Will Regulators Allow ISPs to Build Where There is Demand?

Should AT&T get municipal authority to build its proposed 1-Gbps access network in Austin, Texas, new issues will be raised. Some providers, such as Sonic.net, have been extending 1-Gbps service first to the places Sonic.net believes there will be the highest demand. 

Sonic.net is "prioritizing our fiber build-out efforts on communities where we see very high uptake of our Fusion Broadband Phone service." Google has done the same in Kansas City, Mo. and Kansas City, Kan. 

And now AT&T says it wants the same terms and conditions as Google Fiber got, before starting its own 1-Gbps upgrade in Austin. 

That raises an issue. Traditionally, municipal franchise authorities have required universal coverage of all homes in a franchise area as a condition of getting a franchise. That can raise overall deployment costs high enough that many would-be providers are discouraged from trying to do so. 

So the broader issue is whether regulators will relent, allowing suppliers to build where there is demand, rather than stipulating that facilities be built where there is little demand, or requiring suppliers to build low-demand areas roughly as fast as they build high-demand areas.

Other proponents of gigablit service, including Gig.U and Ignite, as well as the Federal Communications Commission, recognize that gigabit service has to occur first in selected parts of communities. 

The issue is whether it is not realistic to recognize that similar priorities might be necessary if the fastest extension of gigabit service is desirable. The point is that gigabit networks are expensive. And it might be that the best way to encourage such upgrades is to foster "spot deployments" as widely as possible, without immediately worrying about "universal service."

That isn't the way regulated communications has been governed in the past. But new policies that do not require universal access might speed up investment. There are public policy issues, to be sure. But gigabit networks are a gamble. 

Perhaps we should encourage providers to make the gamble by loosening requirements for universal service, in preference for "build everywhere you can make money, as fast as possible." Oddly enough, if prices do not fall until there is competition and scale, which will lead to applications innovation and then more scale, one has to "prime the pump."

What Google is Up to In Travel

It isn't unusual when a firm buys an asset that will help build an important new business. It is rare for a firm to buy a key asset and then sell it again, in less than 12 months. And that's what Google did with Frommer's Travel, part of a broader effort to build a mobile commerce revenue stream to augment its advertising revenue streams.

In saying it wants to turn intention into action, Google is providing more of its own content to Web surfers by adding information on hotels and restaurants around the world, a bid to attract users and advertisers from sites such as Yelp.

Travel is an important category for Google as it allows Google sites to become a destination. That's why Google bought Zagat and travel information provider ITA Software. 

Google looks to become a one-stop-shop for not only product search but anything to do with the process of gathering information about travel and destinations. But 


Google has other travel related interests, ranging from mobile payments to "local deals." In some ways, airline schedules are another form of "search." But Google would seem to have ambitions across a broader swath of the shopping process. 

The Reason Why Broadcasters Want to Kill Aereo

In 2012, local TV stations earned about 6.5 percent of total revenue from fees paid by cable TV, satellite TV and telco TV video service providers to carry the local TV signals on their video subscription services.

By 2017, that could grow to 9.5 percent of total revenue, according to  BIA/Kelsey. Some might note that affiliate fees also are paid to the broadcasting network with which each local broadcaster has affiliated. 

Such retransmission fees are the reason broadcasters are trying to kill Aereo and Aereokiller. 

10% of U.K. Mobile Users Routinely Use a Shopping App

More than half of European online adults owning two or more connected devices, Forrester Research now says. As you would guess, that has indirect and direct implications for mobile commerce and e-commerce and other parts of the Internet ecosystem.

The United Kingdom has the highest percentage of consumers going online regularly, the most online shopping and the most mobile Internet usage. Some 10 percent  of U.K. consumers with a mobile phone have used a shopping app in the past month.

Germany has the largest online audience in Europe. Almost three in four German online adults have ordered products or services online in the past three months, spending an average of €225. But Germans do not use  newer e-commerce modes such as social or mobile commerce.

