High Speed Access Now is the Anchor Service for Telcos and Cable TV

GVTC, Smithson Valley, Texas rural telephone cooperative, now sells more high speed access  accounts than voice accounts, much as cable TV companies now sell more high speed access than video accounts.

AT GVTC, Internet access customers now outnumber telephone accounts by five percent based on sales figures for the first quarter of 2015. GVTC telephone accounts are down 2.3 percent during the same period.

At the end of 2014, the largest U.S. cable TV operators had about 52 million high speed access accounts in service. At the end of 2014, those same firms had some 49 million linear video customers.

In its first quarter of 2015, Comcast Internet access revenues grew 10.7 percent while business services grew 21.4 percent.

Year over year, Comcast gained 407,000 high speed Internet access customers and 77,000 voice customers and lost 8,000 video customers.

In other words, not only does the “new” Internet access business represent more customers, it also is the fastest-growing consumer service. Video subscribers actually are shrinking.

Verizon AOL Buy: "You Need to Own Some of What You Deliver Over Your Pipe"

Verizon Communications has been skeptical about its own prospects in the linear video business, unhappy with the low profit margins and convinced over the top video is coming faster than people think, with negative implications for the linear TV business.

Verizon also is more committed to mobile delivery than fixed. At the same time, the AOL buy puts Verizon into the mobile advertising business.

“AOL is a leader in the digital content and advertising platforms space, and the combination of Verizon and AOL creates a scaled, mobile-first platform offering directly targeted at what eMarketer estimates is a nearly $600 billion global advertising industry,” AOL says.

Given those beliefs, it might not be too surprising that Verizon is buying AOL, to support its digital media rather than linear video strategy.

The acquisition also is one way of avoiding a “dumb pipe” strategy where Verizon provides best effort, lower margin Internet access for consumers, but owns and benefits little from the value of applications.

Verizon would not be unusual in making investments in the digital media or advertising spaces. Many tier one service providers have launched investment funds, development efforts or made outright acquisitions of such assets. Singtel’s Amobee acquisition provides one example. Telefonica’s many development efforts an Deutsche Telekom’s acquisitions of firms such as Jajah provide other examples.

Some might argue there is no “fit” between the typical telco domain expertise and that of a firm such as AOL. “Over the top” is the crucial difference. So long as Verizon does not interfere with the running of the business, AOL is not a “managed service” sold only to Verizon customers.

It is a true, over the top service available to any potential user (consistent with copyright issues that could limit access in some locations).

As some might describe the strategy, it is not too complicated. “You need to own some of what you deliver over your pipe,” said Richard Green, former CableLabs CEO.

Nobody Pays to Participate in Internet.org

Facebook has been undertaking serious efforts to explain to bloggers, government officials and others how different the Internet.org program is, compared to the now-discontinued Airtel “Zero” program, which would have offered app usage without data fees.

The “Zero” program would have allowed app providers to pay a fee to Airtel in exchange for zero rating customer use of the sponsored apps.

That is nothing like what Internet.org has been doing, where nobody gets paid anything to participate, said Chris Weasler, Facebook global head of spectrum policy and connectivity planning. Internet.org.

App providers do not pay Internet.org, Internet.org does not pay mobile operators who participate, and end users do not pay for use of the apps.

Some, including possibly the Indian government, still consider any form of app sponsorship--with or without any payments--a violation of network neutrality principles of “treating all applications alike.”

The issue, of course, is that allowing people to sample apps has proven to increase end user understanding of the value of the Internet, as well as paid mobile data subscriptions for mobile service providers. That, in fact, is why mobile service providers have participating in Internet.org.

One can point to any number of other standard marketing and sales techniques that likewise do not treat all apps, all customers, all users the same. Promotional programs to lure new users are commonplace in every industry. 

Sales of some brands of merchandise are standard at supermarkets globally. Some consumers user coupons; some do not. Airline seats, on any route, at any time, are not priced "the same." Uber rides, by definition, are not priced the same, across the day. 

