D.C. Circuit Court Hears Arguments on FCC "Internet Access is a Common Carrier Service" Ruling

The D.C. Circuit has held oral arguments about the legality of the Federal Communications Commission's  Open Internet Order.

As always, observers try to infer what justices are thinking by their line of questioning. And, predictably, both supporters and detractors heard questioning they believe supports their favored outcomes.

The justices “generally agreed that they are governed by the Supreme Court's holding in Brand X,” said Phoenix Center President Lawrence J. Spiwak, though granting that the FCC has wide latitude to interpret how Brand X should apply, Spiwak said.

That said, the court appeared skeptical of the FCC's reclassification of wireless broadband as a Title II common carrier service due to FCC's gerrymandering of the definition of the term "public switched telephone network," Spiwak said.

The court also seemed concerned over the lack of public notice of the legal theory the Commission used to reclassify mobile broadband. “As such, there is a better chance of the court overturning FCC on this issue,” said Spiwak. 

Others believe common carrier regulation will be upheld.  

Assuming the court upholds the FCC's decision to reclassify broadband as a Title II common carrier service, the court did not appear convinced that the FCC's application of Title II was entirely legitimate, Spiwak said.

The court seemed to have two significant concerns with the Commission's actions.

First, while the FCC stated that it was not classifying terminating access as a Title II service, the Commission nonetheless was regulating terminating access as a common carrier service. As such, this outcome runs directly contrary to the court's holding in Verizon.

Second, assuming terminating access is a Title II service, then the FCC's paid prioritization rule violates basic principles of ratemaking because it both requires a confiscatory price of "zero" under Section 201 (even though edge providers impose a cost on the network) and prevents "reasonable" discrimination as expressly permitted by Section 202."

Either way, one might argue, there is room for the Title II rules to be overturned.

U.S. Mobile Data Prices Have Room to Fall Much More, Sprint Exec Says

Lower prices are a persistent concern of executives in any part of the telecom business, as much as lower prices stimulate usage. The issue is how much lower retail prices can go, in any market segment, before sustainability becomes a key issue.

Sprint Corp. Chief Financial Officer Tarek Robbiati thinks U.S. mobile data prices  have room to fall further. Noting that U.S. average revenues per user are “very, very high,” Robbiti argued there is room for mobile data prices to fall further. “There is headroom," Robbiati said.

In a perhaps worrying statement, Robbiati noted that "in Hong Kong you can get very, very decent 4G data packages on 4G networks for less than $5, which is extraordinary.

"This is real priced-based competition, we haven't felt it here yet," he said.

U.K. Data Consumption Up 40% in One Year

Over the past year, the average amount of data consumption by U.K. fixed network Internet access consumers has increased to 82 GBytes a month, an average increase of over 40 percent over last-year levels, Ofcom reports.

Video entertainment represents about 65 percent of the usage, Ofcom estimates.

Customers with broadband connections faster than 40 Mbps are driving the increase in monthly data use, with an average increase of around 47 percent, Ofcom reports.

More than 66 percent of the adult population now has a smartphone, up by 27 percentage points since 2012. That, plus increased 3G and 4G network coverage has resulted in consumption of about  870 MB of data per month, an increase of 64 percent since 2014.

Still, fixed network data consumption is about two orders of magnitude higher than mobile usage. Video and web browsing account for more than 80 percent of overall data use on mobile networks.

When Will New Competitors Lead the Enterprise Services Market?

Verizon enterprise revenues, and to a lesser extent, AT&T enterprise segment earnings suggest how U.S. and other telecom markets have changed.

It might once have been illogical to believe that new providers--not the largest telcos--would eventually claim the majority of enterprise customer revenues.

Enterprise, after all, “always” had been a tier-one service provider area of strength, in terms of capabilities. But the Internet and competition have changed the landscape.

To the extent one can argue that tier-one telcos ever had been leading contenders in the broader information technology business, new providers such as Amazon Web Services, IBM, Microsoft, Google and others are challenging that notion.

On the transport side of the business, Level 3 Communications, Zayo  and many others are siphoning off long haul, high capacity business, while many major enterprises--especially those in the Internet app businesses, now operate their own data center and long haul networks.

Newer specialists long have been influential providers in the metro fiber network business, with competitive providers--lead now by cable TV companies--very important actors in the small and mid-size business customer segment.