Compared with Spain and the United Kingdom, French online consumers are less likely to own multiple connected devices; they are also, overall, the least likely across the five countries to own a laptop, tablet, smartphone, or netbook.

About 58 percent of Italian adults and 69 percent of Spanish adults go online monthly.. However, those who are online are very active social media users. In both countries, 66 percent of the online population has a Facebook account, and they are more likely to be active content creators.

"Nobody Rides for Free: Issue in Mobile Payments and Telecom

MasterCard recently has instituted a new fee structure for “staged” digital wallet providers such as Google Wallet, PayPal and Square, In practical terms, it means the cost of doing business, for those digital wallets, is higher than it used to be, when using MasterCard bank-issued cards are invoked by wallet users.

The point is that although the mobile commerce ecosystem now is a battleground on many fronts, upstart disruption agents now have to confront incumbent resistance. 

The process is reminiscent of what happened when U.S. local telecommunications stopped being a monopoly after 1996. There was an explosion of new competition. Regulatory rules favored the attackers, up to a point. 

But incumbents counterattacked, with prices charged for use of their networks being one element of the resistance. 

Chris A. McWilton, MasterCard’s U.S. Markets president, said PayPal “rides for free"  on the back of other business models." Does that sound familiar? 

Back in 2006, then AT&T CEO, Ed Whitacre complained that “some people” want AT&T to act as a “dumb pipe that just keeps getting bigger and bigger.”

“If you build it, you have to make a return on that,” Whitacre said.  “Nobody gets a free ride , that’s all.”

It's the same language, and with similar justifications. Of course, there are differences. Business partners cannot use the MasterCard network or the public switched telephone network without paying the network owners. Both of those networks are "closed."

The actual problem AT&T was complaining about was use of the Internet access service. There's a key difference, or at least an important nuance. Use of the global voice network is a fee for service, as is use of MasterCard's clearing and settlements network.

Though users pay a fee to get access to the Internet from an ISP, they do not pay for use of the Internet.

Still, you get the point. Incumbents faced with disruptive challenges to their business model will eventually use all the powers of incumbency, when they can, to fight back. Veterans of the U.S. competitive local exchange carrier business will recall just how effective incumbents can be. 

Despite the familiar refrain that "the present year" is the year of mobile wallet or mobile commerce or mobile payments disruption, we are a long ways from knowing how the full story will play out. 

If Google Can Do Google Fiber, Can Telcos and Cable Companies?

AT&T says it is prepared to build an advanced fiber optic infrastructure in Austin, Texas, capable of delivering speeds up to 1 gigabit per second, provided it gets the same terms and conditions as did Google Fiber. That’s interesting.

Some of us have been skeptical that Google Fiber would be able to build its 1-Gbps fiber to home network at costs markedly different from what a telco might expect to be able to do, in the same markets.

But always also has meant that if a telco really wanted to do so, it could build a 1-Gbps access network, today, particularly if “spot upgrades” in the way Google Fiber builds, prequalifying neighborhoods by requiring a certain percentage of households to indicate they will buy.

To be sure, there are overhead and other operating cost issues. But AT&T’s indication of interest also shows that, when push comes to shove, AT&T will respond to new competition in its markets.

Google Fiber buys from the same suppliers and uses the same construction contractors ad a telco would do.

Some might argue that inducements provided by Kansas City, Kan., Kansas City, Mo. or Austin, Texas can materially affect network cost. Some have doubted that, all along.

Google should have lower overhead, and perhaps lower operating and marketing costs based on the way it is prequalifying construction. But nothing of that sort should be meaningful enough for Google Fiber to magically undercut current telco FTTH pricing.

Instead, the issue is the business model, in particular the ability to make money selling 1-Gbps Internet access for $70 a month, while giving away free 5-Mbps service, and selling a video entertainment-plus-broadband package for $120 a month.

AT&T says it will build a 1-Gbps network in Austin if is gets the same geographic scope of offerings, rights of way, permitting, state licenses and any investment incentives Google Fiber has gotten.

