ISPs Risk Consumer Ire in Fighting Gigabit Marketing Wars

It always has been difficult to conduct marketing campaigns whenever a service provider is upgrading or introducing network-dependent local access services. Major metro area cable TV network builds (new builds or rebuilds) often take three years.

So what is the marketing team supposed to do about it mass media efforts when, by definition, a sizable number of would-be customers will contact the firm about buying, only to be told the service is not yet available “in your neighborhood.”

It is a messy process, more expensive and almost certain to generate consumer ire. That is why some firms, in the midst of such construction projects, end to eschew mass media marketing in favor of lower-key programs that can be targeted neighborhood by neighborhood.

Some firms might be taking different risks, though, touting gigabit services using mass media outlets.

Doing so, when the company knows the new services initially will be available only in some neighborhoods, is bound to generate ill will. In such cases, the firms appear to be taking such risks to tout the magnitude of upgrades, part of the access marketing wars that are building across the United States.

It will not help that Comcast, arguably the leader in U.S. high speed access, will upgrade virtually all customer locations for gigabit access by the end of 2015, with 18 million out of 21 million locations able to buy 2 Gbps service.

That is about as big a deal as was Google Fiber’s “symmetrical gigabit for $70 a month” offer.

But the downside, for would-be competitors, is the risk of increased potential customer ire, since most of the offers--Comcast being the big exception at the moment--being targeted only to high-demand neighborhoods.

"Back to the Future" for FreedomPop "Premium Voice"

It is back to the future for FreedomPop, which has introduced a “better calling experience”

called “Premium Voice technology.” So is it a fancy new Internet Protocol tweak? No, the service uses a second generation network, much as 4G networks often rely on 3G for voice services.

That sort of thing--finding a new use for stranded assets, or encouraging customers to use resources off peak--happens often in the telecommunications business.

One reason some mobile service providers, such as Sprint and T-Mobile US, are so supportive of allowing customers to make free voice calls, send free text messages and use mobile Internet access on Wi-Fi is that doing so frees up mobile network bandwidth, even if it risks sacrificing some revenue.

One reason telephone companies used to feature highly-discounted calling during the evenings and on weekends was that the network was lightly loaded at those times.

On the other hand, FreedomPop also has been among the leaders in the mobile space at combining Wi-Fi and mobile network access, a feature likely to be fundamental by the time fifth generation networks are commercialized.

The Premium Voice capability essentially involves sensing when the IP connection is unstable, and switches a call over to Sprint’s 2G network.

Some believe 5G will be built as an extension to 4G, while others think the break might be more discontinuous. If we are less than 10 years away from launch, either pattern could occur.

But some might argue all the fundamental building blocks (extremely low latency, extremely high bandwidth, ability to use any network, software defined networks, network functions virtualization, big data capabilities, small cell technology, better antennas, exploitation of new millimeter wave frequencies and so forth already are clearly coming.

And then there is the other possibility we usually do not consider, as in the case of putting old legacy networks to new users, or monetizing otherwise stranded assets.

Does Amazon Prime Have to Catch Netflix?

Google was the first, and so far perhaps the most successful software company to build a big business using an advertising revenue model. But content has played a significant role for Apple, which uses content to create value for its device sales, and Amazon, which uses content as a value driver for its subscription shipping program, Amazon Prime.

So while it is useful to note how well those, and other providers, will be in the coming subscription streaming business (market share or revenue, for example), “success” will be a more nuanced issue.

Consider a finding that Amazon Prime subscribers in the United States are more likely to use Netflix than Prime Instant Video, according to Strategy Analytics.

About 63 percent of Amazon Prime subscribers used Netflix in the previous month compared to 59 percent who used Prime Instant Video. In other words, slightly more Amazon Prime customers used Netflix streaming video more than the Amazon Prime service.

So is that a problem, or not? “Amazon is needlessly ‘losing’ users to Netflix when, in fact, it should be eating into their user base,” says Leika Kawasaki, Strategy Analytics digital media analyst.

On the other hand, says Kawasaki, Amazon is taking “significant steps” to boost value.

Still, “in contrast to countries such as the UK and Germany, Americans are more likely to subscribe to Amazon Prime for free two-day shipping than for Prime Instant Video,” said Kawasaki.

