Ahead, Apace or Behind: Methodology Matters

Though few pay much attention, study methodology matters when trying to determine current status of high speed Internet access or income inequality. That likely is one reason recent studies come to such vastly-different conclusions about the state of high speed access in the United States, compared to Europe, for example.

A study by the World Economic Forum ranked the United States 34th in terms of Internet bandwidth available per user. A study by Ookla ranks the United States 26th in terms of typical access speed.

But a study led by Christopher Yoo of the University of Pennsylvania Center for Technology, Innovation and Competition found a far greater percentage of US households had access to next generation networks (25 Mbps) than in Europe.

This was true whether one considered coverage for the entire nation (82 percent in the United States and 54 percent) in Europe, or for rural areas (48 percent in the United States compared to 12 percent in Europe).

The United States had better coverage for fiber-to-the-premises (FTTP) (23 percent compared to 12 percent in Europe).

The U.S. broadband industry invested more than two times more capital per household than the European broadband industry every year from 2007 to 2012.

In 2012, for example, the US industry invested US$ 562 per household, while EU providers invested only US$ 244 per household.

U.S. download speeds during peak times (weekday evenings) averaged 15 Mbps in 2012, which was below the European average of 19 Mbps. But during peak hours, U.S. actual download speeds were 96 percent of what was advertised, compared to Europe where consumers received only 74 percent of advertised download speeds.

The United States also fared better in terms of advertised compared to  actual upload speeds, latency, and packet loss.

Pricing comparisons always are difficult. U.S. high speed access was cheaper than European broadband for all speed tiers below 12 Mbps, though U.S. prices were higher for higher speed tiers/

Still, the picture is complicated. U.S. Internet users on average consumed 50 percent more bandwidth than their European counterparts. To the extent there is a broad but direct connection between consumption and price, that matters.

The point is that assumptions matter.

The choice of specific retail service plans, and the percentage of people in any nation that purchase those plans, make a difference when trying to compare “typical prices” for any good or service, across national boundaries.

In other words, if most people buy high speed access as a feature of a triple-play bundle, then the posted prices for “stand-alone” high speed access are misleading.

That is why one can come to very different conclusions on the state of U.S. high speed access--how fast and how costly--compared to other nations.

Recent research on U.S. levels and trends in income inequality also vary quite substantially based on how these studies measure income. To be sure, there are important social mobility and income inequality issues to be faced in the United States, as elsewhere.

But a fact-based approach remains important, and methodology affects the “facts.” Economists Philip Armour and Richard V. Burkhauser of Cornell University and Jeff Larrimore of Congress’s Joint Committee on Taxation recently studied “income” including all public and private in-kind benefits, taxes, Social Security payments and accounting for household size.

The bottom quintile of U.S. residents saw a 31 percent increase in income from 1979 to 2007 instead of a 33 percent decline as measured by the Piketty-Saez market-income measure alone.

The income of the second quintile, often referred to as the working class, rose by 32 percent, not 0.7 percent. The income of the middle quintile, America’s middle class, increased by 37 percent, not 2.2 percent.

Those significant differences occur because one study omits Social Security, Medicare and Medicaid payments, for example, as well as employer-provided health insurance and capital gains on homes.

Also, some of the apparent income inequality is the result of a definitional change.  In 1992 the U.S. Census Bureau began to collect more in-depth data on high-income individuals. This change in survey technique alone, causing a one-time upward shift in the measured income of high-income individuals, is the source of almost 30 percent of the total growth of inequality in the United States since 1979.

Again, the point is not the importance of any developing or existing changes in opportunity for social mobility, or gaps in income or wealth. The point is that methodology matters.

That is as much true for how we measure progress on high speed access or social mobility.

FreedomPop Launches Free International Calling Program

FreedomPop is launching what it calls “the world's first-ever, completely free international calling service.”

Starting immediately, FreedomPop will give any smartphone user with any carrier 100 minutes of free international calls each month to 52 countries, including Mexico, the UK, Canada, China, Hong Kong, Brazil, Argentina and India.

The service will expand to over 170 markets in the coming weeks, FreedomPop says.

Users who want more minutes can upgrade to an international paid plan starting at just $4.99 per month – over 75 percent lower than the rates charged by current carriers and even VoIP providers like Skype. FreedomPop says.

FreedomPop also announced the “first ever program” to provide users anywhere in the world an international number, letting contacts outside the country make international calls as if they are local.  

For example, a customer based in Los Angeles can get a Mexico City phone number so family members based in Mexico can call at local rates, or vice versa, FreedomPop says. The service costs just $4.99 per month, yet can save international callers hundreds of dollars a year.

