ISPs Want to Tax App Providers, Now Newspaper Wants to Tax ISPs

Internet access providers have floated the idea of new business models that essentially charge large app providers a fee for imposing "load" on access networks, a move aimed primarily at apps that involve video, ranging from FaceTime on a mobile network to Netflix on a fixed network. 

In a twist, a writer at the Guardian newspaper goes the other way, suggesting that ISPs be taxed to support user consumption of newspaper products. 

"A small levy on UK broadband providers – no more than £2 a month on each subscriber's bill – could be distributed to news providers in proportion to their UK online readership," the article argues. "This would solve the financial problems of quality newspapers, whose readers are not disappearing, but simply migrating online," The Guardian argues. 

Both arguments rest on the assumption that value is being delivered in the Internet ecosystem without "reasonable" participation in the created revenue streams.

But the arguments are advanced from different positions. The Guardian argues that "people willingly pay this money to a handful of telecommunications companies, but pay nothing for the news content they receive" In other words, an app provider argues the access provider should pay the app provider for value created.

Access providers argue the reverse, that the access creates the distribution platform an app provider builds a big business upon. 

In a U.S. context, the newspaper argument can be opposed on freedom of speech grounds, namely that the media has to be free of government control or influence, and any regulation that shifts revenue from an access provider to an app provider therefore makes the app provider dependent on the government for its existence.

That might not be so relevant in a U.K. context. But it is striking that a content and app provider now argues it is the ISPs that are making the money in the Internet ecosystem, and that newspapers provide value for which they are not being compensated. 

Others might argue that "newspapers" are failing in many countries because it is a product people do not want to buy. There are important revenue issues, one cannot deny that. 

But the problem is a decline in demand for the product, which is disrupting the existing revenue model. ISPs are not causing that problem, "people who want to read newspapers" and "advertisers who spend elsewhere" are creating that problem. 

Comcast Using FTTH Overlay to Deliver 305 Mbps Residential Service

Comcast Corp. is using the fiber-to-the-home (FTTH) capabilities of its "Metro Ethernet" platform to power a new residential broadband service with a maximum downstream speed of 305 Mbps and a potential 65 Mbps upstream, not DOCSIS 3.0. 

In other words, Comcast is using an overlay approach, running a discrete new fiber from a transceiver node directly to a home, instead of using the cable modem standard and network. 

The move suggests Comcast believes demand for the 305 Mbps service will be relatively limited. If high take rates were anticipated, Comcast would simply move to Docsis 3.0. At low penetration, the fiber direct overlay means the entire spectrum plan for each local network can operate without disruption, while still accommodating some growth of the 305 Mbps tier of service. 

Netflix "Watch Instantly" Dominates On-TV Streaming Video

Netflix "Watch Instantly" is the dominant application for U.S. household Web-to-TV video, NPD says. Of people viewing online video on the TV, 40 percent use their connected TVs to stream video from Netflix, 12 percent access HuluPlus, and four percent connect to Vudu. 

Over the last year, the number of consumers reporting that the TV is their primary screen for viewing paid and free video streamed from the Web has risen from 33 percent to 45 percent,  according to The NPD Group. 

During the same period, consumers who used a PC as the primary screen for viewing over-the-top (OTT) streamed-video content declined from 48 percent to 31 percent. 

This shift not only reflects a strong consumer preference for watching TV and movies on big screen TVs, but also coincides with the rapid adoption of Internet-connected TVs, NPD argues. Up to this point, it has more commonly been a game console that has served as the gateway to watching streamed video on a TV set. 

Fitch Cuts Forecast for Global Growth, will Mobile be Affected?

Communications and entertainment services are not immune to broader economic downturns, though consumer spending on communications and video services seems to have been affected in subtle ways during the Great Recession of 2008 and its aftermath which has seen sluggish growth in many regions, and an actual contraction in Europe. 

The impact of the Great Recession beginning in 2008 is easy enough to describe. According to TeleGeography Research, revenue growth slipped from about seven percent annually to one percent in 2009, returning to about three percent globally in 2011.
It isn't clear yet whether another recession, of broader scale, is coming. But it is reasonable enough to assume stubbornly tough conditions will endure for a few years. 

That should mean less spending, on a typical account, but not fewer subscriptions. 



Fitch Ratings has pared back its forecasts for global gross domestic product growth to 2.1 percent, citing “persistent weakness” in the global recovery. That is down from Fitch’s June view of 2.2 percent. For 2013, the forecast was reduced to 2.6 percent from 2.8 percent.