So whether Amazon Prime needs to best Netflix in narrow terms (which firm has more customers, or which firm makes the most money) might not be the most significant issue.

Amazon Prime streaming might be viewed somewhat as Apple views its own content services: as a means to an end. For Apple, content helps it sell more devices. For Amazon, content is both a product and a way to sell more products.

Some consumers probably view Amazon Prime as a value added feature of a two-day free shipping “product,” and not as a stand-alone streaming service.

Given the disparity in catalog, it is hard to see why a rational consumer would directly compared Amazon Prime and Netflix strictly as sources of content. Netflix wins. Period.

On the other hand, Amazon Prime is a vehicle to upsell more video content, as well as a value to boost its free shipping program.

In that view, Amazon Prime does not have to be too close to Netflix, in terms of viewers or direct revenue.

Nor does it necessarily matter that more people with Amazon Prime subscriptions watch Netflix.

They might be heavier video consumers than average. They might rationally recognize that the Netflix catalog is more varied. And, in most cases, they might simply view Amazon Prime as a value add for a shipping service, not a full competitor to Netflix.

Is Distribution or Content Still King? It's Changing, Again

There is a very old debate in the video entertainment industry about whether ecosystem power is held by distributors or owners of content.

A perhaps interesting illustration of how the power could shift is illustrated by current negotiations between Apple and Disney about content rights. Disney owns ESPN, for example, considered an anchor for a streaming video service.

Disney’s negotiating is familiar. Disney wants Apple to carry more Disney channels in exchange for a carriage agreement. That is what typically happens in any negotiating session between major networks and distributors.

In this case, it remains unclear whether Apple, as a distributor, or Disney, as a content supplier, has the stronger hand. Both are powers in their own right, within the broader Internet ecosystem.

Perhaps the situation of the channels that will not be asked to be part of a new streaming service (featuring perhaps 25 channels is instructive) illustrates the changing nature of the equation.

Though I generally argue that “content is king,” at least in recent years, in past times I have argued that “distribution was king.” But that was a time when cable TV operators--only one in each market--were the sole distribution agents.

As satellite TV came on the scene, preceded by smaller hotel and satellite master antenna TV operators, as well as mostly unsuccessful MMDS operators, the number of important distributors grew. Most recently, cable TV operators, Google Fiber and now the streaming services have added to the number of distributors.

That arguably has titled power back to the content owners.

But the Disney-Apple and Sling TV services offer a way of revising  the nature of the argument. Perhaps the generally-unused adjective “important,” used to modify “channel” or “network,” is the new key.

In a world where either a la carte or skinny bundles gain share and importance, it is the small, niche channels that lose power. They won’t be included in the 20-channel or 30-channel bundles. So they lose bargaining power because the distributors do not want to carry them.

The anchor services such as ESPN will continue to hold considerable power, as they are the “must have” channels. All the smaller channels will lose value.

So “important content” is king. Not all content will continue to have the same status as in the past. And, for some time, the power of distributors is going to grow, as new streaming sevices struggle to break free and assume dominance of the distribution business.

So it isn’t going to be easy to say that “content” or “distribution” clearly is king.

Sprint Wi-Fi Calling Illustrates Dramatic Change in Voice Value

Perhaps nothing illustrates the extraordinary shift in the value of voice services for service providers than the announcement that Sprint iPhone customers now can make high-quality calls over Wi-Fi networks, while using their own phone number.

In part, Sprint pitches the feature as a way to extend coverage, especially indoors.  

“Wi-Fi Calling is like a major expansion of our network, allowing Sprint customers to get coverage anywhere they have Wi-Fi connectivity,” said David Owens, senior vice president of product development for Sprint. “Traditional wireless technology has some limitations in places like basements and high-rise office buildings.

Such calls do not count against subscriber data usage buckets or voice allotments. In other words, Sprint is enabling customers to use their mobiles to make calls for no additional cost and without using any of their paid-for data or voice calling capabilities. In essence, Sprint now gives away what it used to sell.

There are indirect benefits, even if voice communications is more a feature than a revenue stream. Consumers will be happier because their signal coverage is better. They also will essentially be offloading some amount of voice traffic from the mobile network.

