Canadian Lawmakers to Introduce "A La Carte" Plan

With the caveat that lots of bills get introduced into national legislatures, with no chance of enactment, Canadian Parliament legislation to mandate a la carte retail packaging of video entertainment channels appears headed for introduction.

The legislation would mandate that video service providers provide a la carte video options for consumers of cable and satellite TV services.

The Canadian Radio-television and Telecommunications Commission already in 2011 had urged cable and satellite companies to adopt the a la carte pricing model.

If the legislation passes--there is no certainty about passage--it would provide a test of the economics of such unbundling, as well as a test of consumer appetite, that would certainly have at least some repercussions in the U.S. market as well. 

Nobody can be sure precisely what would happen to service provider and content provider revenues is such a change were to be made. 

There is a huge disconnect between consumer and content owner or service provider expectations about what a TV channel should cost, if it were possible to buy channels one by one. Consumers think they will save money; distributors and content owners are just as certain they would not save money.

A study by PricewaterhouseCoopers indicates that 44 percent of consumers would like a the ability to buy all their channels one at a time.

But it is not clear that the economics of the video subscription business can match consumer expectations about the retail price of a single channel. 

The expected pricing “per channel” is where the biggest disconnect exists. About 16 percent of respondents say they would not pay more than 99 cents a month for a channel. Some 24 percent will pay $1.99 and 22 percent will pay $2.99.

Studies by the Federal Communications Commission seem to have concluded that unbundling could save money, or wouldn't save money, depending on how many channels a consumer buys under an a la carte regime, compared to what they buy now.

One of the studies suggested “consumers that purchase at least nine networks would likely face an increase in their monthly bills" when buying a la carte.

Likewise, one of the FCC studies suggested bill increases ranging from 14 percent to 30 percent under a la carte, while the other suggests a consumer purchasing 11 cable channels would face a change of bill ranging from a 13 percent decrease to a four percent increase, with a decrease in three out of four cases.

The point is that it is very hard to tell, conclusively, what might happen if providers shifted to a la carte viewing.

When multichannel video distributors say a bundled approach creates economics that favor smaller, niche networks to thrive, they are right, economists might say.

Deprived of carriage on a broad "enhanced basic" tier, perhaps 60 percent of networks might find themselves immediately imperiled, as going concerns, some would estimate.

LTE a 'Huge Opportunity' in Europe?

AT&T CEO Randall Stephenson sees a "huge opportunity for somebody" in Europe to invest in mobile broadband, presumably given the relatively slow availability and uptake of Long Term Evolution in Europe, compared to the United States.

As do many other observers, though, Stephenson said spectrum policy adjustments were important, to realize greater benefits. Those changes range from longer spectrum license terms to harmonized spectrum plans. 


Up to this point, 3G has proven to be the mainstary for European mobile Internet access. 

Netflix Move Complicates "Internet TVs"

Netflix now is an app available to consumers who subscribe to Virgin Media cable TV services. And Netflix is said to be seeking similar deals with U.S. cable operators. At one level, the move simply would provide such cable customers more convenience when viewing Netflix on their TVs, turning the cable decoder into an Internet access device. 

At another level, Netflix becomes, if not a "cable channel," then at least a way to create more incentives for those video customers to buy faster broadband connections, and could provide another library of potential programming, as when a temporary programming dispute disrupts programming from one or more channels. 

The new capability, should a deal be worked out, also adds more value to a cable decoder, which otherwise remains largely a tuner and access control box. 

Such a deal also could affect end user appetite for "Internet TVs," as the use of the cable decoder in this way would enhance the experience of displaying Internet-sourced content for viewing on a digital, but not Internet-connected TV, much as an Internet-capable game player already provides such value. 

Though many cable operators might continue to worry about whether such a deal is the first step to Netflix becoming a bigger competitor, others might argue that trend is coming, in any case, and this approach at least makes it easy for cable video subscribers to use Netflix conveniently, as part of their video subscription. 

Dumb Networks, Smart Networks and SDN

It has been some time since there was any significant debate about whether next generation networks should be dumb or smart. 

The essence of the debate was whether it was better to create a flexible network, able to create and deliver new services very rapidly, using a network where control was at the edges, or whether it was better to embed intelligence in the network "in the core," some might have argued. 

As always, the debate was somewhat "religious." Also, as often happens, the debate has been superseded. The current thinking is that networks should operate in a way not envisioned when the earlier debates were happening.

Software defined networks, the new rage, retains the smart network, in the sense of control. But SDN also abstracts that control from the network. In essence, SDN is a smart network but with flexibility gained from an essentially "dumb" transport network. 

Intelligence is not so much "in the core" of the network, but at centralized points. The point is somewhat subtle. In the past, intelligence in the core meant that control was embodied in switches, routers or signaling points scattered throughout the network.

SDN centralizes control, but not using the embedded control points scattered throughout the network. Also, intelligent devices continue to operate in the network, but with their functions controlled from an essentially external and centralized controller.

The central idea is to abstract the network such that the operator can program services instead of creating static network overlays for every new service. 

All network services are moved from the network to data centers as applications on commodity or specialized hardware, depending on performance. The hoped-for advantage is a reduction of time to market from years to hours.

So the older debate about "smart or dumb networks" has in essence been transcended. Networks can be smart, but also transparent. Using SDN, the answer to "smart or dumb" is "both."

PayPal Beacon: Zero Touch Retail Payments

Much of the promise of retail mobile payment systems revolves around changing the checkout experience in some significant way.  As PayPal sees matters, better than swiping a credit card or debit card is a way to walk in a store, and, when you’re ready to pay, money is transferred securely and automatically.

