Quad Play Moves in Europe Driven by Shrinking Market

Vodafone’s recent moves to acquire cable operations Kabel Deutschland and Ono in Spain are a clear sign of the next escalation in product bundling. 

The acquisitions also indicate how competitive communications markets are in Europe, where total service provider revenues are dropping.

In competitive markets, where incumbents and multiple attackers each have substantial market share, it is unusual for any single service provider to have much more than 20 percent to 33 percent share.

Under such conditions, any single contestant might face the danger of stranded network assets as high as 80 percent, and commonly 66 percent. In other words, a service provider might have built network passing nearly 100 percent of locations, but generates revenue from a fraction of those homes.

There is much less risk when a competitor is able to use wholesale assets, but even then, competition tends to drive prices lower, affecting both gross revenue and profit margins.

Product bundling has a number of attractive features. Discrete prices are obscured, making it harder for consumers to focus on the prices of each product component. That tends to help blunt price-focused comparisons.

Consumers get an overall discount by buying in volume. Also, customer churn is reduced.

The quad play also allows contestants to take market share from other providers, though.

BT hopes the creation of a new quadruple play offer including Long Term Evolution mobile services, fixed network voice, video entertainment and high speed access will boost revenue per account and slow fixed network voice line churn rates.

About 60 percent of U.K. consumers buy a bundle of some sort, often the two-product bundle of fixed network voice and high speed access, according to Ofcom, the U.K. communications regulator. Some 27 percent of U.K. households buying a bundle purchase the voice-plus-broadband package.

About 21 percent buy a triple play package including video entertainment as well as voice and high speed access.

Just three percent buy a quad play package, and those customers largely are Virgin Media (Liberty Global) customers, it appears. And that is the attraction for BT. Very low adoption of quad play packages suggests most of the market still is available.

Between 2008 and 2012, fixed network call volumes have fallen 27 percent, according to Ofcom, with no real expectation the decline can be arrested. In fact, even mobile call volumes dipped in 2011 and 2012 as well.

In fact, it might be that 2010 was the peak year for mobile minutes of use, as 2000 was the peak year for U.S. access lines in service.

By some estimates, usage of fixed network voice has fallen as much as 50 percent in just the last six years, and might dip as much as 66 percent by 2020, representing a revenue loss of perhaps £600 million, according to the Financial Times.

If the quad play slows erosion of fixed lines, BT preserves some revenue it otherwise would have lost and gains additional time to grow the value of substitute businesses.

According to Chris Adams, Ofcom Head of Market Intelligence for Telecoms and Networks, the story for U.K. telecom includes declining revenues, lower call volume and fewer fixed lines in service.

Total telecom revenue fell 1.8 percent in 2012, for example. But that has been the trend since at least 2007.

Also, the cost of a mobile-originated call now is lower than the cost of a fixed network originated call, which will drive more traffic to mobile, and off the fixed network.

Overall, the move to quad play offers is simple enough: if BT is going to have fewer customers, it has to sell more products to a smaller base of users.

FCC to Auction 65 MHz of Shared Spectrum for 4G

The Federal Communications has moved to free up about 65 MHz of Spectrum on a shared basis for use by Long Term Evolution 4G networks, and the key element might be the face that the spectrum to be put up for auction using "flexible use" rules for the AWS-3 band, which includes the 1695-1710 MHz, 1755-1780 MHz, and 2155-2180 MHz bands. 



The novelty here is that the licenses will not necessarily be sold on an “exclusive basis.” The new band, called Advanced Wireless Services-3 (AWS-3), would be the first shared band between commercial networks and government systems.



That way of allocating spectrum is quite new, as in the past all spectrum has been awarded either on an exclusive basis, or, in the case of Wi-Fi, on an open basis with no interference protection.



The new mode of sharing will likely allow licensees and others to share a given block of spectrum, with interference protections.



That's new.

100 MHz of New Wi-Fi Spectrum Authorized at 5GHz

The Federal Communications Commission has moved to make 100 MHz of spectrum in the 5-GHz (5.150-5.250 GHz) band available for Wi-Fi or other uses. The move will increase the total amount of U.S. Wi-Fi spectrum by about 15 percent, some reckon. 

The rules adopted today remove the current restriction on indoor-only use and increase the permissible power.

That will  be useful for creation of Wi-Fi hot spots at such as airports and convention centers.

The move was expected. 

Content Fragmentation, Not Technology, is Barrier to Widespread Video Streaming

Content fragmentation caused by content rights agreements and release windows is among the non-technical reasons widespread video streaming replicating linear video content offerings is taking so long to reach commercial status.

Technology, as such, no longer is the issue. Instead, it is content rights that are the key barrier. It isn’t so much theatrical release, airline or hotel pay per view or release to retail sales that are the issue.

People sort of understand there is a rolling series of release windows for new movie content, and the process is relatively linear and straightforward, up to the point that the “premium” networks get their first access.

Viewers understand that movies debut in theaters, then move at some point to limited hotel and airline pay per view before their general availability on Blu-ray, DVD and digital services.