The virtual effect is to improve Sprint’s network coverage at no cost. So losing potential voice or Internet access revenue is balanced by better user experience and mobile network load.

Customers traveling internationally with Wi-Fi access also can use Wi-Fi calling to enjoy free calls from over 200 countries back to the United States.

Wi-Fi Calling also is available at no additional charge when calling to a U.S., U.S. Virgin Islands or Puerto Rico phone number.

What Mobile Niche is Left for New LightSquared to Conquer?

Charlie Ergen appears to be right when he quips about bandwidth being valuable because they aren't making any more of it. Ergen personally was paid about $1.5 billion to relinquish his claims on LightSquared, because of debt he owned in the company.

Now LightSquared asked the FCC to transfer spectrum licenses to the entity to be known as New LightSquared, allowing a new company to try and build a successful business.

But New LightSquared still needs to figure out what lucrative new niche remains unfilled, and try and fill that spot in the ecosystem before a combination of mobile operators, satellite operators, cable TV companies and Wi-Fi-based service providers essentially fill all those unmet needs.

The original business plan was to "re-purpose" satellite frequencies to support terrestrial mobile operations. That plan came undone when claims of signal interference with GPS devices was raised, successfully, an an objection.

It remains unclear whether the new company will try some other form of terrestrial service, without using the GPS-infringing frequencies, or revert back to its old business plans for mobile satellite service.

Ivan Seidenberg, a former chairman of Verizon Communications Inc., and Reed Hundt, a former Federal Communications Commission chairman, have joined the board of New LightSquared, so we might find out whether it is possible to create a successful business out of LightSquared spectrum.

Is there yet a viable niche for a mobile communications service, at a time when terrestrial mobile networks so dominate most communications and new services substantially or completely dependent on Wi-Fi are operating.

There are specialized Long Term Evolution and other networks that specialize in supporting trucking, oil industry and other vertical niches, for example, though some think New LightSquared will go with some sort of niche, vertical market strategy.

Will Mobile be a Full Substitute for Fixed Internet Access in 10 Years?

As crazy as it might seem today, standard mobile networks might in a decade be full substitutes for fixed network access, in terms of delivered commercial bandwidth. If the assumption is that fixed networks might deliver bandwidth up to 1 Gbps or 2 Gbps, then it might be quite instructive to note that suppliers are working to commercialize small cell access systems delivering bandwidth between 2 Gbps and 10 Gbps.

The point is that If you have access to enough spectrum, at high-enough frequencies, plus sophisticated antenna technology, and only need to transmit at close distances, extraordinary bandwidth--fully matching fixed network bandwidth--is possible.

Nokia Networks has shown the ability to transmit mobile signals at 10Gbps peak rates over the air at 73 GHz using Nokia mmWave gear at the Brooklyn 5G Summit, jointly organized by Nokia Networks and NYU.  

NTT Docomo and Nokia Networks earlier had shown the ability to transmit at 2 Gbps rates in the 70 GHZ band, using Nokia Networks mmWave technology, in an indoor setting.

“Utilizing higher frequency bands including millimeter wave  is key to deliver extremely high performance in 5G,” said Seizo Onoe, NTT DOCOMO CTO. “We believe that high-frequency spectrum shall be used not just for small cells as a means to complement the existing network, but also for building solid area coverage through coordination with existing lower frequency bands.”

IoT, Big Data, Cloud Computing are One Trend Pointing to Next Era of Computing

It increasingly is going to be hard to separate the Internet of Things from cloud computing from big data, since the value of all those sensors and apps will be the ability to pluck trends and meaning from a bewildering amount of raw sensor data.

Think about Waze, the social driving app that crowd sources the observations of drivers about traffic, for example.

The sensors now are smartphones, but the value is the insight about traffic slowdowns and jams. That requires use of sensors (smartphones as the “things,” in this case), the global positioning satellite system, the Waze and Google Maps apps, the cloud computing infrastructure and the ability to process tons of data in real time.

If you wanted to start looking for leaders in the next era of computing, you would do much worse than to look for firms that will dominate the horizontal roles in IoT-centric computing.

IoT Requires Lower Latency, Probably Fog Computing

The Internet of Things is going to add so many connected devices, appliances and sensors that the architecture of computing to support IoT operations will necessarily have to rely on more edge processing than has been useful up to this point.

