Average U.S. Internet Access Speeds Double in 3 Years

Average U.S. Internet access speeds have doubled in just three years, according to Broadband for America.

IN 2010, the average connection speed in the United States was 4.7 Mbps. In the third quarter of 2013, the average connection speed had more than doubled to 9.8 Mbps. while the average peak connection speed was 37.0 Mbps.

Rapid increases, despite some sense, in some quarters, that change is not rapid enough, have been quite rapid, indeed, in large part because of retail offers from cable companies.

The standard cable broadband speed has increased 900 percent since 1999.

In August 2000, only 4.4 percent of U.S. households had a home broadband connection, while  41.5 percent of households had dial-up access.

A decade later, dial-up subscribers declined to 2.8 percent of households in 2010, and 68.2 percent of households subscribed to broadband service.

In other words, from 2000 to 2012, the typical purchased access connection grew by about two to three orders of magnitude in about a decade.



If that continues, gigabit connections will be common within two decades.

Do French and U.S. Mobile Markets Have Too Many Competitors?

Does the U.S and French mobile business have “too many” or “too few” contestants? And no matter which view is taken, on what basis are informed judgments made?

Consider the rival bids being made by Altice, owner of French cable concern Numericable, and Bouygues, a leading French mobile operator, for the assets of Vivendi’s SFR mobile business.

In the wake of a decision by SFR to negotiate exclusively with Altice, Bouygues had been expected to pursue a merger with Iliad, which owns France's fourth mobile operator, Free Mobile.

Observers say regulatory risk is an important element of SFR thinking. A Bouygues purchase of SFR would reduce the number of national mobile providers from four to three, while French regulators prefer a minimum of four providers.

In that view, a purchase of SFR by a cable company would be preferable to reducing the number of mobile service providers. Of course, some would argue the mobile segment currently has too many contestants for a stable, healthy, longer term market that remains competitive.

In the U.S. market, Sprint has been sounding out regulators about a potential bid by Sprint to acquire T-Mobile US. By all accounts, U.S. Federal Communications Commission and antitrust authorities at the Department of Justice are skeptical about such a potential merger.

The reasons fundamentally are the same as in France: regulators have more confidence in a four-player market than a three-provider market, in terms of maintaining robust competition.

The problem is that there is no way to know, in advance, which position--the market is too concentrated, or the opposite market is not concentrated enough--is correct, in terms of maintaining both robust competition and also incentives for continual investment.

In fact, globally, a “rule of three” already seems manifest. That is to say, in any mature industry, three suppliers dominate the market. Of 40 major markets studied by mobile analyst Chetan Sharma, the top three mobile operators controlled 93 percent of their respective markets.  

In some “hyper-competitive markets” like the United Kingdom and the United States, “which had more than four to five large players” are moving towards the consolidation phase where the top three control more than 80 percent of the market, Sharma has said.

Opponents of a Sprint acquisition of T-Mobile US argue that consumer retail prices likely will rise, in the event of a merger. Indeed, that is one reason why most equity analysts think only such a merger will end the current price war in the U.S. mobile market.

Economists and analysts at the Phoenix Center for Advanced Legal and Economic Policy Studies agree that retail prices likely would rise in the wake of a Sprint acquisition of T-Mobile US, but also argue that isn’t the point. Even higher retail prices do not tell the long-term story about sustainable levels of robust competition and sustainable incentives for continued investment.

Though it sometimes seems counter-intuitive, retail prices that are too low necessarily drive weaker competitors out of the market, leading to more market concentration. Prices that are too low also dissuade contestants from investing aggressively, as there is little to no profit for doing so.

But the issue is whether any regulatory bodies, anywhere, are smart enough to know, in advance, whether consumer welfare outcomes are better with three or four national providers.

Economic theory suggests “excessive competition” can lead to negative profits, and therefore death, of all contestants in a market with too many competitors. Consolidation is the inevitable result.

And, one might well argue,, such consolidation provides a better outcome for consumers.

source: Phoenix Center

Winner Take All Markets Have Clear Business and Regulatory Implications

Winner take all is a description of a type of market where the best performers--and typically only a few firms--are able to capture a very large share of the rewards, and the remaining competitors are left with very little.

Some would point to modern retailing and the rise of Wal-Mart as one example of a winner take all market.

Many would say the music industry, and digital information or content businesses, increasingly take on a “winner take all” character. Some argue that is true in large part because information technology now allows any single firm to reach huge markets, affordably, compared to what was possible in the past.

That means the very best supplier in any industry affected by economies of scale--and that is most industries these days--will do disproportionately well.

Some might argue “winner take all” economics easily can arise in industries where fixed cost is high and marginal costs are low.

If that sounds familiar, it is because that is the structure of the global telecom business as well. “Winner take all” might be expressed as the “rule of three,” describing the typical national telecom market which is dominated by no more than three providers.

One example is the new concentration of revenue in the mobile advertising business.

For observers long accustomed to the relative fragmentation of advertising revenues and market share across television, radio, newspapers and magazines, the extreme concentration of mobile advertising revenue is shocking.