Fitch  lowered its 2013 GDP growth expectations for the United States to 2.3 percent, but kept its 2012 forecast at 2.2 percent. Persistently high unemployment and the uncertainty surrounding fiscal policy are expected to continue to challenge the U.S. economy.

U.S. growth in the second quarter also has been adjusted downward. Growth was 1.3 percent, down from a previous estimate of 1.7 percent, due to less consumer spending and business investment than previously estimated.

Fitch predicts the eurozone economy will contract 0.5 percent in 2012. Growth of only 0.3 percent and 1.4 percent is predicted for the next two years.

Spectrum Strategy Comes to the Fore

Spectrum issues are not always primary strategic issues in the communications business. Most of the time, other concerns dominate executive thinking. But spectrum issues now are emerging in a variety of ways as strategic matters, as typically is the case early in a new era of business and network deployment. The U.S. mobile duopoly, for example, was broken by the issuance of new "Personal Communications Service" spectrum.

New blocks of Advanced Wireless Service and Wireless Communications Service spectrum are underpinning the emergence of U.S. Long Term Evolution networks, for example. In Europe, major spectrum auctions of former broadcast TV spectrum will create the foundation for LTE in Europe.

Also, though, periods of intensive spectrum purchases also are times when debt loads become an issue. In fact, European service providers were widely in danger after many overspent for 3G spectrum.

In recent years much of the spectrum auction activity has been for LTE spectrum in the 2-GHz bands. But attention now is turning to 700 MHz and 800 MHz  "digital dividend" spectrum, including bands formerly used for broadcast TV.

World Previous Spectrum Auctions

The Federal Communications Commission, for example, is preparing to approve an AT&T request of use 20 MHz of its spectrum in the 2.3-GHz Wireless Communications Services (band for a new LTE network, after AT&T agreed to use 10 MHz of its spectrum as guard bands to avoid interference with Sirius XM services.

Separately, Sprint and Dish Network are fighting over a Federal Communications Commission proposal to shift 40 megaHertz of Dish Network AWS-4 spectrum about five megahertz in frequency, to allow Sprint to consolidate some of its existing spectrum to support LTE.

Dish Network cannot move forward with its own LTE network plans until the FCC changes its regulations on the AWS-4 spectrum, which originally was licensed for “Mobile Satellite Service.” But one issue is the request by Sprint to have the AWS-4 band shifted upwards in frequency by 5 MHz.

The Sprint proposal would shift the band up 5 MHz from 2000-2020 MHz to 2005-2025 MHz, and a similar 5 MHz on the upper paired band, allowing that spectrum to be put up for auction.

Sprint wants the FCC to shift the frequency plan so that if it wins the frequencies at auction, its adjacent Sprint-owned “PCS” spectrum in the 1915 to 1920 MHz and 1995 to 2005 MHz blocks could be used to create a bigger block of contiguous  spectrum for its LTE network.


Dish argues that the spectrum shift would delay its plans to build a new LTE network.

Additionally, AT&T has been a major spectrum-buying spree to support its own LTE network. And Verizon Wireless recently received clearance to buy chunks of LTE  spectrum from Comcast, Time Warner Cable, Cox Communications and Bright House Networks.

Without a doubt, spectrum issues have moved to the forefront of wireless carrier strategy in the U.S. and other markets. That also means a key boost for capital spending, since spectrum costs are long-term assets, and for management of debt loads.

Can Rival Mobile Operating Systems Beat Android at Low End?

Google’s Android smart phone operating system will have about 62 percent share in 2013, and clearly leads as the operating system for lower cost devices. 

But there are challengers, including those backed by Huawei, ZTE, Samsung, Mozilla and Nokia. But it always is tough to unseat a supplier that has such dominant market share. 

Strategy Analytics notes that the Firefox OS, Mozilla’s mobile effort, will get one percent of all global smart phone shipments in 2013, compared to 67 percent for Android. 

Mobile Service Providers Should Use Pricing to Counter Over the Top Apps

At least for the moment, mobile service providers can and should use pricing as a tool to improve the appeal of operator messaging and discourage the use of competing over-the-top communication services, Strategy Analytics says. 

In some cases, one might say, service providers can price messaging or domestic voice so attractively that the value of using an over the top app to save money simply evaporates. That doesn't address the value of an OTT app when different functionality is the attraction, though.

So over the longer term, Strategy Analytics offers the advice that pricing alone will be insufficient, and additional changes to the user experience will be needed "to keep customers within the operator communication ecosystem." says Nitesh Patel, Strategy Analytics senior analyst. Patel says Rich Communications Suite is needed to add more functionality. 

That's conventional wisdom and generally good advice, one might argue. The issue is whether RCS can become established fast enough that users have not already become accustomed to using third party apps.