Google insists the deal it has with Austin is non-exclusive, and involves no economic incentives, so it is possible AT&T could get such permission.

AT&T also says doing so in Austin would not materially affect its announced 2013 capital investment plans. How could that work? Assume AT&T already has allocated capital for Austin network upgrade purposes in 2013.

AT&T might do what Google does, polling neighborhoods and setting minimum thresholds for take rates before agreeing to build. So, in principle, AT&T could do its own polls, find out where a critical mass of potential customers exists, and then spot build in those neighborhoods, just as Google will do.

So far, there isn’t too much evidence that Google has been able to make a dramatic breakthrough in terms of basic infrastructure cost, one might conclude from an analysis of Google Fiber costs in Kansas City, Kan. and Kansas City, Mo.

That doesn’t mean Google Fiber has “failed.” AT&T’s offer suggests Google Fiber already has won.

Already, Google Fiber might be showing that it is possible to build 1-Gbps fixed networks at costs roughly comparable to what others are spending to create slower-speed networks.

Bernstein analysts Carlos Kirjner and Ram Parameswaran estimate that it costs Google $464 to connect a Google Fiber “broadband access only” service, and $794 to connect a customer buying broadband and video service.

That first wave, of 12,000 homes on “day one” of the service equates to an eight percent penetration rate, and implies a cost of $10 million for Google, further implying a total cost of $94 million for the Kansas City project. That includes about $42 million for the Kansas portion and $52 million for the Missouri.portion.

But those are the “activate a customer” costs, and do not include the cost of the actual backbone network.

Kirjner and Parameswaran say it will cost $84 million to pass (but not actually connect) 149,000 homes. Some $38 million will go into Kansas City, Kan., and $46 million into Kansas City, Mo., with the cost per home, for the network, costing  $674 in Kansas and $500 in Missouri.

The actual cost “per customer” then hinges on assumptions about take rate. If a third of homes passed actually buy service, then the full cost of the network is apportioned against 33 percent of passings. At that level of adoption, the network alone will cost about $1500 to $2000 per customer.

That is quite consistent with what other service providers could reasonably expect. You might also argue that $120 revenue per household likewise is within general norms for the fixed network business.

Bernstein says “the incremental cash investment to grow to 18 percent penetration in the first year will be of approximately $2 million, with $15 million in incremental cash costs offset by $13 million of contribution from users.”

Bernstein estimates that double-play customers will bring in $64 a month and broadband-only customers will bring in $47 a month.

Kirjner and Parameswaran estimate that a wider rollout around Kansas City for 300,000 homes would more than double build-out costs to $170 million (before acquiring customers and connecting those homes).

The point is that Google Fiber might be succeeding, at least for the moment in Austin, in prodding AT& to upgrade to 1-Gbps.

AT&T Says it Will Build 1-Gbps in Austin

AT&T says it is prepared to build an advanced fiber optic infrastructure in Austin, Texas, capable of delivering speeds up to 1 gigabit per second, provided it gets the same terms and conditions as did Google Fiber.

AT&T says it means by that the same geographic scope of offerings, rights of way, permitting, state licenses and any investment incentives Google Fiber has gotten. 

What is not so clear is whether Austin is willing to do so, given AT&T's different regulatory status, existing cable TV franchise and so forth. But Google insists the deal it has with Austin is non-exclusive, and involves no economic incentives. 

Intriguingly, AT&T says doing so in Austin would not materially affect its announced 2013 capital investment plans. 

AT&T might do what Google does, polling neighborhoods and setting minimum thresholds for take rates before agreeing to build. So, in principle, AT&T could do its own polls, find out where a critical mass of potential customers exists, and then spot build in those neighborhoods, just as Google will do. 

Austin, Texas is a Google Fiber City

Austin, Texas is becoming a Google Fiber city, the Google Fiber Blog finally says.