Facebook and Google accounted for about 67 percent of all global mobile ad market revenue in 2013, and it is projected that Facebook and Google will earn nearly 69 percent of all global mobile ad revenue in 2014.

Between them, Google and Facebook earned 75 percent of the $9.2 billion in incremental global mobile ad revenues in 2013 ($6.92 billion), according to eMarketer .

That's one example of a "winner take all" market. Of course, there are implications for regulators responsible for oversight of communications markets. To the extent the theory holds, only a few firms will dominate every telecom market, eventually.

That tendency to "fewness" will be relevant in coming days as much of the global communications business consolidates. The point is that, no matter what, a truly competitive market will eventually consolidate into leadership by just a few companies.

Demography is Why OTT Video Wins, in the End

http://www.parksassociates.com/blog/article/pr-mar2014-ott-webcast

The way younger users consume entertainment video tells you most of what you need to know about the inevitability of over the top, streamed video that competes directly with linear video subscriptions, even if, in an interim period, it might well turn out that linear video subscription providers emerge as key purveyors of such services.

In what linear video service providers might consider an ideal scenario, consumers would be able to stream only the shows and programs they want to watch, on demand, if they also purchase a linear video service that accompanies the over the top access, even if they do not want to watch linear video, or possibly even do not own televisions.

That is the direction major linear video suppliers already are headed, at least for the major television networks, essentially adding “on the go” access to some of the channels and content subscribers already pay for as part of their linear video subscriptions.

How successful such approaches might be in a future market is not so clear, but, in principle, many consumers might accept new packages supporting both on demand streamed access as well as linear TV access, if the retail pricing questions can be addressed.

In other words, many users will refuse to pay $100 or more for linear access, only to get streamed access as part of the package. Whether they might be willing to pay lower amounts, for smaller channel packages, plus streamed access, is not yet clear.

Of course, it never is easy to convince consumers they have to pay one product they don’t want, to get access to another product they do want. Requirements to buy fixed voice service in order to get high speed access provide one recent example of that sort of retail packaging.

Likewise, video service providers typically require consumers to buy basic cable first, in order to buy a premium channel such as HBO.  

Movie services already are well down the path of mass adoption, by way of contrast, as consumers have grown accustomed first to renting videocassette tapes, then DVDs, and now streaming Netflix, Amazon Prime and other content.

Perhaps 45 percent to 50 percent of U.S. broadband households now use paid over-the-top (OTT) video services, either subscription or transactional, according to Parks Associates. That is up slightly over about a year’s time.

Including “free” sources such as YouTube, perhaps 70 percent of Internet users watch at least some over the top video.

Parks Associates also notes that 37 percent of consumers 18 to 24 view online video is their most important video source.

More than 40 percent of U.S. broadband households selected online video as one of the top three important sources of video, topping rental DVDs at 25 percent and 13 percent who said owned Blu-ray discs were among the top three sources.

The key observation is the huge difference in video entertainment preferences between the oldest and the youngest age cohorts, with roughly linear correlations in demand across all age cohorts, namely that the older the user, the less reliance is placed on over the top, streamed sources.

The younger the user, the more reliance is placed on streamed video entertainment. For users 34 or younger, online sources are at least as important as linear video, and among those younger than 24, the most-used delivery mode.

Should those behaviors persist as younger consumers grow older, linear video demand will drop, and content now delivered using linear retail formats will have to shift.

But there is one important observation about the timing of such a change. Though one might argue the transition will be about as linear as the consumption graph indicates, this almost certainly will not be the case.

When the disruption happens, and linear content is made available on a streamed basis, behavior will shift rapidly, in quantum fashion, not linearly. The reason for the prediction is simple: all other popular mass market services have shown a quantum, not linear adoption pattern.

Demography is destiny, one often hears, as a quip. But it is a quip with solid rooting. As Liberty Media CEO John Malone once quipped, in response to an analyst’s question about take rates for cable TV, specifically the fact that some consumers had high resistance to buying the product, Malone quipped that this was true, but “those people are dying.”

For it is a simple fact that generations of people eventually die, and are replaced by successive generations of people. So when researchers see significant generational demand for some products, the habits of the younger age cohorts are strategic, as they represent the future consumption patterns of virtually all age cohorts.

Ad-Supported Communications Takes Scale

Entrepreneurs have been trying to create advertising-supported communication services for decades, with no success. Recently, mobile service providers have been trying to do so in the United Kingdom.

Samba Mobile is one such effort.

Blyk was another U.K.-based effort. But Blyk shifted course to become an advertising services provider.

OVIVO, another mobile virtual network operator using the advertising model has shut down. The crowdsourced firm had raised £440,000 from crowdsourcing site Crowdcube.

The OVIVO “Freedom0” plan gave subscribers 300 minutes of voice calls, 300 text messages and 500 MB of data each month.

Blyk and OVIVO might illustrate one of the strategic issues for ad-supported communications, namely the need for scale. Blyk, for example, could not create enough reach to interest big brands.

In the past, other would-be providers tried supporting fixed network voice services using advertising.