But then there is what some might call a hiccup. After about a year after theatrical release, movies can be shown on networks such as HBO, Starz and Epix.

But contracts specify that while a movie is licensed to run on such a channel, it cannot be viewed on any other channel, or on a rival streaming service.

In total, it takes five to seven years for all restrictions to expire, and any movie can be shown on any streaming services that wishes to buy the rights to do so. And HBO alone has rights to about half of all the movies released by major studios in the United States until beyond 2020.

So no streaming service can offer its subscribers “all movies.” That fragmentation will limit streaming growth for quite some time, forcing consumers to buy multiple services to get “most” video content after theatrical release.

In addition to those issues, streaming services themselves work to get exclusivity, as well. In other words, a viewer’s desire for “one service that has everything” conflicts with provider effort to gain marketing advantage by offering what no other provider can offer.

Fragmentation is inevitable, under such circumstances. It might not be elegant, but some consumers will simply buy multiple subscriptions, to get access to more content.

Will Facebook Become an ISP?

Precisely what Facebook plans to do with drones is hard to tell, as it once was hard to tell what Google might do in the Internet access area.

But there were more hints, in Google’s case, as Google had invested in a number of Internet service provider initiatives, such as metropolitan Wi-Fi, or airport Wi-Fi, or promises to bid on 4G spectrum (to put a floor under the bidding prices) to actual investments in spectrum (Clearwire).

Up to this point, Facebook has introduced “zero rating” programs in a couple of countries, allowing people to use Facebook without consuming any of their mobile data allotment.

“In just a few months, we helped double the number of people using mobile data on Globe’s network and grew their subscribers by 25 percent,” said Mark Zuckerberg, Facebook CEO. “In Paraguay, by working with TIGO we were able to grow the number of people using the internet by 50 percent over the course of the partnership and increase daily data usage by more than 50 percent.”

Facebook promises other such partnerships will be launched. But not only partnerships, perhaps. “But partnerships are only part of the solution,” Zuckerberg says. To be sure, that is the sort of statement easy to take out of context.

In context, Zuckerberg only is saying Facebook will work to develop new Internet access methods. “To connect everyone in the world, we also need to invent new technologies that can solve some of the physical barriers to connectivity,” said Zuckerberg.

That only suggests Facebook will look to create new forms of access, not necessarily that Facebook will become the access provider.

Already, Facebook says it is working on mesh networks for cities, drones for medium-density areas and satellites for low-density areas. Since Facebook acknowledge that prices are mostly the issue in 80 percent to 90 percent of cases, including all urban areas, one might ask why Facebook is working urban area coverage at all.

In medium-density areas, where drones might be used, Facebook could in principle simply license or promote such technology to other ISPs. But what if other ISPs refuse? What if other ISPs move too slowly?

As for satellite access, Facebook notes that it is expensive to launch and use satellites, but getting cheaper. Facebook says it is looking at both low earth orbit and geostationary approaches, with free space optics.

“One major advantage of aerial connectivity, however, is that deployment to people’s homes is

relatively simple,” says Zuckerberg. “Relatively cheap devices already exist that can receive signals from the sky and broadcast Wi-Fi to mobile phones.”

Facebook might at the moment prefer only to push the Internet access process faster by commercializing new access networks. But the act of creation can change the realm of possibility. What might not have been viewed as desirable, initially, might look quite reasonable, in the end.

And, in any case, what actor would want to broadcast its intentions in such a matter? What advantage would Google have gained had it said “we are going to become Internet service providers?

Sure, it always is possible Facebook will create some new access platforms, and then simply encourage others to use them. But that seems only one of a few likely scenarios. And one of those scenarios includes Facebook becoming a supplier of end user Internet access.

Perhaps Half of High-Speed Access Consumers Would Pay for "Assured" Speed

A poll of U.K. high speed access consumers contains what is probably good news and bad news for Internet service providers who believe quality-assured speeds would be attractive for their consumers, compared to today's more uncertain offers, where, for a variety of reasons, all an ISP can say is that speeds "up to X" are possible.



It all depends on how many other users are on the network at once, and what they are doing. 



The new poll by Think Broadband suggests that perhaps half of consumers might be interested in a speed guarantee, and would pay something extra for such guarantees.



The perhaps not so good news is that those who said they would be willing to pay also indicated they would spend about $5 to $8 a month for the feature. To be sure, a price premium of that sort would be helpful for ISPs, even if it were to be a feature purchased only by 20 percent of consumers. 



The other problem, of course, is that even when an ISP can control contention on its own access links, it cannot do so for the rest of the ecosystem. That means such an offer would have some caveats and limitations that might make the offer less appealing. 



The other issue is whether an ISP can even explain, to most consumers, why an offer is conditional, and what the speed guarantee actually provides. 

Amazon to Launch Ad-Supported Video Streaming Service?

It appears Amazon is considering launching an ad-supported streaming video service, a move that would complement its Amazon Prime service, and provide another source of content for the expected Amazon video streaming dongle Amazon might launch in April 2014.

That device will compete with the Apple TV, Google Chromecast and Roku boxes.