Google Fiber for Austin, Texas: One More Premature Press Release

We will know with absolute certainty today, April 9, 2012, that Google Fiber is officially coming to Austin, Texas.

But there has been another premature leak, as Gig.U first posted a congratulatory message, then pulled it back down.

"Today, Google announced it will add Austin, Texas to the Google Fiber project, joining Kansas City, Kansas and Missouri as American communities that have the power to bring next generation networks home," the  Gig.U press release said.

WhatsApp Says "No Acquisition Talks" with Google

WhatsApp says it is not in talks with Google about a purchase by Google, after reports indicated that might happen. Of course, as always is the case, discussions could have ended because the two sides could not agree on a valuation. Facebook might step in, or Google could reassess its offer, reigniting discussions.

Some say the recent denial by Verizon Communications that it was in talks to buy all of Vodafone was an example of such an occurrence. Verizon really had been offering to buy all of Vodafone, with partner AT&T poised to take the balance of Vodafone’s assets aside from the Vodafone Verizon Wireless stake. But according to one line of thinking, Vodafone rejected the offer.

Stickiness and engagement would be the primary value, not the revenue. The reason is that if mobile data revenue is about $300 billion annually, global text messaging is about half of that amount, then the legacy revenue stream is about $150 billion annually.

If WhatsApp earns $1 a year from each non-Apple users, and an annual fee of $1 from others, with about 100 million users in total, and if you assume half the users are on iOS devices, then you might estimate 50 million users paying $1 a year, as recurring revenue. That would imply something like a price-earnings ratio of 20, an “Internet multiple.”

The point is that WhatsApp has value not so much as a revenue generator, but as an app with high stickiness, as most communication apps have proven is the case. WhatsApp and other over the top messaging apps stand to destroy much of the $150 billion in global text messaging revenue, not so much to  take market share.

Telecom Italia Mulls Merger

Telecom Italia SpA, Italy’s biggest phone company, said it’s examining a possible merger with Hutchison Whampoa's H3G unit, a combination that would eliminate a competitor offering the cheapest wireless services in the country.

H3G, which uses the "3" brand, is the smallest of Italy’s four facilities-based carriers, with 9.5 million customers. 

“As we have been predicting for some time, the European telecommunications market is set to enter a period of consolidation," says Yankee Group VP of Research Declan Lonergan.

Most of the existing players are under considerable financial pressure financial pressure. Many of the largest operators are carrying large levels of debt. So don't look for Telecom Italia to borrow money to finance the transaction. 

European mobile operators are also seeing their revenues decline due to the combination of difficult economic circumstances, regulatory measures and cannibalization of traditional voice and messaging services by IP-based apps, Lonergan notes.

The issue is whether Italian communications regulators will allow the market to shrink from four national providers to just three. 

"Broadcast" Fox Network Could Become a "Cable Network"

The Fox Network , currently offered as a local broadcast TV station, could become a cable channel if U.S. courts rule that Aereo is lawful, COO Chase Carey has said.  

Given the financial stakes, Fox and other broadcast networks logically will threaten the gravest losses possible to sway opinion.

Television station owners continued to have substantial success in 2012 in growing an increasingly important source of revenue: the fees paid by cable and satellite systems to carry local channels.

While the fees account for less than 10 percent of total station revenue, broadcaster affiliate payments have been growing rapidly. 

CBS-owned stations, for example, almost tripled their fees, from 45 cents a month per subscriber in 2011 to $1.22 in 2012, according to the Pew Research Center. 

SNL Kagan estimates that by 2018, broadcaster affilliate revenue will be more than 20 percent of TV stations’ ad revenues, more than double what it is now.

One reason local broadcast stations have pushed so hard for higher fees is that they have to share some of that income with their networks (ABC, CBS, Fox and so forth) in the form of "reverse compensation." That's a big change. 

“We used to be paying them (local broadcasters) and now they’re paying us (the programming network),” said the CBS chief executive, Les Moonves. 