Both latency issues and the sheer volume of data generated by all those devices will require more distributed computing closer to the edge, instead of the relatively more centralized computing that has been typical of cloud computing.

At least as some envision it, fog computing would pre-process raw data using an edge server, before forwarding a summarized set of data to cloud data centers.

So aside from additional bandwidth, latency considerations will become more important as IoT services, devices and applications proliferate.

In a real sense, the objective for fog computing is to produce latency more like that of a LAN than traditionally has been associated with cloud computing.

Is AT&T Wrong about DirecTV?

It is not hard to find critics of the business strategy AT&T has in buying DirecTV. Subscription TV is a mature business, in decline, even if DirecTV is a well-run company throwing off lots of cash flow.

Critics say the other satellite provider, Dish Network, also sees the danger inherent for a satellite video provider, and is itself potentially aiming to become a mobile service provider, in some way. Dish Network CEO Charlie Ergen has said that, if  he were entering the subscription video entertainment business today, he might well not use satellite for delivery.

Instead, he’d do something like Sling TV, an over the top, Internet-delivered service.

AT&T has argued it gains a nationwide video footprint, adds scale efficiencies in its purchasing of content and creates a national triple play or quadruple play capability (video, Internet access, mobile voice and messaging).

Some of us would say those are helpful, but not decisive. Instead, DirecTV is an important tactical move. First of all, AT&T alway has grown primarily by acquisition.

So DirecTV grows free cash flow and revenue.

But what if the gains are not necessarily permanent? No problem. Nothing is permanent, for any service provider. In the meantime, AT&T gains needed free cash flow, while it is in the process of building the new lines of business to replace declining voice, messaging and eventually video revenues.

Transitions matter, especially for large firms such as AT&T that have been through large transitions before, such as the shift from long distance voice to mobility as the strategic growth driver.

But those transitions can take a decade to play out fully. During the transition, cash flow matters.

Gigabit Speeds Don't Improve Experience, Content Delivery Networks and Caching Does

According to a study by Mike Belshe, “if users double their bandwidth without reducing their Round Trip Time (RTT), the effect on Web browsing will be a minimal improvement (approximately five percent).”

“However, decreasing RTT, regardless of current bandwidth always helps make web browsing faster,” Belshe argues.

Faster local Internet access connections do help, up to a point. After about 10 Mbps, no single user is likely to see much improvement, if at all, in page load times, for example. The U.S. Federal Communications Commission and U.K. Ofcom agree: beyond 10 Mbps per user, experience is not measurably improved--if at all--by faster Internet access speeds.

Bandwidth (in Mb/s)	Page Load Time via HTTP
1	3106
2	1950
3	1632
4	1496
5	1443
6	1406
7	1388
8	1379
9	1368
10	1360

Although there is a considerable jump in the early bandwidth speed increases, the returns as the pipe gets bigger continue to diminish until they are almost negligible.

The important observation is that the measure of a digital experience isn’t just--or primarily--about the speed of download.

Latency, or round trip delay, is more fundamental, beyond a minimum amount of access speed.

That is one reason so many large application providers use content delivery networks that place content closer to end user locations, in principle improving round trip delay.

Shockingly, and all marketing claims notwithstanding, end user experience of Internet apps is primarily a matter of latency, not access bandwidth. That is because "non-network" sources of delay generally represent an order of magnitude more impairment than local access speed, or even all network delay, taken together.

Connecticut Cities and Towns Ask for Gigabit Speeds; Are Likely to Get Most of What They Want

A gigabit Internet access network serving “targeted commercial corridors as well as in residential areas with demonstrated demand is the goal sought by a consortium of 46 Connecticut cities and towns.

In the end, the municipalities are likely to get what they want, either because incumbents step up, to protect their existing businesses, or because new suppliers, able to operate with lower operating costs, enter the markets.

That doesn't necessarily mean a full potential gigabit at every location. Functionally, the communities will get what they want when anchor institutions and enterprises can buy a full gigabit or even hundreds of megabits per second and consumers in neighborhoods can buy hundreds of megabits per second.

The immediate value of such speeds is most clear for large organizations with lots of users. Individual small businesses or consumers cannot actually gain much.

