Friday, November 1, 2013

Why is Time Warner Cable Losing Customers?

Time Warner Cable in the coming year that about 40 percent of the cable company’s service area will be overlapped by AT&T U-verse and Verizon FiOS.


In 2013, Time Warner Cable faced AT&T in about 27 percent of the Time Warner Cable service territory. Time Warner Cable likewise faced Verizon FiOS networks in about 13 percent of its coverage area. As the competition with video-capable networks grows to 40 percent, another one million homes also passed by the Time Warner Cable networks will face potential encroachment from either AT&T or Verizon.


That underscores a key background factor for telco TV success. Up to this point, few cable TV operators actually have had to face a telco TV competitor. In fact, cable TV operator market share losses to telco TV, which have been steady, if unspectacular, are mostly an artifact of low telco TV availability, not marketing prowess or consumer preferences.


Consider that Time Warner Cable, which has seen significant customer defections in video and voice take rates in its consumer customer segment, also seems to be facing escalating availability of rival services from both AT&T and Verizon communications. Though the company blames third quarter 2013 performance on a CBS contract dispute, others might doubt that is such a material factor.


Some would argue it is the growing availability of a product substitute (U-verse TV or FiOS TV) that explains the weakness.


Though high speed Internet access was a bright spot, at least 24,000 Time Warner Cable broadband customers also departed.


Analysts had expected the company to gain more than 46,000 broadband customers during the quarter.


To be sure, revenue grew, despite the subscriber losses.


Coverage is a major factor enhancing or limiting video service provider market share. Cable TV companies operate in virtually every city and town in the United States. Satellite providers likewise cover nearly 100 percent of the surface area of the entire country.


Because telco TV is not ubiquitously offered, U.S. phone companies have about 10 percent  market share, where cable TV companies have about 55 percent share, and satellite firms have close to 30 percent share.


The issue is coverage. By 2015, AT&T, for example, will be able to market to only about 33 million locations.


Verizon’s FiOS covers about 17.8 million homes, so the two telcos will pass about 51 million U.S. homes, by 2015, out of perhaps 145 million U.S. homes by 2015. That implies coverage of about 35 percent of U.S. homes. Other telcos will sell telco TV as well, but collectively could only theoretically reach about 14.5 million homes, or so, by 2015, best case.


Even under the best of circumstances, it is unlikely U.S. telcos will be able to pass even 45 percent of U.S. homes by 2015, using their own facilities.

That is one reason why over the top streaming appeals to telco TV executives: it could enable universal coverage without requiring huge capital investments in access networks “out of region.”

Is the U.S. Ahead, Behind or at Par, in Terms of Broadband Speed, Price? Answer: Don't Blink

Whether the United States is ahead, behind or about par in the area of fixed network broadband speeds and prices seems always to be contentious. In fact, you can find, without looking too hard, analyses that claim the U.S. market is “behind” others.


It isn’t hard to do. A few nations, typically including South Korea, Singapore, Hong Kong and often Japan, are cited as the world leaders in typical, average or minimum speeds, year in and year out. That much is not in dispute.


The latest version of the “U.S. is lagging” analysis comes from the New America Foundation, which argues that “in comparison to their international peers, Americans in major cities such as New York, Los Angeles, and Washington, DC are paying higher prices for slower Internet service.”


Furthermore, the report emphasizes that “our data also shows that the most affordable and
fast connections are available in markets where consumers can choose between at least three
competitive service providers (fixed network only, as there also are satellite and mobile ISPs in virtually every market).


“Methodology is destiny,” one might argue, and so it always is important to specify what is being measured, how it is being measured and perhaps why something is being measured.


Suffice it to say, some studies show U.S. typical speeds are higher than is common in Europe, for example. Other studies show that more than 80 percent of American households live in areas that offer access to broadband networks capable of delivering data with speeds in excess of 100 megabits per second.


A study by the International Telecommunications Union argues that U.S. broadband actually is more affordable than in most other countries.


To be sure, never tends to rank much better than eighth on any survey of global teledensity or Internet access speeds. There are reasons for that, such as the continental-sized land mass, longer loop lengths, lower population densities and even consumer preferences.


