Over 5 Months, 10% to 20% of Major ISP Customers Upgraded to a Faster Tier of Service

Based on the latest study of major U.S. ISPs studied by the Federal Communications, one might say that about 10 percent to 20 percent of major ISP customers upgraded their connections to a faster speed tier over the five months since the last study.

That is likely a combination of ISPs upgrading speeds and moving customers to the higher tiers, as well as some consumers choosing to buy a faster grade of service.

U.S. Access Market Faces a Qualitative Change

Quantitative changes sometimes lead to qualitative changes, as when higher Internet access speeds allow viable video streaming services or other cloud services to exist, or when computing costs drop multiple orders of magnitude, while performance increases by orders of magnitude.

The latest Federal Communications Commission report on U.S. Internet access performance also suggests the impact much higher bandwidths will have on the access market. 

One might argue that when speeds grow from 1 Mbps to 5 Mbps, or 5 Mbps to 10 Mbps, or 10 Mbps to 15 Mbps, the possibilities for business models get better in a sort of linear fashion. That might not be true as speeds grow to hundreds of megabits per second up to 1 Gbps.

At least in terms of market structure, some contestants, including satellite and fixed broadband providers, will be rendered mostly irrelevant, most places, when the market expectation is that hundreds of megabits per second, up to 1 Gbps, is the norm, or at least the marketplace reference.

In short, structural changes, not simply quantitative changes in typical access speeds, are going to reshape the fortunes of various market contestants over the next decade or so.

Consider only what already is the case for data consumption by users on different networks. Fiber to home network and cable network consumption levels over a month’s time are nearly identical, with the 50th percentile of users consuming about 40 Gb per account.

Consumers on digital subscriber line networks consume just half that amount at the 50th percentile: 20 Gb.

But notice the outlyer: satellite customers consume about a gigabyte, on a level with data consumption of smart phone owners.

So here’s the clear implication: as networks get faster, users consume more data. One should expect, over time, that users on networks featuring 100 Mbps to 1 Gbps are going to consume even more data than fiber to home and cable network customers already do.

There is no comparable technological fix for satellite networks, even though higher-capacity satellites are being launched.

"Interactive TV" Turns Out to be "the Internet"

Television interests have been trying to create “interactive TV” for decades, in the belief that such interactive features and personalization would create huge new advertising and marketing revenue streams.

But the future often unfolds in ways not anticipated. As it turns out, for interactive TV as for many other businesses, the Internet is creating precisely the business value once envisioned for another way of doing things.

These days, most consumers watch television while also using a smart phone or tablet. There is “interaction” all right, but not directly with the TV, as once was envisioned for “interactive” TV.

People are interacting with friends and augmenting TV experiences, but using the Internet and Web apps, not applications embedded into the content.

According to Business Intelligence, 85 percent of smart phone users do something related to TV they are watching, at least once a month.

More than 60 percent report doing so on a weekly basis and 39 percent say they do so daily.

But we often are surprised in the technology and communications business. Virtually nobody expected that people throughout the developing world would so rapidly adopt voice and text communications using mobile networks and devices.

The rapid acceptance of touch-based tablets came only after more than a decade of failed attempts to create a tablet device market. And most probably are surprised at how fast tablets are displacing PCs in everyday use, in many regions.

Few might have expected so rapid a change in broadband access markets since the advent of Google Fiber, even though 1-Gbps access networks were in operation before Google Fiber launched.

The point is that unexpected, destabilizing change is not unusual in the communications or computing businesses, nor does the future unfold in the linear way we sometimes expect or prefer.

New Low Cost iPhone in Colors?

Remember the iMac? Maybe Apple's new lower-cost iPhones will take their cue from the iMac. 

The lower cost iPhone might then have something going for it other than lower retail price. 

The iMac, some might recall, was the machine that many believe saved Apple at a time when its future was quite cloudy. 

Some might see the analogy to Apple's current situation, in some ways. 

Recall what Steve Jobs said of the iMac, at the time: "The back of this thing looks better than the front of the other guys'."

Aside from the birth of the "i," the iMac probably represented the  first of Apple's recent industrial design innovations. 

