Sling TV Could Succeed Even if it Fails with Target Milliennials

Dish Network's new Sling TV streaming service has been designed to appeal to Millennials who do not find subcription TV appealing. 

Whether the service works, and for whom it works, remain to be tested. In fact, it is possible the service might appeal to consumers other than Millennials.

Ask Auto manufacturers how difficult it is to forecast demand for automobiles produced to appeal to a Millennial audience. 

The Chevy Sonic is aimed squarely at 18-to-30-year-olds. 

But the largest segment of customers for vehicles such as the Sonic--about 42 percent of buyers in 2013--are Baby Boomers, according to Edmunds.com. 

Five years ago, the proportion of older customers buying cars in this category was 29 percent.

Conversely, the percentage of buyers 18 to 34 buying new subcompact cars fell to 12 percent in 2013, down from 17 percent in 2008. 

In other words, even the best marketers cannot predict how vehicles designed for younger customers will appeal to that demographic, compared to others.

So Sling TV might succeed even if it does not appeal to Millennials, if the ulimate base of customers actually is people who want to watch linear TV, but don't want to spend very much. 

Near Zero Pricing and the Internet of Things

Lots of things are possible if you rip an order or two of magnitude out of the cost of enabling technologies or whole products.

The Internet of Things is possible because we have reduced some sensor costs about 50 percent in a decade. At the same time, computing device energy efficiency has doubled about every 1.5 years.

Also, bandwidth costs have dropped 40 times in 10 years, while processing costs have dropped 60 percent.

In 1981, for example, storage cost was something more than US$100 for 128 kilobytes. But storage prices drop about 33 percent per year.

As much as some people complain about the cost of bandwidth, the products people now buy are not the same as in 1980 or 1990. People buy the equivalent of DS3 circuits (45 Mbps) or dedicated optical connections, not dial-up modem lines.

So cost per bit, cost of a computation and cost of storage have plummeted.

In 1998, the cost of Internet transit across the backbone was about $1200 per Mbps, per month. In 2015 the cost is likely to be 63 cents per Mbps per month.

As with so many other parts of the telecommunications business, one wonders where the trend to marginal cost pricing, which for most bandwidth services is near zero, also means that one more category of product, namely Internet transit, is destined to become a feature of a network or service, rather than a product.

That seems implausible, since networks are extremely capital intensive. But marginal cost, once the networks are built, is quite literally “near zero.” And if all retail pricing trends, over time, towards marginal cost, near zero pricing is inevitable.

That means stress and change for bandwidth providers, but enables the Internet of Things.

How Much Demand for Fixed Line Voice Actually Exists?

Some issues never seem to fully be resolved. Whether consumers “prefer” a la carte or bundled services is such a question.

How much demand there really is for some services is another related question.

Service providers sometimes argue that consumers “want one bill” rather than three or four bills. It is argued that consumers want bundles of shows and channels.

And it is clear that consumers prefer to save money, which is the primary attraction of triple play bundles.

But many services are not sold unbundled. “Naked digital subscriber line ” is one such product in many countries. DSL cannot be purchased without a tied purchase of a fixed phone line. Such product tying is an old practice, and often provides consumer value.

In other cases, the “headline price” differential between a bundled “DSL plus voice line” is significant.

A triple play package generally costs much less than all three services purchased separately, at least for an introductory period.

Some consumers would prefer to buy all of their communication services one by one (a la carte), with no bundling. But discounts matter. Prices matter. So many consumers buy a triple play package because it actually is cheaper than buying two services they really want.

Competition, in many markets, for high speed Internet access and TV subscription services means that bundle deals of three services often are comparable in price to two services at full price.

If the price of the bundle is within $5 to $10 per month of the cost of two services at full price, then even some consumer advocates might recommend purchase of the triple play bundle, especially if the third service is home phone service.

In fact, current promotional offers in the U.S. market, especially when an account can be switched from a competitor, often provide lower prices for a triple play service than a dual play, at least for a year or two.