Within the next five years, Moonves estimated that CBS alone would bring in at least $1 billion a year in affiliate fees from network-owned stations and reverse compensation from non-owned affiliates.

If you want to know why broadcast networks are fighting to block Aereo ane Aereokiller, money is the reason. 



Granted, it would challenge federal regulators who have given the broadcasters their licenses, were Fox Network and other "broadcast" networks go "cable only" (including telco and satellite distribution). But the financial damage Aereo, Aereokiller or others could inflict would be substantial.

Just look at the double digit growth of affiliate revenue and you will get the picture. 

Right now, the legal picture is extremely clouded. Aereo and Aereokiller are two firms that have gotten conflicting legal decisions about whether their services are lawful. In New York, a federal court has affirmed Aereo's legality. In California, the federal court has rendered the opposite opinion, ruling that Aereokiller infringes broadcaster copyrights. 

Both Aereo and Aereokiller create networks of individually-used off-air antennas and then streams that content to customers. Obviously, broadcasters fear a loss of affiliate payments typically paid by cable, telco and satellite TV video subscription services.

In 2013, for example, the Fox Network will earn $472 million from affiliate local broadcasters and video distributors. 

5 million U.S. Households are "Zero TV"

Some five million U.S. homes now are  zero TV households, meaning that although they may or may not own a TV, they don't use them. according to the Nielsen Co.

The number of such households is up from two million in 2007. 

In 2012, the cable, satellite and telecom video entertainment service providers added just 46,000 video customers collectively, according to SNL Kagan. That is down from net additions of about 974,000 new households added in 2011. 

So while there are 100.4 million homes using "TV," or 84.7 percent of all households, TV-using homes are down from the peak of 87.3 percent in early 2010. 

While 75 percent of the "zero TV" households actually own a physical TV set, only 18 percent are interested in hooking it up through a traditional pay TV subscription.

Of course, some of you already are rhetorically asking "what is a TV?" and "what is a television experience?" 

The point of course is that people can watch on PCs, smart phones and TV screens without using a broadcast TV service or a subscription TV service of the traditional sort. Those are going to be increasingly important questions in the decade to come, for many stakeholders.

At least some younger people might already have lost the appetite for traditional TV altogether. Others might, or might not, eventually acquire the habit later in life. But it is clear enough that "watching a video or a movie" is losing its direct association with a particular purchase and viewing mode. 

"The Problem With Socialism..."

My favorite Margaret Thatcher quip: "The problem with socialism is that eventually you run out of other people's money.

My favorite corollary:  "The government has no money of its own; it's all your money."

Google Fiber Does Best Delivering Netflix

The new Netflix "ISP Speed Index" shows that Google Fiber is the best ISP in the United States, in terms of supporting Netflix streaming. 

At 3.45 Mbps, Google Fiber in the U.S. provides the highest average Netflix streaming bitrate anywhere Netflix is available, slightly increasing its average over last month, Netflix says.

Will Google Buy WhatsApp?

Though it is obvious why competing ISPs will be watching what Google does with Google Fiber, after it launches service in Austin, Texas, they might want to look elsewhere.

Google reportedly is negotiating to buy WhatsApp, the popular messaging app. Though both moves--selling 1-Gbps fixed network broadband, and owning and packaging WhatsApp, will affect communications service providers, it is WhatsApp, not Google Fiber, that will have the bigger immediate financial impact. 

The reason is that people use WhatsApp as a primary messaging app, and then use text messaging only when they cannot use WhatsApp. That is dangerous for mobile service providers because messaging most frequently is used between friends and people who already know each other.

Since most communication happens between people who know each other, you can figure out what WhatsApp means for carrier revenue. 



In the lucrative international SMS business, growth has gone into reverse, precisely because of the use of WhatsApp and other messaging services. 

For service providers, the biggest problem with WhatsApp and other messaging services is not so much that they disrupt revenue streams by shifting demand. WhatsApp and other messaging services do that.

