Dish Network Will Play a Role in Rearranging U.S. Mobile and Video Market Share

source: Bruck Kushnick

Facing important decisions about potential consolidation in both video entertainment  and mobile industry segments, Federal Communications Commission decisions, along with Department of Justice antitrust reviews, could trigger other cross-industry consolidation as well.

The immediate issues include the Comcast acquisition of Time Warner Cable, the possible, though unlikely Sprint acquisition of T-Mobile US and a potential merger between DirecTV and Dish Network.

Also in the background are upcoming auctions of former TV broadcast spectrum that likely will limit potential gains by AT&T and Verizon, while favoring Sprint and T-Mobile US.

All those intramodal changes could also trigger intermodal activity, though. Dish Network has been amassing spectrum suitable for building a mobile business based on fourth generation Long Term Evolution.

source: Bruck Kushnick

Dish faces an FCC deadline for beginning and finishing construction of that network, in order to keep its licenses. So there has been logical speculation about a deal with Sprint, for example, to expedite the actual network activation process.

But there are other possibilities as well. Both AT&T and Verizon face some limits on how big their existing linear video services business can grow. And some would question the long term value as well.

Dish Network CEO Charlie Ergen sees a dwindling future for satellite-based video service, and also for fixed network delivered linear video entertainment, as demand shifts to over the top and on-demand delivery.

“In my opinion, the video business for a monthly subscription of $80 to $100 a month is a mature business,” Ergen has said. “We’re losing a whole generation of individuals who aren’t going to buy into that model because they only want one particular show or they want to watch the show wherever they can or they want to watch it on their schedule and so that generation is not signing up to satellite or cable or phone video today.”

“At some point in time, the video business, as we know it today, will change dramatically enough that the current business will go from a mature business to a declining business,” Ergen has candidly said. “Hopefully, we’ll make up for that and in an over-the-top business or a wireless business or other businesses that make sense.”

That, many would argue, explains Dish Network’s effort to buy Clearwire and Sprint, purchases of satellite spectrum that can be repurposed to support terrestrial LTE and H block spectrum purchases.

Though initially some speculated that Ergen was buying all that spectrum, and talking about mobile networks, only to entice a buyer for all of Dish Network, Ergen now arguably is quite serious about shifting his business model.

For AT&T or Verizon, a shrinking fixed network linear video business could make a mobile-centric, over the top and on-demand video service much more attractive, positioning either carrier in a growing revenue segment that would become the successor to the linear video business.

Such a business also would be national in scope, where each carrier now has a limited geographic footprint. Also, should Google Fiber continue to scale its business, AT&T or Verizon would gain some revenue to offset possible losses in the fixed network and video services business.

If the Federal Communications Commission limits bidding on spectrum in upcoming auctions of former TV broadcast spectrum, limiting the amount of spectrum AT&T and Verizon can acquire, there are certain to be correlated actions by Verizon or AT&T.

The Federal Communications Commission seems to be interested in crafting auction rules that would ensure that T-Mobile US and Sprint get a reasonable share of the new spectrum.

This is important and valuable to both carriers as the new frequencies will propagate farther than the higher-frequency holdings that anchor both carriers’ present services. Greater propagation means less capital cost for the transmitting network.

But those bidding restrictions also would limit the additional spectrum AT&T or Verizon could acquire.

To be sure, Verizon has said it has no need for more spectrum for additional spectrum. But Verizon already has invested in assets that would allow it to launch a nationwide, mobile-delivered over the top video service. And that would take lots more bandwidth than Verizon presently controls.

Verizon’s public statements notwithstanding, it almost certainly will be needing more spectrum, not so much for its “mobile communications” services, but for potentially key new mobile video entertainment services.

And that is where Dish Network could come into play. Dish owns enough spectrum to be attractive if Verizon or AT&T are serious about a mobile-delivered, over the top and on-demand video entertainment service.

Keep in mind that Verizon’s FiOS footprint is relatively small, compared that of Comcast and the satellite networks, for example.

One might argue that will happen. The traditional argument--for at least a decade--is that neither AT&T nor Verizon can grow the video portion of their triple-play services much more than incrementally, without acquiring more video share now held by the satellite providers.