The point is that we arguably are overstretching the analogies. Innovation, by definition, means some supplier does something differently. 

Messaging, voice communications or video entertainment might be offered for no incremental cost, or very low cost. Promotional pricing for some period of time is a routine practice. Volume discounts are standard practice.

Somewhere between the desire to maintain an open Internet and "unfair gatekeeping" is the broad arena within which normal and standard marketing methods are permissible. We are, in many cases, being extreme.

PCCW-HKT to Offer 10 Gbps Internet Access in Hong Kong

As promised in February 2015, PCCW-HKT has teamed up with Huawei to launch the world's first 10 Gbps fiber to the home service in Hong Kong.

HKT initially will offer the service for specified customer during a pilot phase commencing this quarter, and plans to make it available to all existing GPON customers in the third quarter.

The service promises 10 Gbps download speeds, 1 Gbps Wi-Fi speed and 5 Gbps USB3.0 speed.

For TDS Fixed Segment, "More Advanced Technology" Means Cable TV

Talking about a name change for its Baja Broadband cable TV company, acquired in 2013, TDS reminds observers that the acquisition was made “with the intent of bringing more advanced technology to customers.”

For TDS, the seventh-largest U.S. telco, that says something--”more advanced technology.”

Baja Broadband operates in the U.S. Southwest (New Mexico, Utah, Nevada, Colorado) and Texas.

TDS also has acquired Bend Broadband, serving Bend, Oregon.

To be sure, TDS these days makes most of its money from mobile operations (US Cellular) than fixed network telephony or cable TV. US Cellular serves 4.7 million accounts, while TDS fixed network operations serve 1.1 million accounts. Its cable operations have about 267,000 accounts. TV

Does VoIP Cost 3 Times as Much as PSTN Voice?

The Internet and Mobile Association of India claims a VOIP call costs three times more than a traditional voice call.

"It is a myth that OTT communications are cheaper than the traditional calls," the group insists.

That might strike you as an odd statement. You would be hard pressed to find a single example, anywhere, where making a one-minute VoIP call costs more than a one-minute call, to the same location, using mobile or fixed networks.

The statement only makes sense when looked at it in terms of “total cost of ownership” or “total cost of use” for the customer, even when most consumers likely do not calculate costs in that way.

To the extent the statement is “true,” it is largely a function of high mobile data tariffs, not the actual cost of using VoIP or over the top messaging.

The association says a 60-minute call over IP can consume around 25-35 MB for voice alone and 240 MB for video plus voice.

"A one-minute voice call on Skype to Skype will cost on an average Rs 3 depending on bandwidth (HD Video) and connection speed on 2G or 3G. This translates to Rs 180 per hour or more, which is almost three times the cost of an average call per hour on a normal subscriber," it said.

That sort of price differential is large enough that one would expect consumers to behave rationally, and use the cheaper service. If they are not doing so, something else is going on. The “something else” is that consumers do not include the cost of bandwidth when evaluating the cost of making a call or sending a message.

They apparently only look at incremental cost. As when a consumer evaluates the cost of watching an OTT movie, the actual total cost--including sunk costs--is not relevant.

Consumers look only at the incremental cost--”how much will it cost to watch this movie”? They do not calculate the cost of bandwidth. The same process apparently affects use of OTT messaging and voice.

As usually is the case when Internet-based services confront legacy services, policy decisions directly affect business models. In principle, two methods could be used to create a level playing field.

Legacy regulations could be applied to new providers, or legacy regulations could be lifted. Regulatory parity results, either way. Of course, as a practical and historical model, it almost is the case that existing rules are applied to new players.

Rarely is the choice made to reduce regulations for all providers in a market, to the level of the least-regulated industry segment.

“If the pricing for all services (including VoIP) will be the same, then the current tariffs of voice (75 paise/minute), SMS (20 paise/SMS) and data (25paise/MB) will have to converge to anywhere between 108 paise/MB to 250 paise/MB for data just to maintain the current revenue,” Idea Cellular has argued.