PayPal Beacon is PayPal's answer for how this can be done. Beacon is an add-on technology for merchants that will enable consumers to pay at their favorite stores completely hands-free. 

Basically, users will check in when entering a store. Consumers will have a choice of setting that prompt them to confirm payment, or automatically pay.

The system still is under testing, and not yet a commercially-launched product. 



In the latter case, simply walking in a store will trigger a vibration or sound to confirm a successful check in. 

The buyer's photo appears on the screen of the Point-of-Sale system and the transaction is completed by verbal confirmation. Funds are deducted automatically from the user PayPal account. 

Any store running point of sale systems compatible with PayPal, including Booker, Erply, Leaf, Leapset, Micros, NCR, PayPal Here, Revel, ShopKeep, TouchBistro and Vend can enable the system by plugging a PayPal Beacon device in a power outlet in their store. 

Mobile Service Providers Now are ISPs, Voice and Texting are Features

AT&T has changed its retail packaging in a significant way, now requiring that all new customers buy shared data plans, though existing customers have the option of remaining on their current plans, even when upgrading to a new device carried on the existing plan.

The change begins for all new customers signing up on Oct. 25, 2013. To be sure, shared data plans, where the major variable cost is the size of the shared bucket of data usage, with flat fees for voice and texting and then a per-device charge, have become the most-popular AT&T retail plans. 

Verizon Wireless also requires new customers to buy a shared data plan, but unlike AT&T Wireless requires existing customers on legacy plans to adopt a shared data plan when upgrading a device. 

AT&T and Verizon Wireless believe the new plans provide more protection from customer churn, and also encourages users to add their tablet devices to existing service accounts, since the incremental cost per tablet is $10 a month.

By making data services the key variable component of end user cost, and typically the biggest driver of gross revenue, the shared data plans illustrate the shift of revenue sources in the U.S. mobile business to Internet access revenues.

In a very real sense, mobile service providers increasingly earn most of their gross revenue from operating as Internet service providers, since voice and text messaging services are bundled in with the data access bucket.

In other words, mobile voice and text messaging now are features of a mobile ISP plan. 

Mobile Market Might Require More Sophisticated Regulatory Treatment

The accepted way most people think about the structure of communications industries (to the extent they think about such matters at all) is that more competitors produce better consumer outcomes. In principle, that makes sense.

But that might not always be the case, and it matters greatly whether communications regulators have a sophisticated and analytically sound basis for thinking about issues of competition in markets where a greater number of providers automatically is assumed to be “better.”

In the mobile business, for example, when spectrum resources are constrained, the rules get turned upside down, in essence.

“Using the standard Cournot model of competition, a capacity constraint turns the standard antitrust analysis on its head—that is, under spectrum exhaust, fewer firms produce lower prices and more investment,” argue analysts and economists at the Phoenix Center for Advanced Legal & Economic Public Policy Studies.

In other words, under conditions where spectrum really is scarce and capital investment requirements are significant, better consumer outcomes actually result from fewer providers in the market, not more competitors.

That is a profoundly jarring conclusion, but matters greatly if what the Federal Communications Commission, for example, desires is a regulatory framework that promotes maximum feasible competition that leads to consumer benefits.

The point is that “maximum feasible competition” might not mean “as many providers as possible.” That is counter-intuitive but no less valid for that reason.

In some cases, regulatory bodies might even conclude, after rigorous analysis, that “doing nothing” is preferable to “adding more regulations” to enable additional competitors in the mobile market.

And that will be a jarring approach, for some. “For example, it is entirely legitimate for the FCC to decide that no feasible regulatory solution exists, whether there is market power or not,” the Phoenix Center argues. “

Some things just cannot be fixed, in other words, whether we wish to fix them, or not. One example is the typical market structure in a capital-intensive industry facing huge transitions of its products and revenues, either mobile or fixed.

In other words, no matter what we might prefer (many competitors), the economics of the access networks business (as distinct from the economics of applications that use such networks) virtually everywhere leads to only a few leading providers in each market.

European regulators are grappling with that issue now. Many observers say the only way European service providers can stop losing money is to merge to gain scale. That will have the effect of reducing the number of service providers in most national markets.

At the same time, some regulators maintain that four mobile service providers is the minimum necessary to ensure the benefits of competition. But that’s the rub. In many markets with four contestants, the market is shrinking, as measured by collective service provider revenues.

In principle, we might argue that four competitors leads to better outcomes for consumers than three competitors. We might argue that three contestants is better than two.

But industry economics may not allow that many viable contestants, over the longer term. As we might well find, in most markets, that there is room only for a single facilities-based telco, a single cable company, a single satellite provider and two or three leading mobile providers.

To the extent that the benefits of competition are obtained, it will be on an inter-modal basis, not intra-modal. In other words, telcos, cable, satellite and mobile providers will compete to provide all the core services a customer can buy from any of the suppliers.

It likely will not be common to find intra-modal competition between multiple telcos, multiple cable providers, multiple satellite providers in a single country or market.

“The Commission may also conclude that consumers are better served by fewer competitors than many,” a conclusion that will startle some, and rankle some.

But that might be the wisest course, when no matter what is done, the fundamental number of fixed network suppliers will be quite limited.

“The Federal Communications Commission is viewed as the ‘expert’ agency which not only uniquely understands the complex economics of communications industries, but also knows how and when to apply this knowledge to achieve Congress’s (sometimes incompatible) policy goals as articulated in the Communications Act,” the Phoenix Center says.

In other words, traditional antitrust considerations might still be the primary concern of agencies such as the U.S. Justice Department. The FCC’s concerns arguably are different, namely applying appropriate regulation to industries that are convulsing.