Small countries, with shorter loops, higher population densities and different financing mechanisms often do score higher than the United States does.


In the end, what matters is that the U.S. market is highly dynamic. In many of the cities cited by the New America study, there are municipal broadband networks whose prices for gigabit service recently were reduced from about $300 a month to about $70 to $80 a month. That’s progress, you might argue, but the bigger story is the amount of dynamism in the market.


It isn’t just Google Fiber launching gigabit service for $70 a month. It is the upgrades other ISPs are undertaking, the significant and growing role played by mobile Internet access, and expectations that speeds will continue to grow at a healthy clip. Snapshots are fine, but the U.S. Internet access market never stands still.


In fact, U.S. Internet access speeds double about every five years. And it is reasonable to project speed increases of two orders of magnitude within a decade.


Though it is an argument some might continue to make for some time, Internet access speeds and prices really are not going to be a significant problem in the U.S. market for long, even if some believe that is the case right now.


Patent War Erupts Again: Time to Stop It

On Oct. 31, 2013, a consortium of Google rivals, including Microsoft, Apple, RIM, Ericsson, and Sony, filed 15 lawsuits against Samsung, Huawei, HTC, LG Electronics and other manufacturers that make Android smartphones, using a trove of patents the complanies acquired from the bankrupt Nortel. 

Enough already. Intellectual property protection is a good thing. But such "patent trolling," sometimes aptly called "privateering," might aptly be called extortion of a new sort. 

In 2011 and 2012, the number of lawsuits brought by patent trolls has nearly tripled, and account for 62 percent of all patent lawsuits in America, according to a study on patent trolls.

The victims of patent trolls paid $29 billion in 2011, a 400 percent increase from 2005.

Intellectual property protection is one thing. An out of control patents system, and the new use of litigation as a weapon of business competition, has to stop. It is going to damage innovation. 

Between $15 billion and $20 billion was spent on patent litigation and patent purchases in the smart phone industry from 2010 to 2012. 

In 2011, spending by Apple and Google on patent litigation and patent acquisitions exceeded spending on research and development of new products.

Google’s $12.5 billion purchase of Motorola, according to its own statements, was undertaken in large part to prevent patent suits from competitors.

If you have ever read patent applications, you know that some "patented processes" seem to defy logic. Where patents once were intended to protect the specific implementation of a process or device, now people and companies try to patent, in an overly-broad way, entire processes. It's dumb. It should not be allowed. 

Thursday, October 31, 2013

"Coverage" Limits Telco TV Gains

Coverage is a major factor enhancing or limiting video service provider market share. 

In fact, coverage limitations are the biggest barrier to telcos taking more market share from cable operators.

Cable TV companies operate in virtually every city and town in the United States. 

Satellite providers likewise cover nearly 100 percent of the surface area of the entire country.

Telco TV providers do not yet have ubiquitous coverage, though where they do operate, providers such Verizon have gotten about 35 percent market share, where the cable provider might get 39 percent or 40 percent share, with satellite providers getting the balance of accounts of homes that do buy video entertainment.

To be sure, AT&T and Verizon are now the fifth and sixth biggest subscription video entertainment providers in the United States, trailing Comcast, Time Warner Cable, DirecTV and Dish Network.

Still, because telco TV is not ubiquitously offered, U.S. phone companies have about 10 percent  market share, where cable TV companies have about 55 percent share, and satellite firms have close to 30 percent share.

You might think the telcos have issues with content, marketing or retail packaging. That isn’t the case. The issue is coverage. By 2015, AT&T, for example, will be able to market to only about 33 million locations.

Verizon’s FiOS covers about 17.8 million homes, so the two telcos will pass about 51 million U.S. homes, by 2015, out of perhaps 145 million U.S. homes by 2015. That implies coverage of about 35 percent of U.S. homes. Other telcos will sell telco TV as well, but collectively could only theoretically reach about 14.5 million homes, or so, by 2015, best case.

Even under the best of circumstances, it is unlikely U.S. telcos will be able to pass even 45 percent of U.S. homes by 2015.