Generally speaking, service providers and Internet app firms might agree that overall ecosystem costs in India are too high. In part, that is caused by regulatory burdens, but also by lack of spectrum.

“India has 40 percent of the spectrum that any other country has,” TRAI Chairman Rahul Khullar has said.

There are only two ways to fix this: either by making more spectrum available or by using it far more efficiently,” Trai chairman Khullar said.

source: Financial Express

"Affordability" is the Biggest Internet Access Hurdle

“Unaffordability is the biggest hurdle” for billions of potential Internet access customers, according to Richard Thanki, University of Southampton graduate student.

Incomes are not high enough to cover costs of basic mobile broadband, Thanki said.

Today’s pricing of fixed, mobile and satellite access are “too costly” to reach two to 2.6 billion people, he said. Consider a monthly cost of $5.

For the “third billion” people on the planet,  average incomes are $5540 per year. That works out to $462 a month. So $5 represents about one percent of monthly income, generally meaning $5 a month is well within the range of affordability, using a five percent of household income affordability limit.

Fourth billion incomes average about $3000 a year, or $250 a month. People living in such households could afford $12.50 a month, using the fiver percent rule of thumb.

The fifth billion people live in households earning about $1771 per year, or about $148 a month. So five percent of that would be $7.40 a month.

The sixth billion cohort earns less. At perhaps $1000 annual income, the problems become more intense, implying monthly income of perhaps $83. At five percent of income, such households might be able to afford spending $4 a month, and no more.

The final billion people earn about $540 a year, or about $45 a month.

Using the five percent rule, such people might be able to afford about $2.25 a month.

Rise of Multi-Purpose Networks Raises Questions Regulators Have No Intention of Addressing

Among the “hard to finesse” issues raised when single-purpose networks become multi-purpose networks is the matter of the bundling of content and distribution. Historically, “radio” content has been bundled with dedicated spectrum, as has “TV broadcasting.”

With the transition to “digital broadcast TV (high definition TV),” former analog broadcast TV has, in principle, been freed up for other purposes, including Internet access and mobile services. As one broadcast TV consultant and former regulator has quipped, “mobile companies would take all the spectrum if they could.”

Beyond the humor, there are broader issues raised by the creation of multi-purpose Internet Protocol networks of all types, especially the ability to deliver any content or communications.

At the same time, in many countries or markets, “most” television and video content already is consumed over a fixed broadband network or a mobile network.

Under such conditions, questions naturally are raised by the practice of using dedicated networks to deliver content, when most people already consume content using multi-purpose networks.

For other reasons, such as the need to remain relevant as content consumption moves away from linear delivery (“broadcasting”), broadcasters are looking at ways to distribute increasingly over the multi-purpose networks.

To matters as pointedly as possible, does it make sense to use communications spectrum to support unicast TV when all forms of TV and video increasingly are consumed using the multi-purpose IP networks?

Programming networks are just that. Their unique function is creation of compelling content. Whether they should also distribute that content over single-purpose, dedicated networks is the growing issue.

That is not to say there is any serious possibility that use of dedicated spectrum to support TV or radio broadcasting is in danger. No regulator anywhere has argued TV broadcasting should be suspended and TV content distributed only using the IP networks. Nor will any do so in the foreseeable future, and possibly ever.

Such a move would not be politically rational, even if some might argue, based on technology efficiency grounds, that is what makes more sense.

Political rationality will win, no matter what the business or technology logic might be.

TV White Spaces Faces a "Chicken or Egg" Problem

Even if he appears to believe TV white spaces has a reasonable enough business case, Google Access Principal Alan Norman nevertheless says some certainty would be needed before many private sector entities would invest money to use the spectrum. One measure that might help, said Norman, is if Ofcom, for example, could guarantee some number of channels (8 MHz each) would be available for use.