AT&T Pauses High Speed Access Investment Until Net Neutrality Resolved

Uncertainty is bad for investment, and regulation of rates or prohibitions on new services even worse,  in the telecom and Internet service provider business. So it comes as no surprise that AT&T is pausing investment in faster Internet access facilities until the network neutrality uncertainty is resolved.  

That possibly could affect upgrades in 100 U.S. cities. There are many possible unintended consequences to any move by the Federal Communications Commission to impose common carrier regulation on U.S. Internet service providers.

For starters, the move would bring parts of the U.S. cable TV industry under common carrier regulation for the first time, something industry executives always have fought. That is the camel’s nose under the tent that could eventually affect the other parts of the cable TV business as well.

Nor is it entirely impossible that common carrier regulation of access leads to greater rules for content and app providers, either. That is, after all, what "common carrier" regulation is all about.

Paradoxically, even if such common carrier regulation of access services withstands legal challenge--and many suggest it will not--common carrier regulation could open the way for widespread offering of content delivery services that would allow content providers to voluntarily buy services stretching all the way to end user locations, the “pay for priority” future network neutrality supporters want to avoid.

Under common carrier rules, such services arguably could be offered, so long as all app providers have access, under the same terms and conditions, though volume discounts arguably would be lawful, benefitting bigger content firms more than smaller firms.

Sprint Looking at FreedomPop Acquisition?

Sprint reportedly is considering buying FreedomPop, a Sprint mobile virtual network operator with a disruptive pricing approach that necessarily requires a low-cost marketing effort. The possible acquisition, in itself, is not the story. Larger mobile firms have acquired smaller firms with some regularity over the past couple of decades.

The bigger significance comes because of FreedomPop’s sales model, something that Sprint might be able to leverage on a wider scale, to bolster its prepaid efforts. Whether the model also might have impact on some postpaid marketing also is an issue.

As Sprint shifts its market offers to a “value” approach, Sprint is working to lower its costs of operating its business and marketing its services. If gross revenue is going to drop, then operating and marketing costs also need to drop.

Selling online is one way to do that.

FreedomPop has used a freemium approach, offering no cost basic service and additional plans for a fee. FreedomPop’s free phone plan includes use of 200 voice minutes a month, 500 text messages and 500 MBs of data.

FreedomPop offers mobile service plans that begin at $5 a month, and began operations selling Internet access using the same freemium approach. The firm’s free Internet access option offers 1 Gb of access, with for-fee plans, while consumers who want more data can buy plans starting at about $10 per month. Speeds for the free service use the Sprint 3G network, while the for-fee plans add access to the faster Long Term Evolution network.

The startup, which began life as a provider of Internet access, acquires 95 percent of its subscribers online, with customer acquisition cost of $4 per new add.

That would be attractive for at least some portion of Sprint’s business, starting with prepaid accounts.

Deutsche Telekom Setting Up Big Venture Capital Fund

Deutsche Telekom is setting up a new venture capital fund to be funded at EUR 500 million for a five-year period, supplementing investments already being made as part of T-Venture, which has funded 100 companies.

Deutsche Telekom Capital Partners will be one of the largest investment funds in Europe, Deutsche Telekom says.

DTCP will also advise Deutsche Telekom on existing investments in STRATO, Interactive Media, Scout, Deutsche Telekom Innovation Pool (TIP) and T-Venture.

Such efforts aim to help start-ups create new apps and services that are complementary to the core communications network and its features, but also potential services that could extend beyond the core business.

It is the latter that poses the greatest number of questions. As some now urge Apple to buy Tesla to fuel a new stage of growth, the point is that growth might require getting into related businesses (adjacencies) or even entirely separate businesses.

Comcast buying Universal NBC provides an example of getting into an adjacency. Google getting into Google Fiber is another example. For tier one telcos, a similar sort of move might include expanding from mobile access to mobile apps, as in the connected car business, where most of the money will be made by firms supplying connected car services, not connectivity or hardware.

Cable TV and telco firms also are getting into the home security business in a new way, as integrating mobile and other devices as controllers, plus the new potential of sensors and cameras, with high speed access, change the context and features a home security service can offer.

If a possible analogy is that the access business is a supertanker, while the startups are speedboats, the issue is creating successful new apps that have the potential to affect gross revenue in a meaningful way.

Thousands of telco-affiliated apps might not have as much revenue impact as one big new move into an adjacency.

Why Do Tier One Service Providers Switch Course, Then Back Again, So Swiftly?

Back in April 2014, AT&T said it was going to create an in-flight LTE service to enable Internet access services for airline passengers. Now AT&T says it has abandoned plans for the in-flight Wi-Fi service, citing a need to focus use of capital.