That is one reason why some observers believe either AT&T or Verizon might eventually buy either DirecTV or Dish Network, or a combined entity, should the two satellite firms wind up merging with each other.

That is the only way, aside from launching robust streaming video services offering virtually all the standard channels sold as part of a standard cable TV, satellite TV or telco TV offering, that a telco could achieve full national coverage.

But changing customer habits and eventual content owner preferences are a wild card. Some might argue that today’s subscription video business is past its prime, and that streaming delivery is the future.

If so, a distributor could achieve national distribution by using an over the top approach. And that might ultimately be viewed by a few telcos as the best way to proceed.

Doing so would mean national coverage without the need to build access facilities, for example.







Netflix is Bigger than HBO and Comcast, on One Measure

With the important caveat that average revenue per account and profit margins are disparate, Netflix is, by at least one or two measures, bigger than HBO , and also is bigger than Comcast on one measure.

Netflix is bigger than Comcast when measured by paying subscribers, and Netflix is bigger than HBO in terms of gross revenue and subscribers.

Comcast is far bigger than Netflix in terms of average revenue per user, while HBO is vastly more profitable, in terms of profit margin. 

HBO probably has margins in the 33 percent range, while Netflix margin is in the five percent range. Also, Comcast has average account revenue above $80 a month. Netflix has average revenue per user of about $10 a month.

Comcast third-quarter 2013 results showed the firm lost 129,000 video subscribers, ending the period with more than 21.6 million video customers. Netflix has about 30 million U.S. subscribers.

Comcast also lost 348,000 video subscribers through the first nine months of 2013, as well.

Comcast now has almost as many high-speed Internet subscribers (20.2 million) as video (21.6 million), and that business still is growing. Comcast gained nearly 300,000 broadband subs in the quarter.

Some think the growing popularity of Netflix is one reason Comcast recently launched an antenna basic plus HBO package that offers consumers a low price and access to HBO, seen by some as a competitor to Netflix, in many ways.

Netflix on Comcast X1 Platform "Not a High Priority," Comcast Says

Comcast EVP Neil Smit says getting Netflix onboard its X1 platform, making Netflix an app on the set top box, "is not a high priority" for Comcast.

"Our customers can receive Netflix in a number of ways, so it’s not really a high priority for us," said Smit. "We’re open to putting apps on our X1 platform. We have, for example, Facebook and Pandora there now."

But at this point, Netflix does not seem likely to get such treatment from Comcast. Some might speculate that Comcast has designs for a streaming video service of its own, at some point, so that might explain some of the apparent reticience. 

Nor does Comcast want to use the Netflix content delivery network, either, said to be a condition for Netflix doing such deals. 

AT&T to Bid for Vodafone?

If you think regulatory scrutiny of AT&T’s effort to buy T-Mobile US was contentious, just wait until AT&T tries to buy either Vodafone Group or EE in the United Kingdom, a move that reports  suggest is under active consideration at AT&T.

AT&T reportedly also considered a purchase of Telefonica, but Spanish regulators quickly moved to signal disapproval.

In recent days Mexico’s America Movil encountered opposition by an independent KPN  shareholder group to its bid to buy the remainder of KPN it did not already own.

Both America Movil and partner AT&T were rebuffed in 2007 in an effort to buy Telecom Italia, as well.

Opposition could arise from national regulators, company poison pill defenses or independent foundations set up to ward off unwanted takeovers.

Combined, Vodafone and AT&T would be the largest telecom firm on the planet, with a market capitalization exceeding $250 billion and large-scale operations in the U.S. and across Europe.

That level of scale might be important to the firm as it explores new lines of business where scale is important, ranging from advertising to video entertainment, and probably also would help the carrier when negotiating with handset suppliers and other suppliers of infrastructure.

Though AT&T might wind up not making a bid, it could not move before the closing of the Vodafone sale of its Verizon Wireless stake, expected in early 2014.

Alphabet Sees Significant AI Revenue Boost in Search and Google Cloud

Google CEO Sundar Pichai said its investment in AI is paying off in two ways: fueling search engagement and spurring cloud computing revenu...