The present problem is that it is unclear how much bandwidth might be made available in the U.K. market.

The other problem, candidly illustrated by Rachel Clark, Ofcom director of spectrum policy, is that “we have to tell people who want to use TV white spaces that we cannot guarantee you will have access every single day. That is a business model challenge.”

That illustrates the element of uncertainty. Though some app providers could live with a “maybe the app can be used, and maybe it cannot, at any specific time of day, or day of the week, very few Internet service providers would be too comfortable trying to sell consumers an access service that might, or might not, work.

It might be fine if the access costs nothing. If it isn’t available, the consumer has risked no money in any case.

The problem will come from ISPs who charge for access, or device suppliers who say their gear will work (inside the home or as an access service).

Those are some of the issues that impede more rapid progress for TV white spaces authorization, then increase in equipment supply and service provider activity and use cases.

It’s a classic “chicken and egg” problem: Without a clear sense of business case, regulators might be cautious about releasing the spectrum. Without a clear sense of when, how much and how spectrum could be released, suppliers have less interest in creating gear, and app providers and ISPs will hold back on launching service.

T-Mobile US and Sprint Might be Taking Share Mostly from Prepaid Customer Segment

Sprint's most recent quarter provides yet one more data point about mobile market share and the impact of marketing wars. Though there is some evidence of lower average revenue per account, at AT&T and Verizon, there is nothing dramatic. Churn rates haven’t changed noticeably. Subscriber net additions remain stable.

T-Mobile US continues to add postpaid accounts at a rapid clip, but there again, it does not seem that net additions are coming at the expense of AT&T or Verizon. Tablet account additions might explain some of the net additions data. You might well argue that, were it not for tablet account additions, AT&T and Verizon’s net adds would look worse.

Sprint’s results offer a plausible explanation for what we see. Sprint lost a net 201,000 postpaid phone accounts during the quarter. Yet Sprint reported a net gain of 211,000 postpaid accounts, so one has to assume most of those were tablets.

Perhaps the clue is that Sprint’s net additions were heavy in the prepaid category.

Sprint reported adding a net 546,000 prepaid phone, and 349,000 net prepaid tablet accounts.

T-Mobile US, in its most-recent quarter, added 991,000 postpaid phone customers and 134,000 postpaid mobile broadband customers. Since neither AT&T nor Verizon seem to be especially challenged in the postpaid account area, one might suggest the customers are coming from the prepaid segment, including prepaid accounts that became postpaid accounts, and prepaid accounts that switched to branded T-Mobile US postpaid accounts.

T-Mobile added 73,000 branded prepaid customers quarter, as well as 620,000 wholesale customers in the period, including 479,000 mobile virtual network operator  customers and 141,000 M2M connections.

So maybe T-Mobile US and Sprint mostly are eroding market share of prepaid providers, as prices dip towards levels prepaid customers had been used to paying.

Aside from raising the possibility that U.S. mobile market share is being more concentrated among the “big four” mobile carriers, the danger is that Sprint and T-Mobile US are spending lots of marketing effort and money to increase their share of prepaid customers.

In one sense that is helpful. In another sense, though T-Mobile US is gaining postpaid market share, Sprint might still be slipping.

"Lease Versus Buy" Decisions Rarely, if Ever, Indicate Core Business Strategy

With the caveat that any firm involved in a commercial dispute with another firm will use all lawful tools at its disposal to get its way, sometimes language gets a little heated. Florida Power and Light, for example, has a rather normal dispute with Verizon about pole attachment rates.

Buyers and sellers have disagreed about rates for pole attachments or inaction on requests for as long as pole users have wanted access to utility or telephone poles.

But it goes too far when FPL attorneys suggest “Verizon has made clear that it intends to be out of the wireline business  within the next 10 years.”  The stated reason for that belief is that Verizon “no longer wants to be a pole owner.”  

But Verizon has sold its tower network. Does that mean it does not want to be in the mobile business, or is that just a prudent business decision related to use of capital? Sprint, T-Mobile US  and AT&T  have made the same decisions.