That is not to say every tier-one service provider, across the globe, will have similar fortunes. Even in the U.S. market, AT&T seems to be doing better than Verizon in the enterprise customer segment.

AT&T “Business Solutions” revenues were up 1.2 percent year over year in the third quarter of 2015.

AT&T fixed network business data revenues also grew for the fourth consecutive quarter. Strategic business services revenues of $2.8 billion were up 12.6 percent and up 15.2 percent when adjusted for foreign exchange.

Verizon arguable did not fare as well, perhaps in part because 69 percent of Verizon revenue now is generated by mobility services. Consumer fixed network services now generate 12 percent of total revenue. So 81 percent of total revenues were earned from mobility and consumer services. Everything else amounted to 19 percent of total revenue.

In the third quarter of 2015, Verizon “Global Enterprise” revenue was down 4.9 percent year over year, while “Global Wholesale” revenue was down 5.1 percent year over year.

In other words, though AT&T arguably still is growing its enterprise revenues, Verizon is slipping.

For a firm with operations in key Northeast U.S. markets including business-rich New York city and Boston, as well as Washington, D.C., that might come as a bit of a shock.

Over time, it might be easy enough to predict, Verizon is going to lose more share to its competition. That is one reason why many contestants no longer fear competing against the tier one former incumbents.

Google to Build Metro Fiber Network Serving Accra, Ghana

In November 2013, Google announced a metro fiber network serving Kampala, Uganda, designed to support third-party Internet service providers.

Project Link connects ISP partners providers to long-distance networks that in turn reach Internet access points.

Now Google says it will build a similar network in Ghana, serving Accra. “While undersea cables reach the coasts, the challenge remains to bring abundant bandwidth closer to Internet users in Ghana’s largest cities,” Google says.

Across Accra, Tema, and Kumasi, Project Link will build more than 1,200 kilometers of optical fiber cables to connect local ISPs and mobile service provider access or trunking networks to the metro optical network.

“Since we launched Project Link in Kampala, we’ve built over 700 kilometers of fiber across the city,” said Estelle Akofio-Sowah, Google Ghana Country Manager. “Now, we are working with a dozen local ISPs and MNOs, such as Vodafone Uganda and One Solutions, to improve the quality of Internet access in Uganda’s capital.”

Moving "Up the Stack" and "Across the Value Chain" to Reduce Risk, Raise Margins

“Telecom” value chains are hard to envision these days as the market itself changes, and content and applications assume greater roles.

Historically, when the whole value chain was organized around voice services, matters were simpler, with infrastructure providers on one end and then service providers or consumers on the other.

These days, it is not so easy to illustrate the expanded value chain, since, with the advent of Internet apps and content, the value chain contains many more participants.

Add coming Internet of Things value chains and we might not be able to visualize the whole value chain with any degree of granularity.

But we can all agree that some portions of the value chain have higher profit margins than others. That is perhaps most obvious in the Internet application and content value chains, but likely also makes sense in the traditional communications value chains as well.

Many would likely agree that in the coming mobile content business, profit margins will be relatively high on the content owner part of the value chain (“content is king”). There will be more disagreement about profit margin at the mobile operator portion of the value chain, though some would argue “distribution” is among the more-profitable parts of the value chain (“distribution is king”).

Some also would argue that profit margins are lower, and risk is higher, in many intermediate parts of the value chain. And it is getting harder to distinguish between roles within the value chain, and the actual positions of actors in the value chain.

Netflix provides a good example of the former issue, Comcast a good example of the latter.

Is Netflix a content developer, content management provider, rights owner or distributor. “Yes,” is the answer, as Netflix increasingly participates in all of those roles, even if its direct revenue comes mostly from “distribution.”

Comcast is even more evenly-balanced in terms of roles, generating huge amounts of direct revenue in distribution (cable TV), aggregation (NBC networks) and content rights (Universal Studios).

Such divergences between risk and profit margin might become more important drivers of actor behavior in the future, as rational managers and firms will try to reduce risk and increase profit margin. In many cases, those objectives can best be met only by creating new roles that come with higher value and therefore profit margins.

Those of you familiar with the mobile virtual network operator and competitive local exchange carrier businesses know the dilemma. As capital intensive and expensive as owned access networks are, it is no simple matter to use wholesale access as the platform for a business model.

Simply put, any business model reliant on wholesale access is going to be margin challenged from the outset. The economics of wholesale transport often are a different matter, as anyone immersed in the undersea or long haul transport business will attest.