In 2007, Vodafone got into the fixed line high speed access market in the United Kingdom. In 2012, it sold all those assets. Now, in 2014, Vodafone is planning to get back in to the fixed line broadband business.

BT was one of the first two mobile operators in the United Kingdom, but got out of the mobile business in 2002.  Now it is planning on getting back into the mobile business, on a niche basis, combining some new spectrum with potential access to Wi-Fi and other untethered spectrum anchored by BT’s fixed network.

Those course reversals might suggest either a highly-fluid strategic context or simply tactical decisions based on overall organization priorities at a point in time.

All the above likely applies in the case of the in-out decisions made by AT&T, BT and Vodafone.

In AT&T’s case, new investments require some hope of revenue scale. It never was clear that the airline Wi-Fi business would be too big, revenue-wise.

Now AT&T has a blockbuster acquisition of DirecTV under review, and also has made an independent move into the Mexican mobile market with its acquisition of Iusacell. Those moves promise a big needle-moving cash flow impact, in the case of DirecTV, and an important long-term growth opportunity, in the case of Iusacell.

Compared to that, the in-flight Wi-Fi opportunity might have been a distraction. To be sure, it is clear why offering in-flight Wi-Fi is significant for airlines. In fact, U.S. airlines make about $6 per passenger per flight profit, or about 2.4 percent net profit margin, according to the International Air and Transport Association.

Service revenue has been pegged at perhaps $1 billion to $2 billion in the relatively near term, globally. That is too small a market to be worth AT&T’s effort, some would argue.

The connected car market might generate four billion euros (about US$5 billion) in access revenue for mobile service providers, by about 2018, by way of comparison. Even that, some might say, is too small to drive significant revenues for any tier-one service provider.

The big carrot is the connected car services market, which, in 2018, would be perhaps 24 billion euros (about US$30 billion). Obviously, that is the bigger reason firms such as AT&T are active in the connected car market.

The in-out-in pattern of interest in either mobile or fixed assets and operations by BT and Vodafone likely have something to do with priorities at the time decisions were made to divest, as well as new thinking about how to grow core access revenues.

Many mobile service providers now see incorporation of fixed assets as a way to drive revenues up and operating costs down, while fixed network operators see expansion into mobile services as a way to escape the revenue-challenged and margin-challenged fixed network business.

But the relatively rapid shifts--selling assets and getting out of lines of business, only to reenter a few years later--suggests the unstable and challenging nature of the business. Strategy can shift rapidly, because the market itself can shift rapidly.

Risk, in other words, has grown, across the whole telecom business.

Title II Regulation of Internet Access Wouldn't Achieve Ban on "Pay for Priority"

“As Democrats who care about the dual priorities of protecting broadband consumers and stimulating broadband investment, we are gravely concerned about President Obama’s endorsement today of monopoly-era, common carrier regulations (called “Title II”) for broadband providers,” say Ev Ehrlich, PPI senior fellow; Michael Mandel, PPI chief economic strategist and Hal Singer, PPI senior fellow.

“The president’s proposal does not balance these goals, nor move us towards compromise on other, arguably more critical, communications issues,” they say.

The Progressive Policy Institute is a policy institute and think tank that claims credit for President Bill Clinton’s “New Democrat” approach.

THe PPI says it concerned both with social equity and economic growth, as well as performance-based government. “We seek to advance progressive, market-friendly ideas that promote American innovation, economic growth and wider opportunity,” the Progressive Policy Institute says.

Ironically, given the widespread concern by network neutrality supporters that “best effort only” remain the only consumer offer for Internet access, “Title II is not necessary to protect consumers from the hypothetical threat of discrimination by broadband providers against edge providers,” PPI says.

In Verizon v. FCC, the D.C. Circuit made clear that the Federal Communications Commission could regulate pay-for-priority deals—and even reverse them after the fact—under Section 706 of the 1996 Act.

More to the point, “Title II itself isn’t guaranteed to stop pay-for-priority by broadband service providers,” they say.

Title II would merely require that the terms of any pay-for-priority deal be extended to all comers.

“The more likely rationale for imposing Title II is to pursue an aggressive regulatory agenda unrelated to net neutrality, in particular, “unbundling,” the policy that requires companies that make investments in broadband infrastructure to share them with competitors at government-set prices,” PPI says.

“Moving backwards to a forced-sharing regime would likely chill broadband investment, along with its job-creation and impact on growth,” PPI says.

“By eschewing real compromise made possible by the D.C. Circuit Court, and instead pursuing a radical prescription of Title II, the FCC guarantees itself a drawn-out litigation battle with broadband providers,” PPI says, when other avenues already exist to achieve network neutrality goals.