But that does raise another question. If in fact many consumers are buying triple plays to save money, how much demand actually exists for each of the products?

Many surveys suggest the highest demand of all is for fixed network high speed access. In fact, demand might rival or beat mobile service.

Video entertainment also is purchased by more than 80 percent of U.S. households, while fixed network voice subscriptions have been falling since 2000.

So one wonders how strong the remaining demand is for voice, and might eventually be for the more-expensive video subscription packages, if the assumption is that high speed access is the number one priority for nearly all consumers, along with their mobile service.

To put the matter sharply, were purchase of a fixed network voice line not a requirement for getting high speed access, demand for voice lines would be lower.

Were the price of a triple play service not so affordable, compared to buying just two services, far fewer phone lines would be sold.

The point is that we do not actually know how much demand there really is for fixed network phone service.

One way of assessing demand is to look at what happens in recessions, where consumers have to make harder choices about what to buy.

In recessions, for example, overall revenue falls, as consumers spend less.

The impact of the Great Recession beginning in 2008 is easy enough to describe. According to TeleGeography Research, revenue growth slipped from about seven percent annually to one percent in 2009, returning to about three percent globally in 2011.

But that is “growth rate,” not absolute growth. According to some studies, U.S. consumer spending on communications actually grew, overall, in the wake of the Great Recession. One might hypothesize this is because of the adoption of mobility services, sold to people, not places.

Looking at spending on phones, which grew about 17 percent from 2007 to 2010, one might argue mobile devices drove the increase, for example.

One might also argue that high speed access had become so important, and faster access relatively more important, causing consumers to spend more in that category. But mobility is probably the driver for the revenue growth.

That would be in line with findings that consumption and consumer spending fell virtually across the board in the Great Recession.  

But that might mask some important indicators of value. Some surveys found that device purchases slowed during the Great Recession. Some surveys found less willingness to cut high speed access than other services.

In fact, some surveys found consumers would rather abandon their mobile service than give up fixed high speed access. If they had to give up one service  (video entertainment, mobile, broadband), U.K. consumers would ditch video (49 percent) or mobile (30 percent) before their fixed network broadband connection (two percent), a survey of  more than 10,000 U.K. consumers found, for example.

Consumers have indicated the would give up other products as well to keep their broadband access.

The point is that high speed access arguably is highly resilient in a recession, and arguably the most-valued service, perhaps even be more valued than mobility. But mobility likely would rank as among the next most important service.

By some studies, consumer spending on mobile devices increased during the Great Recession of 2008 and spending also increased for communication services. That pattern hasn’t changed.

But most consumers simply found other ways to economize during the last recession, scaling back premium services for video, for example.

It does not seem that there was much recession impact on subscription video entertainment spending, though some consumers might have dropped a premium channel in favor of expanded basic service.

When does the Internet "Disappear"

Truly ubiquitous technologies and networks are invisible. Think of electricity in a developed country, compared to electricity availability in a developing country. Think of wastewater systems, drinking water systems or road networks and refueling stations.

The point is that when a technology or network truly becomes ubiquitous, it is simply taken for granted, and is not something any human being needs to think about before doing anything that assumes the existence of the infrastructure.

Wi-Fi once was anything but ubiquitous. Today it is approaching, but is not at, the ubiquitous stage, as most people, when out and about, still cannot be sure they have such access, where they presently are.

So consider the statement that “the internet will disappear,” as Eric Schmidt, Google chairman, recently said at the World Economic Forum, speaking about the impact of the Internet of Things.

“There will be so many IP addresses; so many devices, sensors, things that you are wearing, things that you are interacting with that you won’t even sense it,” Schmidt argued. “It will be part of your presence all the time.”