But the bigger problem is simply that over the top messaging apps destroy the market, turning what once was a highly lucrative, high margin revenue stream into a feature that generates only modest revenue. 

Google Fiber is a potential threat. WhatsApp already is disrupting a key mobile revenue stream. If Google gets WhatsApp, that trend only will accelerate. 

Some 1995 Criticisms of the Internet Still Resonate

"What the Internet hucksters won't tell you is tht the Internet is one big ocean of unedited data, without any pretense of completeness. Lacking editors, reviewers or critics, the Internet has become a wasteland of unfiltered data." 

That was written in 1995, before the Web really became what it is today. Some might say the critique is partly true, even today. But the larger point is that it was very hard to foresee what the Internet actually would become.

That we should be circumspect about other similar big innovations is the lesson. We can't really predict the impact of a truly-big innovation. 

More Evidence: Austin is Getting Google Fiber

Austin is getting Google Fiber, a local Austin TV station now has reported. April 9, 2013 is the day we will know for sure.

Google Fiber now offers users in Kansas City, Kan. and Kansas City, Mo.  symmetrical 1 Gbps fiber connections for $70 a month, or symmetrical 1 Gbps fiber connections and a full array of television content for $120 a month.

Users in targeted neighborhoods also have the option of paying a $300 up front fee to have their home connected, then getting free 5 Mbps service. Google has a multiple-year time limit on the “free service” offer, but most think the offer will be extended indefinitely.

As always, there are a couple of big questions. People wonder whether Google Fiber actually is a sustainable venture, long term, or only a marketing investment. The other question is whether Google might decide to become an ISP on a wider basis.

Given the capital investment required to build a national network, most observers probably are persuaded Google would not do so. On the other hand, the cost of becoming a national mobile service provider are much less, and that probably is a more realistic “danger” for existing ISPs.

It's Hard to be a Telecom Regulator, Sometimes

These graphs from the International Telecommunications Union illustrate why it sometimes is so hard for communications regulators to come with policies that match the way the world is becoming, instead of what it has been.

Consider the irony of the U.S. Telecommunications Act of 1996, which aimed to spur innovation in the telecommunications business by allowing more competitors in the fixed network voice business. 

As the graph indicates, 1996 was about the inflection point where the whole global telecommunications  business became a "mobile" business. 

That year also was the point at which Internet use by consumers began its long rise. Then, sometime between 1998 and 2001, the adoption of Internet access and applications in emerging markets likewise reached an inflection point. 

The point is that no amount of backward-looking regulation was going to help much, since growth already was poised to shift to mobile and Internet. "

Granted, regulating "forward" probably isn't much easier. Of course, that is one reason Internet and communications executives often urge caution about prematurely imposing new rules. 

Only in retrospect is it possible to see when old problems don't need to be solved, because new solutions, behaviors and possibilities already are being born. 

Will Some "Entertainment" Spending Shift to "Communications" Spending?

PwC expects entertainment and media spending to keep growing. Video subscription service providers might not agree that can hold up over the long term. While it might be true that advertising spending is growing, especially in the online and mobile areas, it might not be so true to forecast continuing end user spending on video services.

PwC thinks consumers will keep spending five percent a year more, for the next several years. But no market grows to "infinity," and there are abundant signs that younger consumers do not watch television so much, do not own televisions, and do not want to pay for television, even when the cost of doing so is not an issue. 

All the while, new experiments with Internet-delivered video continue to grow. Intel plans a new streaming service. Netflix, iTunes, Google, Dish Network, Amazon Prime, Hulu and others are going to keep expanding their menus. Aereo appears ready to disrupt the broadcast TV revenue stream. 

And even though video service providers allow some streaming to keep their traditional video subscription service customers, all it takes is a change of heart by the content owners, and a willingness to go "direct to the end user," for significant change to happen. 