No matter how effective the telcos are at marketing video services, they are hampered for a couple of reasons.

The cost of upgrading their fixed networks to handle video is a task now made tougher because the financial return from investing in mobile assets now competes for investment funds, is one limitation.

AT&T and Verizon have very good reasons for caution about capital investment in their fixed networks, even if high speed access and video entertainment services have emerged as strategic applications for fixed networks.

The other problem is that both firms are barred from significant growth by acquisition, simply because of their large share of the telco fixed network business. AT&T’s fixed network might pass about 30 million of 115 million or so U.S. homes, and not all those locations are video-capable.

Verizon passes about 27 million homes. And despite new AT&T plans to vastly accelerate upgrading its networks, perhaps half of all lines operated by AT&T and Verizon fixed networks are not yet upgraded to enable video services.

The point is that AT&T and Verizon will be limited in the number of video subscribers they can attract, simply because their footprints are relatively limited, both geographically and in terms of the cost of upgrading rapidly.

source: BTIG Research

Verizon’s video entertainment customer base, for example, is about five million households. DirecTV has about 20 million customers while Comcast, with Time Warner Cable, would have more than 30 million customers. Dish Network has about 14 million customers.

No matter how effective Verizon is at winning video market share where it has fixed network FiOS assets, the fact is that Verizon’s network footprint is too small, relative to the satellite networks, Comcast or AT&T, to grow its business too much further.

AT&T has about 5.5 million video customers as well. One might argue that the only way either AT&T or Verizon gets significantly more video share is by buying one of the satellite providers.

To the extent that national footprint is helpful, as it has become in the mobile business, national scale arguably would be beneficial in the video business, as both DirecTV and Dish Network are able to take advantage of, in terms of marketing and to some extent in terms of appeal to advertisers.

Not only does Ergen expect demand for linear video to decline, geostationary satellite networks are ill-suited for interactive services.

But to the extent that linear video remains a key revenue driver, acquisition of Dish Network and DirecTV subscriber bases are one of the most-logical ways for AT&T and Verizon to gain scale and revenue volume in the linear video business.

Dish also offers Verizon a service organization outside of FiOS areas that could help Verizon deploy additional mobile broadband capacity and support an over the top mobile video service.

And either AT&T or Verizon would have more headroom to acquire additional spectrum from such a secondary transaction if the FCC revises the “spectrum screen” it uses to ensure diversity of spectrum ownership.

Essentially, the FCC limits ownership by any provider to no more than about 33 percent of available spectrum. In recent days, the Commission has not included 2.5-GHz Sprint holdings in the base, for such purposes.

Many believe that will change, automatically giving AT&T and Verizon more leeway to acquire spectrum in secondary markets (by buying firms with rights to spectrum). Dish Network is the firm with the greatest amount of spectrum to be acquired in that manner.

So watch for big intermodal changes in the U.S. mobile and video services business.

Cable is Winning Access Speed Race, But for How Long?

source: National Broadband Plan

If U.K. trends in high speed access are an indicator of what is happening in the United States, cable operators are providing a disproportionate share of the fastest connections.

Average telco ADSL speeds were 6.7 Mbps in November 2013 compared to 5.9 Mbps in May 2013, according to Ofcom.

In the U.K. market, the average download speed of residential cable broadband connections was 40.2 Mbps in November 2013 compared to 34.9 Mbps in May 2013, an increase of 5.3Mbps over six months.

But U.K. buyers of 120 Mbps cable access services got peak-time speeds of 108 Mbps.

Buyers of 60 Mbps cable connections got  58.4 Mbps at peak hours. Buyers of 30 Mbps cable access services got peak-hour speeds of 30.2 Mbps.

In other words, cable connections were markedly faster, “on average,” than all-copper connections, and also faster than optical fiber connections, in the United Kingdom.

In November 2013, the average actual download speed over optical access connections in urban areas was 46.8 Mbps, according to Ofcom, the U.K. communications regulator.

So it matters whether one buys a cable TV high speed access service, or a telco fiber connection or a telco all-copper access service.

“We consider the increased take-up of superfast connections to be a key factor driving the increase in average actual speeds across all connections,” Ofcom says. In other words, a disproportionate share of the speed growth comes from connections at the high end.