Does anybody really believe any of those firms really wants to get out of the mobile business (with the exception of T-Mobile US, whose owners already have said they want to exit the U.S. market).

That is not to make any assumptions about what Verizon might prefer to do, long term, about any of its lines of business or assets. Some of us would make the argument that, most places in the world, one would choose to be in the mobile, rather than fixed networks business, if possible.

If a service provider decides to lease, rather than build, any particular asset, that is not a clear statement about its interest in competing in a particular line of business.

Many could speculate about what fixed network telcos might do, in the future. It wouldn’t be at all unusual to argue that the eventual course, for many companies, is to exit a business by selling assets. That is true for most small and independent U.S. telcos, both U.S. satellite video companies, nearly all application providers and most equipment suppliers as well.

The point is that, in and of itself, leasing an asset instead of building does not necessarily or even usually provide clues about a firm’s interest in a business.

AT&T Access Lines Fall, Only Issue is How Much, and What it Means

Lots of observers are quite worried about the gatekeeper power wielded by some access service providers. Others might argue the whole fixed network business looks challenged.

The number of access lines generating revenue for AT&T’s fixed networks business fell as much as 49 percent between 2010 and 2014. That doesn’t directly equate to “lost voice revenue” since some of the shrinkage is caused by a shift of customers to the U-verse category.

In 2012, AT&T reported having 15.7 million voice accounts supplied over legacy switched access lines. By 2014, that had dropped to about 9.2 million, a drop of nearly 41 percent in two years.

On the other hand, digital voice accounts grew from 2.9 million in 2012 to nearly 4.8 million in 2014, a gain of about 24 percent. Still, on a net basis, AT&T lost about 4.6 million voice accounts.

AT&T has a similar issue as it reports Internet access subscriptions, as many legacy digital subscriber line accounts are being displaced by the similar function on U-verse. In 2012, AT&T had about 7.7 million U-verse Internet access accounts in service. In 2014 AT&T had about 12.2 million U-verse Internet access accounts.

Digital subscriber lines in service in 2012 were about 8.7 million. By 2014 those lines had dropped to about 3.8 million.

So U-verse Internet access accounts grew 17.6 percent between 2013 and 2014, while DSL accounts shrank about 37 percent over the same time period. On a net basis, AT&T Internet access lines shrank about 2.4 percent.

To be sure, linear video subscriptions, which amounted to about 4.5 million in 2012, grew by 2014 to about 4.8 accounts.

That is why entertainment video, in the form of accounts potentially added by DirecTV, make sense to AT&T management. In addition to other potential value, the acquisition would help AT&T maintain customer account growth at a time when its other lines of consumer services are shrinking.

On a net basis, AT&T accounts dropped from 27.2 million in 2012 to 18.2 by 2014.

In a great many cases, an argument can be made the the local telco is the number-two provider of fixed network services, behind the cable TV operator.

It isn't so clear how powerful a gatekeeper function can be exercised, if these trends continue. To use the old regulatory language, it isn't so clear who the "dominant provider" is in any specific market.

Nor is it clear whether other gatekeeper functions are exercised in other parts of the ecosystem, or how the relevant markets ought to be defined.

Screen Size Matters

Though many initially were skeptical, smartphone screen size matters in many markets. In the first quarter of 2015, phablets were 21 percent of all U.S. smartphone sales, for example.

In the first quarter of 2014, phablet share was about six percent, according to Kantar Worldpanel ComTech.

Apple's iPhone 6 Plus represented 44 percent market share. Screen size was cited as the main reason for buying a particular phone by both 43 percent of all iOS buyers and 47 percent of Android buyers.

Google Fi has "Nailed It:" "Pay Only for What You Use" is Both Fair and Efficient

There are some profound implications for retail Internet pricing as communities across the thirsty U.S. west grapple with “water shortages.” Substitute “usage caps” for that phrase. They are the same sorts of economic issues.