On the other hand, consumer budgets are not infinite, either. So a reasonable supposition is that most people will substitute one form of spending for another. In other words, if able to buy discrete programs or channels, and stream them, they will spend less money on traditional video subscription services, increase spending for online alternatives, and then likely increase the amount of money they spend on broadband access, as well.

But it wouldn't be unreasonable to predict that the net change in recurring spending will not be much different from what people spend now. Perhaps oddly, many consumers might find they do not actually wind up saving much money. The lower video service payments will be matched by new online subscription fees and higher broadband access spending. 

So one might predict that average spending on broadband access could grow, at some point, as traditional video service spending falls. But recurring payments would probably be equal to, or less than current payments. In fact, spending should be less, overall. 

The reason is that people are rational. They will decide whether they can save money overall by switching. If they can't save money, there is little incentive to switch. 

Bet on it: Austin, Texas is Getting Google Fiber

It seems virtually certain that Google Fiber is going to be built in Austin, Texas.  In fact, the news apparently was mistakenly posted on the Google Fiber website. 

Speculation has been building since Google and the city of Austin are holding a press conference on April 9, 2012 to announce something.

And though there are other possible explanations, the big rumor is that Austin will be the next community to get 1-Gbps Google Fiber.

So once again observers will speculate on what Google might ultimately intend, aside from prodding big ISPs to invest faster in gigabit broadband access networks. Maybe Google is not even so sure itself.

If Google can leverage a few such 1-Gbps networks to get major ISPs to invest their own capital to match, Google wins. It gets the faster networks that support its business without having to invest capital better spent elsewhere.

And though some of us might doubt that Google can dramatically change the economics of gigabit fixed network access, does it matter if Google ultimately can eke out a capex cost reduction?

It might, though not because of any 30-percent theoretical cost savings. The bigger issue is whether the overall business cases is a positive number, after revenue, capex and opex expenses are tallied.

It might be a stretch, but there is some combination of subscriber adoption, monthly recurring revenue and then amortized capex and operating expense that would allow Google Fiber to be a going concern, on a sustainable basis.

The challenge is simply that the assumptions are formidable.

When Verizon launched FIOS almost a decade ago, it estimated a cost of about $1,350 per home passed. But Verizon now says costs are far lower, possibly in the $700 range.

If Google can set new standards for marketing and operating cost, and if it can get high penetration, perhaps it can demonstrate that 1-Gbps networks are feasible on a wider scale.

That is a big “if,” some might say. Consider a business case where Google Fiber costs 30 percent less than what Verizon paid for FiOS. Actually, that is easily doable, some might argue. Assume 30 percent operating cash flow. 

As it turns out, adoption (subscriber penetration) then becomes the key variable. 

Even if one assumes 75 percent adoption, which is the biggest assumption of all, Google Fiber might not offer a payback. And 75 percent penetration would be a historic achievement in the era of competitive communications and video entertainment.

So Google Fiber would have to make history, overturning all prior assumptions about take rates, to prove financially viable, some would argue. Alternatively, Google Fiber might consider some other ways to generate more revenue per subscriber, thus lowering the breakeven level of penetration. But it is hard to see what additional services could materially lift average revenue per user.

Should Austin actually become a second Google Fiber site, and there now are many reasons to believe that will happen, the effectiveness of the prod to other ISPs will hinge, in part, on penetration. 

If Google Fiber upsets the typical market share structure of a competitive triple-play market, you will see investment increase almost across the board.

And that, for Google, is winning big.

$30 Billion in Annual Economic Losses--1/2 to Small Businesses--From Patent Trolls

There's a fine line between copyright and patent protection and patent and copyright abuse. But a study by James Bessen and Michael J. Meurer of Boston University School of Law suggests the annual cost to firms to defend themselves against "patent trolls" ("non-practicing entities" that buy patents only to sue others for infringement)  runs as high as $29 billion annually. 


That amount includes the actual direct costs of litigation and non-litigated legal expenses, plus diversion of resources, delays in new products, and loss of market share.


