first quarter of 2013 globally was watched on a mobile or tablet device, representing an increase of 19 percent, year over year.

In the U.S. market, the trend is even more pronounced. Mobile consumption of video in 2013 in the United States probably will surpass time spent watching traditional TV screens.

U.S. adults will in 2013 spend an average of two hours and 21 minutes per day on non-voice mobile activities.

That includes mobile Internet usage on phones and tablet, while mobile device is up nearly an hour from 2012 levels.

The share of viewing on smart phones and tablets is still rising at a pace similar to that of 2012, according to Ooyala.

The kind of video being watched online is changing as well. Viewers are watching more longer-form video. About 25 percent of the content watched on tablets globally in the first quarter of  2013 was 60 minutes long or more (long form content).

And nearly an additional 20 percent was at least 30 minutes long. In all, more than 50 percent of all content watched on tablets was more than 10 minutes long or longer.

To be sure, the New York Times survey excluded people who say they do not watch online video. But one wonders how many people are in that category. A Canadian study confirms that people of every age group watch online video. So does a study of U.K. Web users.

New Markets Often are a Zero-Sum Game: Some Winners, Many Losers

One of the perhaps cruel ironies in the communications business is that a business strategy that works for some providers cannot work for all, in part because every segment of the market is limited. In any product segment or location, a few providers might make a nice business serving a particular customer segment with a particular set of products.

Consider the example of smaller business services, historically served by smaller independent providers as well as the leading communications providers in an area. Some of the larger independent telcos, including Frontier Communications and Windstream, for example, have dramatically changed their customer and revenue profile by focusing on business customers.

Cable companies are doing the same, targeting smaller businesses for bundles of voice and Internet access services, mobile backhaul services and enterprise services in a growing number of cases.

Recently, for example, Time Warner Cable acquired DukeNet Communications, a provider of regional fiber services in the Carolinas (North and South) and five other southern states.

DukeNet currently counts among its customers more than 3,500 cell sites as well as other businesses. That’s an example of the growing cable operator emphasis on business services.

From the first quarter of 2011 through the second quarter of 2013, Time Warner Cable grew business customer revenues at an average quarterly growth rate of 6.8 percent, from $312 million to $564 million.

At the same time, business segment revenues grew from seven percent of total revenue to 11 percent of total revenue.

On the other hand, that strategy cannot work for every other provider. The tier one carriers largely stand to lose customers to cable and other providers, for the simple reason that local telcos traditionally have served most of the small business customers in an area.

But some of the market share gained by cable providers, Windstream and Frontier Communications also will be taken from independent providers as well. Small business communications revenue, in other words, is a zero sum game.

There are only so many customers, willing to spend so much money for services, so gains by one provider come at the expense of another.

One might argue that the number of small businesses is growing, and that will increase the pool of potential customers to some extent. At the same time, many small businesses are finding that consumer services and apps now are good enough to supply many of those needs, so there are multiple forces at work.

For businesses that continue to buy “traditional” services, advances in cloud computing and declining costs for Internet access mean many mid-sized firms also can get higher performance while not spending more money.

The point is that a revenue growth strategy that works for some suppliers will not work for all suppliers. So even if a focus on business customers is proving to be a workable strategy for larger cable companies and larger independent telcos, it is not at all clear that works for the typical very-small telco, or even well for independent service providers that historically have served the small business market.

“Eat or be eaten” resonates in this instance because many of the near-term sources of incremental revenue require some scale. And that automatically means a focus on business customer services will fuel growth for some new providers with sufficient scale, but not all smaller providers who might otherwise consider that approach feasible.