In both cases, a product “essential for life” has pricing mechanisms that encourage “excessive use” by some, and there is serious intent now to align “fair use” either by market incentives or “rule by fiat” to “reduce consumption” (“ensure fair access”).

The key: “Tiered pricing offers a balance between fairness and efficiency,” said Kenneth A. Baerenklau, associate professor of environmental economics and policy at the University of California, Riverside.

In other words, consumers who use more, pay more. That simple pricing structure encourages people to act as stewards of their money.

In the case of water, it is because higher use incurs higher rates--the charges are non-linear.

In the case of internet access, those who advocate “unlimited” or “effectively unlimited” service plans are like water utilities that charge low, uniform prices. In other cases, there are higher rates for higher consumption, but not significantly higher rates.

In the case of Internet access, Google Fi encourages what it says is a simpler and fairer way to charge customers for using mobile Internet access services: there is a flat fee based on usage. The more you use, the more you pay.

To be sure, Google also would argue that it is “pay only for what you use.”

That goes further than does T-Mobile US or AT&T, both of which offer “roll over” of unused data. Those efforts are ways of providing some end user value for purchased data allotments.

Allowing users to “roll over” unused capacity is helpful, up to a point. It is more like a offering consumers protection against overages, though. The roll over usage allotment acts like a cushion against sudden spikes in monthly usage “over plan.”

Fi’s policy is much more transparent and “fair:” you really only pay for what you use. That is the way people pay for water consumption. Ironically, “pay only for what you use,” with linear pricing, is precisely the way service providers likely prefer to charge, and an approach few “consumer advocates” support.

The point: charging for an important commodity based on usage encourages people not to waste the resource. And even if we are going to be getting “abundance” in terms of speed, and “better pricing” for Internet access, we still are not tapping self interest. Our pricing policies do not encourage people to think about their usage.

Fi is a major advance, in that sense. It not only is drop dead simple, it encourages users and customers to think about their consumption. Some might argue it is not important to encourage people to “waste” capacity or bandwidth.

Of course it is. We always should be efficient and have a “low impact” whenever any major resource is used. There always are environmental and other costs (direct and indirect) incurred when we use any major resource.

Fi has proposed a better way: not only “fairer” but also designed to encourage people to think about their usage, even when the direct “value” pitch is “pay only for what you use.”

Suddenlink Will Spend Just $200 Per Passing to Get to a Gigabit

Suddenlink, the fifth-largest U.S. cable TV operator with about 1.15 million subscribers, says it will pass about 85 percent of all its locations with gigabit high speed access by the end of 2017.

Suddenlink will do so in stages, initially focusing on boosting speeds across the board. “Once fully phased in, the plan calls for our flagship Internet speed to increase from 15 to 200 Mbps and our top Internet speed to increase from over 100 Mbps to 1 Gbps in a vast majority of our markets,” said Jerry Kent, Suddenlink chairman and CEO. “We expect to complete these enhancements in a phased, market-by-market approach, focusing first on our largest and most competitive markets.”

“In 2014 and the first quarter of 2015, we completed the initial phases of Operation GigaSpeed in 37 markets, which serve approximately 57% of our residential high-speed Internet customers,” said Kent. “Those investments allowed us to increase the flagship Internet speed from 15 Mbps to 50 Mbps and to increase our top Internet speed to up to 150 Mbps to 300 Mbps in those markets.”

"Starting in the second half of 2014 and extending through 2017, we expect to invest up to $230 million of capital expenditures to significantly enhance our Internet speeds in markets serving 94 percent of our high-speed Internet customers and ultimately position our network to offer speeds of up to 1 gigabit per second ("Gbps") in markets serving nearly 85% of our high-speed Internet customers," said Kent.

So do the math: that works out to $200 per customer. If you want to know about the cost advantage cable operators have, using hybrid fiber coax, that’s quantifiable answer.

No U.S. telco can match that cost per passing to get to a gigabit.