Much of this burden falls on small and medium-sized companies. The median company sued had $10.8 million in annual revenues. Some 82 percent of the defendants had less than $100 million in revenue and these accounted for 50 percent of the defenses. 

Small and medium-sized companies account for 37 percent of the accrued direct costs, the study estimates. 


The annual wealth lost from NPE lawsuits--for public companies--is about $80 billion, another study also estimated.  

To be sure, some might argue that such lawsuits allow some small inventors to make more money. But that has to be balanced against the damage such litigation imposes on firms trying to innovate. 

Also, to be fair, one firm's "expense" is another firm's "income." There is a good reason attorneys like NPEs: it is revenue for them, even if that comes at social and economic expense for technology innovators. 

Less Chance Verizon and AT&T Could Buy Vodafone Than Any of Them Buying Several Smaller Mobile Operators

Perhaps it would have been just a "bridge too far," but any joint AT&T-Verizon Communications bid to buy all of Vodafone would have been breathtaking, if only because of the size of Vodafone, Verizon and AT&T on a global basis.

China Mobile, Verizon Wireless, and Vodafone might be the largest mobile operators globally, counting by revenue. 

A different ranking is obtained if one counts by number of subscribers. Yet a third ranking is obtained if one measures according to monthly revenue per customer. But there is no doubt all three of the carriers rumored to be part of a potential bid are huge.

So you can see the problem Verizon or Vodafone would face, if either tried to buy the other. The recent announcement by Verizon Communications that it had no interesting in  buying all of Vodafone is interpreted by some observers to mean that Vodafone rejected Vodafone rejected Verizon’s terms, not that Verizon was not pursuing such a deal.

Some might therefore speculate that, aside from Verizon acquiring the rest of Verizon Wireless it does not already own, it would make more sense for Vodafone, China Mobile, Verizon and AT&T to buy any of the smaller mobile operators whose revenue is an order of magnitude lower than those of China Mobile, Verizon, Vodafone and AT&T.

Why WISPs Do Not Worry About "Dumb Pipe"

Wireless ISPs do not seem to worry much about becoming “dumb pipe” providers. Having no large “service” businesses in voice or video to lose, WISPs seem professionally comfortable with “primarily” providing Internet access, even though many also sell voice and video entertainment.

That might be why it seems so natural for a WISP executive to say “I think we are entertainment transport providers, more than anything,” as Doug Watkins of Blast Communications, has noted.

Referring to online and over the top apps such as Netflix, Hulu, Amazon Prime and YouTube, the phrase indicates the key challenges WISPs face these days, namely coping with growing demand by their customers for bandwidth sufficient to “watch video.”

Though other service provider executives reflexively rail against the notion that their business is, substantially, getting to be a “dumb pipe” business, there possibly are new signs that reality is sinking in. And that reality is that. like it or not, the future of the business is substantially built on “dumb pipe” access to the Internet, most of which is related to entertainment video.

“Built on” Internet access does not mean “exclusively” built on such “dumb pipe.” Video entertainment services, voice, machine to machine services or computing, storage or software as a service will be delivered as services riding on top of the access.

People sometimes use phrases such as “smart pipe” or “happy pipe” to try and make the point that “there are other things we do.” That sort of misses the point.

In large part, future communications suppliers will be “Internet service providers,” which largely  is a dumb pipe service. Some ISPs might try introducing access with quality of service features, which might legitimately allow those ISPs to claim they are in the “smart pipe” business.

No matter. There is no inherent reason why any form of Internet access has to be a “low gross margin” business, or a “low gross revenue” business.

Nor is an ISP restricted from selling other services that are not, in fact, “Internet” services (such as carrier voice and video entertainment, machine to machine and cloud services).

That said, broadband Internet access is the foundation for the rest of the services suite, including those services using IP, but which are not “Internet” services, such as  branded carrier voice and video entertainment.

The point is that telco or cable company fundamentally is an ISP, whatever else those firms do. WISPS seem to have little trouble “getting” that element of their businesses.