For incumbents, skinnier profit margins are likely, one way or the other. For at least some would-be attackers, it might be possible to gain entry into the Internet access market.

But a fierce response might be coming. In that instance, the municipalities will succeed in their goal of stimulating investment in faster Internet access. Comcast, which operators in Connecticut, already has said it will upgrade virtually all of its networks to gigabit speeds by the end of 2016.

Whether other major Internet service providers will go that far, or not, is not yet clear. But it would be reasonable to suggest upgrades to hundreds of megabits will be forthcoming, especially where the municipalities really want it: commercial corridors and some residential neighborhoods willing to pay more for higher speeds.

Ignore for the moment the fact that, today, speeds available per user beyond 10 Mbps have negligible to zero additional utility. That is a matter of science. “Gigabit” is about marketing, perceived economic advantage for communities or states and perceived advantages for anchor institutions.

A betting person would guess those demands will be rather swiftly met by firms that face clear threats.

Cable TV Will Take Hybrid Strategy to Make Transition to Streaming

At this point, it is likely a “no brainer” to argue that incumbent providers of subscription TV will have to follow one clear near term strategy, and a different long term strategy. Sound advice for any business in the midst of fundamental technology change is to adopt a “hybrid” strategy, for a time, while preparing for a different future.

Decades ago, U.S. cable TV operators opted for just such a hybrid strategy when shifting to the hybrid fiber coax network architecture.

Now Comcast is on the cusp of signaling a profound shift to all-optical access with its move to make 2-Gbps all-fiber connections available to 18 million of its present customers.

To be sure, Comcast also is moving to make gigabit access services available to nearly all its 21 million customers by perhaps the end of 2016. Comcast probably will be able to provide 1-Gbps services on its existing HFC network.

But the end is in sight.

Where it comes to subscription TV, expect Comcast and other U.S. cable TV operators to use that same strategy, grafting more streaming features onto its existing linear service.

Over the top (OTT) video continues its strong growth, and should see around 26 percent total revenue growth in 2015, with 24 percent compound annual growth rates through 2019, according to ABI Research.

“Comparatively high priced pay TV bundles are losing customers to more inexpensive, IP-delivered content,” says Eric Abbruzzese, Research Analyst.

The other tack is to mimic the “lower price” feature of many OTT video subscription services by creating skinny bundles that cost less.

With a little luck, such strategies will allow more time for transition to a full, streaming only future.

Cable TV operators have used that hybrid approach before.

How to Tell When a Market is Saturated

Even if call volumes still are growing in many countries, the future already is discernible. In most developed markets, “calling” as an activity is dropping. In other words, fewer calls were made in 2013 than in 2008, even as prices continued to fall.

Up to a point, usage or demand climbs for any desired product as prices are reduced. But demand can saturate, at which point not even lower price leads to higher usage. That seems clearly to be the case for voice services.

There are strategic implications. One might well argue it makes little sense to invest too much in a product line that is mature and declining. Instead, investment must be targeted to new products early in their life cycles.

That suggests investment in high definition voice will be largely ineffective as a means of restoring growth in the voice segment. Investment in voice over Long Term Evolution has a different business rationale: it allows reclaiming of spectrum used for 3G.

Only indirectly does VoLTE contribute in a direct way to new voice value.

source: Disruptive Analysis

Bandwidth Soon Will Not be an Issue; Latency Will be the Problem

Pretty soon, consumer access bandwidth is not going to be a bottleneck of any sort. One example: Comcast is upgrading virtually its entire customer base to gigabit speeds by the end of 2016, with some customers able to buy service at 2 Gbps.

The rest of the market is going to move with Comcast.

But latency is going to leap to the top of problems affecting end user experience. That means we will be turning attention back towards the edge of the network, as that is one way to reduce the latency of cloud-based services.

For many of you, latency likely already is the most-noticeable feature of your Internet experience. If you do lots of writing, using a cloud-based document processor, you understand the difference between a locally-resident app and an app being fetched from a distant location.

Ironically, latency is among the issues packet prioritization addresses directly. Edge caching also makes a difference. Sooner or later, “network neutrality” is going to run full on into the other values that must be balanced, including latency.