On the other hand, many business models overcome such obstacles by combining operations in multiple roles, some with high margins, some with lower margins. Some roles might arguably come with less risk, while other roles carry more inherent risk.

But it might nearly always make sense to consider how operating in multiple roles can reduce risk and raise margins. That is why one always hears so much talk of “moving up the stack.” Quite frequently, such moves also require moving “across the value chain.”

source: Consultant Value Added

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source: MVNO Africa

2016 Might be the Year Half of U.S. Households are "Mobile Only"

Some trends--such as abandonment of fixed network voice connections--has happened in slow motion, which has a useful thing for service providers coping with the negative trends.

More than 47 percent of U.S. homes were “mobile only” for voice service in the first half of 2015, up 3.4 percentage points since the first half of 2014, according to the U.S. National Center for Health Statistics.

At current growth rates, it is conceivable that half of U.S. homes will have "cut the cord" by the end of 2016.

Fully 71 percent of  adults aged 25 to 29, and 68 percent of adults 30 to 34 were mobile mobile only.

In the 18 to 24 bracket, 59 percent are mobile only, while in the 35 to 44 age bracket, 57 percent were mobile only.

In the 45 to 64 age cohort, 41 percent were mobile only and even in the 65 or older cohort some 19 percent were mobile only.

Perhaps the only unanswered question is whether such behaviors will change as younger cohorts age. Once upon a time, some observers argued that younger consumers who did not buy cable TV subscriptions would do so as they got older and had children.

There is less certainty about that change, anymore. So it is unclear whether present habits will change as younger consumers get older.

Also, fully 85 percent of adults living only with unrelated adult roommates were mobile only. And 67 percent of renters were mobile only. Some 37 percent of homeowners also were mobile only.

As you might also guess, 59 percent of adults living in poverty and 54 percent of adults living in near poverty were mobile only. But even 46 percent of higher income adults were mobile only.

One might argue that, were it not for triple play packages, fixed network voice adoption would be even lower than it is.

The good news is that the steady and long-standing declining trend has occurred so predictably slowly that service providers have had time to create replacement revenue streams, an effort that continues as the remaining “legacy services (entertainment video and high speed access) remain under pressure.

The former suffers from declining demand, the latter from higher levels of competition, despite a slow upward trend in revenues primarily driven by a shift of demand to higher-speed services.

Even When They Don't Know Their Internet Access Speed, They Know When the Experience Requires More Bandwidth

Some nine percent of U.S. broadband households switched service providers in the past 12 months, according to Parks Associates. 

The nine-percent churn rate is significantly less than one percent a month, a low churn rate for a consumer service, one might argue, suggesting that consumers have not been massively unhappy with their current providers and the value-price relationship.

The reasons for the churn behavior tend to boil down to a switch driven by buyer perceptions of a better price-value relationships. 

About 35 percent of the changes were to get a faster service. Some 18 percent of the switchers switched providers to get the same speed at a lower price.

The study suggests that more than 25 percent of U.S. broadband households believe that their present broadband speed is faster than needed, while 10 percent plan to upgrade to a more expensive but faster service.

The study suggests 43 percent of subscribers do not know their current broadband speed. What they do seem to understand is the experience that they have online, particularly as it relates to use of digital media.

As you might guess, multi-person households sharing a connection, especially those where respondents own multiple connected entertainment devices are more likely than others to plan to upgrade their broadband service, Parks Associates says.

Survey Finds 39% of Respondents Have Never Bought Linear Video

You might not be too surprised if a survey finds 19 percent of respondents to a survey on video entertainment usage say they cut linear video service within the last year. You might be more surprised to learn that nearly 39 percent have never purchased a linear video service.

That suggests the long term problem linear video providers face: there is dwindling demand for the current product, as well as the near term problem, namely churn and abandonment.

The survey of 3150 consumers on behalf of Digitalsmiths in the United States and Canada, sponsored by Digitalsmiths, also found churn behavior increasing. In the third quarter of 2015, eight percent of respondents said they had switched service providers in the last three months, about a 2.7 percent monthly rate, and higher than most major triple play providers have been reporting.

Asked what they might do over the next six months, 46.5 percent of respondents said they would either cut linear service altogether (4.8 percent), change to another linear provider (7.2 percent), switch to an online app or rental service (2.7 percent). Some 32 percent said they “might” change services.