The issue is whether this also is happening in the U.S. market. The longer term issue is whether the pattern will continue, as Google Fiber enters more markets and telcos including AT&T respond in kind.

In the United States, cable TV providers of high speed access already have about 58 percent share of the installed base, but also are getting at least 82 percent of the net new additions in that market.

Some might argue cable is getting as much as 100 percent of net new additions.

Already dominant, the cable industry is growing much faster in high speed market share than telcos are growing.  

Also at least for the moment, U.S. cable providers have a higher share of the faster access connections. That was not always the case.

In 2004 the mean advertised download peak speeds of cable and telco high speed access services were similar, and the maximum and minimum advertised peak speeds were identical.

By 2009, the average (“mean”)  advertised cable speed was about 2.5 times higher than DSL, while the maximum peak advertised speed was three times higher than DSL, though the minimum advertised peak speeds remained identical.

The past is no solid predictor of what might happen in the future, though. Google Fiber is having a dramatic impact on speeds and prices, in some markets, resetting market prices to a level of a gigabit per second symmetrical service for $70 a month.

source: Infinera

Though Verizon’s major optical access infrastructure is largely completed, AT&T is making new commitments to boost speeds across the board, and spot deploying gigabit access services where it faces Google Fiber.

Still, at the moment, cable seems to have the clear upper hand where it comes to top speeds, in most markets, the exceptions being markets where Google Fiber operates. In areas where Verizon FiOS is available, Verizon might have an edge.

What also is clear is that the strategic value of high speed access for a cable operator arguably is higher than for AT&T and Verizon. Virtually 100 percent of cable TV revenue comes from services provided over the fixed network. That would not change much, even if cable operators launch mobile services using a Wi-Fi-first model.

AT&T and Verizon, on the other hand, earn less than half their total revenue from the fixed network, and almost none of the revenue growth.

That tends to affect supplier thinking about when and where to invest in faster speeds, one might argue. So far, cable arguably has had higher incentives, and enjoyed lower costs, to upgrade access networks.

UK residential broadband connections, by headline speed Source: Ofcom

FCC May Create Spectrum Limits for Former TV Spectrum Auction

Limits on the amount of spectrum any single company can win in the proposed 600 MHz auctions of former TV broadcast spectrum could be coming. 

Sprint and T-Mobile US have argued they need such rules to ensure that each of the smaller carriers gets a reasonable amount of new low-frequency spectrum.

That matters, they argue, since Verizon Wireless and AT&T Mobility already own most of the available lower frequency spectrum, valuable in terms of better signal propagation characteristics. 

That, in turn, is important because it means better coverage with less capital investment. And such new spectrum would allow both smaller firms to better compete with AT&T and Verizon.

According to a Bloomberg report, Federal Communications Commission Chairman Tom Wheeler will propose such limits.

AT&T Iand Verizon have argued such purchase limits will reduce revenue the government reaps from the spectrum sale, something that is important because of the way the FCC plans to create incentives for broadcasters to sell their spectrrum in the first place.

The easiest way to do so is to provide high spectrum rights payments. But spectrum set-asides likely will reduct the amount of money available to pay broadcasters to voluntarily relinquish their licenses. 

Some might also note that spectrum set-asides also will reduce the amount of money the federal government can hope to raise, but that is a secondary consideration. The bigger risk is that the revenue raised will not be sufficient to convince broadcasters to give up their spectrum rights.

Network Neutrality Boils Down to "Quality or Equality"

Language matters. Sometimes language is used to halt debate, rather than engage with and contest ideas. In such cases, language is used--intentionally or not--in a fundamentally irrational way, as a substitute for thinking. All of us can think of instances where calling something or someone a name completely shuts down debate about ideas, and becomes a fight about character.

Sometimes language is used--deliberately--to shape thinking, in less invidious, but significant ways. Consider debates about network neutrality, the content of which is quite different in U.S. and European Union contexts.

Some argue in favor of network neutrality by citing instances of lawful application blocking, either in the U.S. or E.U. markets.