D-Day

On June 6, 1944, perhaps the most-important and singular D-Day ever to occur, 160,000 Allied troops landed along a 50-mile stretch of heavily-fortified French coastline to fight Nazi Germany on the beaches of Normandy, France.

More than 9,000 Allied soldiers were killed or wounded on the day some would say World War II in Europe turned in a decisive direction. Some 150,000 died in the western European theater alone, by the end of World War II.

"Unintentional" Market Disruption Now a Growing Possibility?

Market disruption arguably is a very different thing than “competition in a market.” The former often leads to radical reshaping of markets, typically “destroying” much of the former total addressable market revenue.

“Normal” market competition typically puts pressure on retail prices, and causes more market segmentation,  but is relatively incremental in its impact.

Even when the strategic approach is “same service, lower price,” most efforts at competition simply aim for taking some share away from existing providers.

Incumbents may not like competition, but market share shifts, margin pressure and other changes do not necessarily cause the overall market size to shrink.

On the other hand, deliberately disruptive assaults often have an indirect aim of literally destroying a market. The new issue is whether, in a world increasingly based on Internet forms of competition, unintentional market destruction can result, even when a competitor would rather “only” take some market share.

You might argue is more rational for an attacking firm to take the “same service, lower price” approach because that might stimulate overall market growth, even as it creates an opportunity for the new entrant to take market share from incumbents.

That was the tack taken by virtually all U.S. competitive local exchange carriers and is typical of U.S. cable operator assaults on the small business Internet access and voice markets.

Apple is unusual in that regard. It attacked legacy markets by providing a “better experience at a higher price.” That is relatively rare in communications markets, but well understood in many other markets such as automobiles and luxury goods of all sorts.

Still, the more common approach in the communications market is the strategy of “take market share by offering equivalent value at lower prices.”

Some assaults are deliberately disruptive, such as Skype’s attack on long distance calling, collaborative approaches to building networks such as Fon, Republic Wireless or FreedomPop approaches to the mobile business, Some might say SoftBank’s approach in the Japanese mobile market was intentionally disruptive in this sense.

Perhaps the new issue is whether disruption can occur even when market participants “only” want to protect or gain market share. One thinks of the U.S. long distance market, for example. It arguably never was MCI’s strategy to destroy long distance profits to the point where long distance ceased to be an independent product category.

But that is what happened.

More recently, Internet-based attackers have been more willing to radically disrupt pricing in markets, because radically-lower capital, marketing or operating costs make such assaults possible.

Perhaps the new issue is unexpected disruption of markets, when that was not intended.

It probably is true that most of the time, new entrants are viewed as representing only one more source of incremental competition, since the initial value proposition is quite limited, compared to that offered by the market leaders.

Of course, as now is well understood, attackers tend over time to add features and capabilities that make additional market segments take notice. Eventually there can be nearly head to head competition offered by the attacker, across market segments and price ranges.

The perhaps new angle is whether more markets are susceptible to unintentional disruption. SoftBank, for example, might originally only thought it could succeed in taking market share from other incumbents.

But one might wonder whether market disruption now is happening, whatever SoftBank originally thought it could achieve.

Messaging Monetization Remains an Issue for App Providers and ISPs

Monetization long has been a key business challenge for most Internet applications, features and services. 

That is true for new over the top messaging platforms and has started to be a problem for mobile service providers who find text messaging usage and revenues dwindling. 

That remains true for mobile applications such as messaging, with the salient exception of text messaging, among the few messaging services with a clear direct revenue model.

Messaging is viewed by some as mobile's killer app. The problem for access providers is that it might prove a killer app for third party app providers, not Internet service providers. 

Text messaging, though a key source of mobile value in the past, will be so important a direct revenue generator for mobile service providers in the future, either. 

In fact, text messaging is becoming more a key feature than a major revenue source for many mobile service providers. 

In  many ways, that would fit the pattern of email, which drove adoption of dial-up Internet access. Email the feature drove adoption of Internet access the service.

That seems still to be the pattern. More than 50 percent of total commercial email opens occurred on mobile devices in the first quarter of 2013, according to Experian Marketing Services. That is another example of an indirect revenue model.