The survey found 82.5 percent of respondents watch between one and 10 channels, an increase of 2.1 percent year over year and 2.3 percent over two years. That is generally consistent with historical findings, but shows a slight increase over time as more channels have been added to channel lineups.

Respondents who watch 11 or more channels decreased 2.1 percent year over year and decreased 2.3 percent over two years.

Fully 56.3 percent of respondents have over-the-top subscription services, an increase of 3.6 percent, year over year, and 8.1 percent over two years.

Of those respondents who are cord-cutters or cord-nevers, 74.5 percent buy  a monthly subscription service, compared to 55.1 percent of linear TV subscribers. Netflix and Hulu are the top OTT services used by respondents who do not subscribe to linear TV.

Some 36.1 percent of respondents use pay-per-rental services such as Redbox Kiosks, iTunes, Amazon Prime Instant Video or similar services.

While there was a slight 2.2 percent decrease in usage quarter over quarter, these services did experience increases of 7.1 percent year over year.

Some 41 percent of respondents spend between $3 and $11 a month on pay-per-rental services.

However, across the board overall spend on these services decreased 2.5 percent quarter over quarter and , 5.3 percent year over year.

Perhaps nobody is much surprised by any of those trends, though some might disagree with the magnitude of the reported behavior.

source: Digitalsmiths

Supporters Hope Carrier Wi-Fi Will Create New Business Models

In the near term, hotspot network business models will be driven by existing business models--faster access, advertising, location and venue services, according to Maravedis. For the most part, business models rely on indirect value--such as churn reduction or data offload--rather than direct subscription revenue or advertising, for example.

The search for new business models, at the moment, centers on the ability to create seamless carrier quality connections, to support voice subscription revenue or enterprise services.

The installed base of carrier-grade hotspots will rise at a compound annual rate of growth between four percent and 14 percent,  depending on the region.

Asia-Pacific will still account for 66 percent of the total world base in 2020, despite the expansion in other regions.

On average, each country  has over 200,000 hotspots (excluding homespots) deployed under its direct control and one million available to its subscribers by roaming or wholesale deals. The figurs are skewed by a few larger telcos.

source: Maravedis

Vodafone Expands Gigabit Networks in Ireland, Portugal

Vodafone Group has begun deploying gigabit Internet access services in Ireland as part of its initiative to connect small towns (4,000 homes or more) to fiber-to-home networks by the end of 2018.

Carrigaline in Country Cork is the first of 51 Irish towns to receive access.

Ireland is the first country in Europe to use electricity infrastructure to deploy end-to-end fiber directly to the premises on a nationwide basis.

Vodafone Group also announced a €125 million expansion of its FTTH network in Portugal, offering speeds of up to 1 gigabit per second to 2.75 million homes and businesses across the country by the end of 2016.

To date, Vodafone has connected 2.2 million Portuguese homes and businesses to FTTH networks,

Vodafone is also building a new gigabit FTTH network in Spain serving more than two million homes and businesses, and is in discussions with Italian electricity company Enel which has announced plans to create a new infrastructure company to build a national FTTH network open to all operators across Italy.

What Must be Done Next to Stimulate Faster Internet Adoption Across South Asia?

Spectrum Futures has posted a new white paper: Increasing Internet Access Availability Across South Asia: What to Do Next. 

In many cases, the answers start with an understanding of where and how Internet access will be used. 

By 2020, for example, 54 percent of South Asia mobile customers will be using smartphones, according to GSMA estimates.  Those choices by consumers necessarily drive demand for more bandwidth.

Between 2015 and 2021, data consumption per smartphone will grow nine times in Western Europe, five times in Central and Eastern Europe, nearly six times in the Middle East and Africa, nearly seven times in Asia Pacific, nearly six times in North American and five times in South America.

In much of Asia, as in some other regions, the smartphone is the gateway to use of the Internet. In India, for example, about 57 percent of the time, the smartphone is the access device of choice, according to the Google Consumer Barometer.

In the Philippines, about 39 percent of the time, the smartphone is the preferred or more-used access device.

Smartphone adoption therefore will be a key driver of bandwidth demand, since mobile Internet consumption on smartphones is growing at a compound annual growth rate of 50 percent.

It also goes without saying that attractive applications and services are the reasons people want to use smartphones and the Internet, which is why many believe programs such as "Free Basics" make sense. 