And, to be quite sure, “blocking of lawful applications” by an Internet service provider is viewed by regulators in the United States and European Union as a genuine problem, as they should, many would argue.

To be sure, examples of such blocking of legal apps have been quite rare in the U.S. market. In 2008, the Federal Communications Commission swiftly against Comcast blocking of BitTorrent.

Earlier, in 2005, the FCC had moved swiftly against a small telco, Madison River, for blocking Vonage.

In the U.S. market, that is the extent of the record of actual ISP blocking of lawful apps.

Blocking of lawful apps arguably has been a bigger problem in the EU, where lawful apps such as Skype have experienced routing blocking by some ISPs.

That is a problem many would agree must be addressed. People have the right to use lawful Internet apps.

Beyond that is where one might argue confusion begins. The U.S. FCC long ago made blocking of lawful apps an infraction of U.S. policy.

That has not universally been the case in the European Union, where “network neutrality” covers both the problem of lawful application blocking and potential quality of service mechanisms for consumer Internet access.

To be sure, one might reasonably argue that a “neutral” treatment of all consumer Internet apps is the correct term to cover both app blocking and equal treatment of all apps. It is appealing language, as it invokes notions of fairness.

But there inevitably are competing claims of fairness. If a consumer buys a service, that service should work “as advertised.” That applies to video streaming and voice services for which people pay money to use, for example.

That such mechanisms are necessary can be deduced from widespread use of content delivery networks whose value is such that backbone traffic patterns now are shifting from north-south to east-west (north south referring to traffic traversing long haul networks while east-west refers to metro-confined or data-center-confined traffic).

In other words, entertainment video and voice often require “unequal” treatment, to provide reasonable end user experience. People often do not realize that all voice networks actually are designed with “admission control” or actual “blocking” mechanisms to deal with periods of very-high usage.

People experience this as a recorded message that “all circuits are busy now; please try your call later.” That is actual lawful application blocking, but has in the past been necessary at times of peak load.

Internet, compared to circuit switched networks, can deal with congestion in other ways. Some argue ISPs should simply be forced to build networks with more capacity. Others argue that, in addition, apps the require predictable packet delivery should be supported that way networks get congested.

In large part, the arguments have business implications, in particular the allocation of capital investment burdens within the Internet ecosystem. One view is that ISPs bear the sole burden of providing enough bandwidth to support all apps, all the time. That is the “neutrality” argument, which as a practical matter means “best effort” delivery.

Another view is that apps susceptible to packet delay be afforded the ability to better assure packet delivery when networks are congested. That is the content delivery networks approach.

In business terms, “network neutrality” includes both the separate issues of application blocking and the use of “best effort only” or “content delivery network” approaches.

So “neutrality” is a fuzzy term. What we want is that consumers “can use all lawful apps” (no blocking) as well as “lawful apps actually work well” (content delivery networks or not).

In the E.U., “neutrality” covers both blocking and access mechanisms. In the United States, “neutrality” actually refers only to access mechanisms, as “application blocking” is covered by other existing rules.

So language does matter. On one hand, it is easy to understand the power of “equality.” In practice, virtually all consumers already experience content apps whose treatment is “unequal” because quality requires such treatment.

It is in real terms a “quality or equality” debate. Content delivery networks sacrifice "equality" to gain "quality." Best effort access assures "equality" at the risk of "quality."

Google Buys Drone Manufacturer Titan Aerospace

Google's purchase of Titan Aerospace, a manufacturer of solar-powered drones, is the latest expression of interest in drones, for any number of potential applications, by Amazon, Facebook and Google. 



Aside from providing Internet access, Titan seems to have capabilities in mapping, something of high interest for applications such as Google Maps. Amazon of course has suggested drones could be used for small package delivery. 



Facebook initially has suggested drones could be used to support Internet access in many areas of higher population density. 

Verizon Wireless Now MoreTransparent and Fair with Service Plans

Verizon Wireless has made a move for greater transparnency and fairness by giving customers the ability to add a smartphone that is not currently under contract to a More Everything service plan.



Starting on April 17, 2014, existing customers who are on month-to-month contracts can move to a More Everything plan and save money on those plans.