But even some service providers that wanted to create big ad-supported services have had to retrench. In the United States, RingPlus offers zero-cost mobile service offering 300 “no incremental cost” calling minutes or 50 free text messages per month, but using a freemium model, not the ad-supported model it originally favored.

RingPlus users can add credit to their accounts with a credit or debit card. And there is a $49 a month plan for people who want unlimited usage.

But efforts persist. Denver International Airport offers free domestic and global phone calling with a new advertisement-based service offered by RMT Free Phone, available at more than 200 landline phones throughout the airport.

The program is the result of a new partnership between the airport, RMES Communications and DIA's advertising agent Clear Channel Airports.

International calls are free for the first 10 minutes, with a charge of 25 cents for each additional minute, plus a 15 percent tax.

The phone service is supported through ad revenue. Each phone has a 17-inch LCD screen that will run 15-second advertisements and offer digital coupons.

Likewise, icall, supporting low-cost calling on mobile devices, originally pitched as an ad-supported service, now has switched to a Skype-style VoIP service.

Ad-supported content works for broadcasters because they have scale. Ad-supported software works for Google because Google has scale. Until an ad-supported communication service provider can attain similar scale, it seems doubtful it can succeed.ad-

What is More Important: Mobile or High Speed Access?

One way of gauging the importance of various products is to ask users how hard it would be to give up a particular product, or asking users to rank various products in terms of utility, usefulness or value.

Most people would guess that a mobile phone is the communications product most people would have trouble giving up.

Some surveys suggest that was the case. But not all.

Actually, according to some studies, Internet access is the most important or valued product.

U.K. consumers would rather keep broadband than mobile, one study found.

In that regard, a recent survey by the Pew Internet and American Life Project suggests linear video services face a yawning chasm with people 18 to 29. Just 12 percent of those ages 18 and 29 say television would be very hard to give up.

In other words, “television” is not a product younger people care about, in objective terms, or in relative terms, compared to Internet access or mobile phones, for example.

One survey found 53 percent of Internet users say it would be “very hard to give up.”

Another found that 46 percent of people would find it "very hard" to give up Internet access, compared to about 44 percent who thought it would be "very hard" to give up their mobile phone service.

Some 87 percent of U.S. adults now use the Internet, with near-saturation usage among those living in households earning $75,000 or more (99 percent), young adults ages 18 to 29 (97 percent), and those with college degrees (97 percent), according to a new study by the Pew Internet and American Life Project.

About 49 percent of mobile phone owners say their mobile phone would be “very hard to give up.” Some 36 percent said the same about email. Just 28 percent said their landline phones would be very hard to give up.

Some 11 percent of internet users say social media would be very hard to give up.

Fully 68 percent of adults connect to the Internet with mobile devices like smartphones or tablet computers.

So though mobile devices clearly are very important to consumers, it might be a close call whether high speed access is even more important than mobile.

Can Mobile Operators Really Compete with WhatsApp?

Can mobile service providers really compete with over the top messaging apps? To be sure, some mobile service providers believe they must try. Many believe they will do best to partner with OTT app providers in various ways.

This sort of problem has happened before. How to cope with falling per-minute prices and profit margins in international voice was a precursor. How to deal with Skype and VoIP were other earlier challenges.

Broadly, the choices are “do nothing, and harvest revenues,” “partner with the attackers,” or “launch a branded competitor.”

The service provider response to voice pricing was simply to grudgingly match lower-price offers when necessary, while doing everything possible to slow the rate of revenue decline. That essentially was a “harvest” strategy.

In the case of VoIP and Skype, many service providers also have decided not to compete, preferring instead to take steps to shore up the legacy product as well as possible, without matching VoIP prices. A few launched branded OTT voice apps of their own.

At least so far, service providers have tried some of all of the earlier tactics in responding to over the top messaging. Text messaging prices have dropped, or value has increased, to some extent. U.S. mobile service providers now are moving to add no incremental cost international texting in an effort to add value, while maintaining prices.

In other cases, service providers have tried to work with OTT providers. Jajah and Deutsche Telekom took that route.

In a few cases, service providers have tried to compete with branded offers of their own. Telefonica has done that.

The dominant response arguably has been the “harvest” approach, in part because many believe telcos really cannot effectively compete with their own branded apps and services.

McKinsey analysts believe telcos can slow the incursion of OTT apps, but only at the cost of lower retail prices..

Booz and Company analysts have argued telcos really cannot compete directly with OTT applications.

A few telcos have tried to launch their own OTT apps. Generally speaking, the argument for effective telco competition with OTT apps is to add value. Whether enough value can be added to change the value-price relationship is the question.

OTT apps continue to add functionality and value as well, the most recent example being WhatsApp has added free voice calling and video calling for WhatsApp users, and now also has added calling to any phone number, for a fee.

But many will argue the best course is to harvest voice and text messaging revenues, as has been done in the past in the communications business when a legacy revenue source faces decline.

The reason is simply that service providers arguably still have more to lose than to gain were they to meet OTT prices head on.