Many who do not yet use the Internet across South Asia say they do not have a need, or do not know why they would want to use the Internet. So allowing people to sample the Internet is a proven way to boost demand by allowing people to discover the value of Internet apps.

And though it will not be the only platform for Internet access, there can be no denying mobile's huge role. 

There will be 2.51 billion mobile phone users in the Asia-Pacific region in 2015, a figure equal to 62.5 percent of the population, rising to 69.4 percent by 2019, according to eMarketer.

Also, Asia will account for 39 percent of global data consumption by 2019, as a result, according to Cisco. And India will represent a huge part of the growth.

India is on track to surpass half a billion mobile subscribers by the end of the year, according to a new GSMA Intelligence study. By 2020, India will account for almost half of all the subscriber growth expected in the Asia Pacific region.

The Mobile Economy: India 2015 notes that 13 percent of the world’s mobile subscribers reside in India. At the  end of 2014, India’s mobile subscriber penetration rate was about 36 percent of the population, compared to a 50 percent global average.

But that is going to change, fast.

The subscriber penetration rate in India is forecast to reach 54 per cent by 2020 as many millions more are connected by mobile.

India had 453 million unique mobile subscribers at the end of 2014, but is forecast to surpass 500 million by the end of 2015 and add a further 250 million subscribers by 2020 to reach 734 million.  

ISDN Used to be the "Next Generation Network"

Some of us can remember when ISDN was the "next generation network." Then we shifted to broadband ISDN (Asynchronous Transfer Mode). Then the Internet hit. Now the next generation network is built on Internet Protocol. 

That wasn't the way network architects in the telecom world expected matters to unfold. 

Calling Service Ringo Gets Blocked in India

Calling service Ringo, which has been offering international calling and recently launched domestic calling service in India, says domestic calling on the service has been blocked, apparently by its own wholesale service provider. Ringo says it is “a fully legal, compliant service, and follows all aspects of the DoT and TRAI regulations.”

Ringo uses wholesale minutes purchased from an underlying carrier, and is not an over the top service, so the reason for the blocking of domestic calling on Nov. 30, 2015,  is unclear.

“Until we manage to get an intervention from relevant regulatory authorities to unblock our service, none of our domestic calls are going through,” Ringo said.

The blocking is curious. Ringo buys minutes in bulk from carriers, offering local calls for as low as 19 paise/min (less than a cent). To put that in comparison, Airtel charges around ₹1.40 (20 cents) per minute, and if you're on a reduced tariff plan, that comes down to 40paise per minute (six cents).

That existing mobile service providers would not be happy about the additional competition is  understandable. Why an apparently lawful service is being blocked, however, is not clear.

The Ringo app allows users to call any landline or mobile in the country at a flat rate of 19paise per minute (less than half a cent), without any additional charges.

Unlike other VOIP apps, Ringo uses carrier networks instead of phone data or the Internet for a phone calls.

Using Big Data to Slice Cost of Assessing Creditworthiness for Microloans

By some estimates,  4.5 billion people do not have any kind of formal credit score that could help them qualify for loans, but up to 90 percent of the world’s population does have access to mobile phones.

As it turns out, mobile phone behavior can establish a  “financial identity” that provides many of the advantages of a credit score, when entities want to make loans, typically microloans. By reducing risk of non-payment, such measures could enable loans made with smaller lending fees.

That, obviously, would help borrowers as well as lenders. Firms such as Branch (a nod to its mission of serving as a branchless bank) use phone data to assess borrower likelihood to repay on loans of $25 or less in Kenya, and mobile phones as the means to send money and receive repayments.

The app, available on Google Play, can make a loan determination and deliver a result to the mobile phone in five minutes.

Branch collects data from the potential borrower’s phone, including information about the device, text message logs, call logs, and contact lists. Branch then uses the  information to assess creditworthiness.

In some cases, the value comes from use of the phone to record spending and saving data entered manually.

In other cases, non-financial behavior can be used to create a proxy for a credit score. Kreditech says it can use 20,000 measures based on phone behavior to make an assessment. Traditional banks might use 300 measures.

In addition to new commercial microlending apps and efforts, the original impetus might have been non-profit microlending by outfits such as Kiva, which works with dozens of commercial partners.

The use of algorithms to assess risk obviously will help to cut the costs of screening, which in turn arguably contributes to the high interest rates microloans tend to feature.

source: Wall Street Journal