Customers buying plans with data allowances of 8 GB or below can add a smartphone for $30, a savings of $10, while customers who choose plans with data allowances of 10 GB and above can add a smartphone for $15, a savings of $25.



Also, new customers can add any smartphone they already own to a More Everything plan for either $30 or $15, depending on the data allowance they choose. 



The savings reflect greater transparency--and fairness--since contract plans traditionally include a subsidy for smartphones that is bundled in the price of a two-year contract. Customers who keep their plans beyond the contract term, and also keep using their original devices, wind up paying the device subsidy after the device actually is paid off.



So the new move provides a discount to customers who are not subsidizing a device. That is not only more transparent, but also arguably more fair. 

Amazon Smartphone Could Lead to Bigger "Bring Your Own Access" Trend

The news that Amazon is, at long last, going to produce and sell its own branded smartphone, after introducing its own Internet video set-top (the Kindle Fire TV) and Kindle tablets, raises issues about changing boundaries between industries and changing revenue models for at least some leading providers in industries.

The notion that a major and influential software company could support itself on advertising would have been almost completely laughable until Google proved it could be done, at least by one major firm in an industry.

Up to this point, Amazon has been viewed as a dominant retailer, but not as a technology company. With the growth of Amazon Web Services, and its new role as a supplier of tablets, smartphones and Internet video set-tops, as well as a growing role as a provider of online streaming video, that could be changing.

Amazon, in other words, could become the second big technology company to support itself using a non-traditional revenue model, in Amazon's case, retailing.

So far, no major communications service provider has made a similar transition. Many would question whether any major communications service providers ever will do so, though there have been sporadic attempts by smaller entrepreneurial firms to create communications services (not facilities based) whose revenue model is advertising, for example.

Even Google Fiber primarily earns its revenues directly, in the form of subscriber fees for Internet high speed access and video entertainment services.

But it seems possible some specialized forms of communications service might ultimately be created with a partly indirect revenue model, especially forms of access that rely substantially if not completely on untethered access (hotspots, not full mobile connectivity).

Amazon, for example, likely is banking on bigger smartphone-based commerce revenues. From there, it is a big step, but not a far fetched step, to add the actual "access service," though likely an approach emphasizing use of Wi-Fi first, then defaulting ot mobile access if necessary.

How much additional value Amazon could gain, compared to the cost, is debatable. The business case is stronger for others, such as cable operators, who would seek to leverage their fixed instrastructure to create a new "untethered first, mobile fallback" type of service.

That effort likely would be driven by an access fees model, not an indirect model, and gain business advantage largely by reducing the cost of providing the mobile service.

New Street Research estimates that U.S. cable companies could price Wi-Fi-based mobile phone service at a 25 percent discount to existing wireless carriers and still generate profit margins well north of 30 percent by doing so, since so much of the expected access would occur over Wi-Fi.

As much as 60 percent to 80 percent of any user’s Internet application requirements already happens over Wi-Fi, for example.

These days, perhaps only 10 percent to 20 percent of total mobile device usage, for all apps and purposes, actually happens when people are “on the go.” all the rest of the usage is in untethered mode at locations where there is Wi-Fi access.

Wi-Fi access, by definition an untethered but not mobile form of access, accounts for nearly half of all U.S. smartphone Internet access time.

True, the notion that cable operators might become mobile service providers using a Wi-Fi-first model is not as dramatic as Google, a technology company, earning its revenue from advertising, or Amazon, as a technology company, earning its revenue from commerce and transations.

But nobody thought cable TV networks would eventually become full service communication networks, either. Nobody thought mobile networks would become the way nearly every human being got access to voice services.

We might find, in the future, that new tuypes of networks likewise become the foundation for extending Internet access and communication services to underserved or unserved populations in developing regions, as well as providing new competition in developed markets as well.

In the meantime, Amazon's potential entry into the smartphone market is one more step towards "bring your own access" approaches where a user, device or communications provider stitches together a connectivity solution from any available source.

For the moment, any Amazon introduction of its own smartphone, in addition to tablets and Internet set-top boxes, directly underpins the commerce revenue model.

A bigger long-term question is whether a device-centric model based on using "any available access" might eventually prove attractive to Amazon and others, with a branded access offer being a part of that overall approach.