That is a functional example of true ubiquity. Between likely fifth generation mobile network capabilities (seamless device access to all available networks), increasing Wi-Fi density, small cells, broad interconnection, roaming and authentication agreements and apps, increased ability to use spectrum effectively, business models for sensing functions and Moore’s Law, the IoT and untethered access is going to be much closer to such ubiquity, in many markets and regions.

Ubiquity and "invisibility" are directly related. Indeed, ubiquity "causes" invisibility. The triumph of the Internet will be that it is taken for granted.

WAN Industry Now Touches Addressable Market 6 Times Bigger

Global Cloud XChange CEO Bill Barney argues that the wide area networking industry "now is the computer bus." What he means is that data now moves between peripherals and processors and storage over the wide area network, as cloud computing becomes the new paradigm for computing.

Where one might have argued that the addressable market for WAN transport providers was perhaps $232 billion in 2012, the addressable market now is much bigger. In fact, Barney argues, the addressable market is six times larger.

That includes involvement in the $600 billion "software" business, as most software now is delivered or used "in the cloud."

The market also touches the $965 billion enterprise "information technology" business and the $103 billion data center business as well.

That doesn't necessarily mean WAN transport and services will displace most of the revenue in the extended ecosystem, only that WAN providers now play more central roles in those other areas, and for that reason will be generating additional revenue within the ecosystem.

When Barney talks about a new "golden age of fiber," that is the sense in which he means it.

Connected Car is Probably the Best Vertical for Incremental Mobile Connections

The coming Internet of Things both illustrates the financial upside for many participants and the potential issues for Internet service providers. IoT, most assume, will eventually be very big.

In the 1990s, one billion people connected to the Internet with desktop computers and laptops. In the first decade of the 21st century, two billion people connected to the Internet with mobile phones.

By 2015, according to Cisco Systems, 25 billion things will be connected to the Internet, and to each other. Perhaps five years after that, in 2020, the number of connected things might double to 50 billion.

The issue is whether IoT also will produce big revenue opportunities for ISPs. Much depends on how the things get connected. If every automobile represents at $10 a month incremental mobile subscription, a sizable revenue stream could be generated.

If most of those cars connect using consumers’ existing smartphones, maybe less incremental revenue is generated. Other IoT devices might connect primarily using unlicensed spectrum, though, generating no direct incremental revenue.

In-home IoT sensors likely will use Wi-Fi. Other connected things might rely on Bluetooth or other short-range connection methods that likewise do not generate direct incremental revenue for an ISP or mobile service provider.

Of the enabling developments, one potentially worrisome issue for Internet service providers is that IoT will hinge on “cheap bandwidth” and “cheap sensors,” as well as ubiquitous Wi-Fi coverage usable “for free or at very low cost.”

Sensor prices have dropped more than 100 percent over the past decade, to an average of 60 cents. Processing costs have declined by nearly 60 times over the past 10 years.

The cost of bandwidth has declined by a factor of nearly 40 times over the past 10 years. That, in conjunction with affordable sensors, makes IoT feasible. But “cheap bandwidth” also suggests low connectivity revenue for ISPs and mobile service providers.

But big data is a directly intertwined opportunity as the IoT will generate huge amounts of unstructured data.

Automobile connectivity is one industry vertical where mobile networks should be the mainstay, however.

By some estimates, by 2018, half of all cars sold will have Long Term Evolution, 3G or Wi-Fi capability.  Audi Connect is one such program.

Audi is offering the first-ever in-vehicle 4G LTE data connection in North America. The data plans will be competitively priced, starting at $99 for a six-month plan and $499 for a 30-month plan.

The six-month plan comes with 5 Gigabytes of data usage. The 30-month plan supplies 30 GB.

AT&T has at least eight connected-car contracts, with Nissan (Leaf), BMW, Ford Motor Co., General Motors (OnStar), Tesla, Audi (A3 and Q3), Volvo and GM's operations in Europe.

Verizon’s Hughes Telematics acquisition in 2012 gave the telco an established vehicle information technology business, which in 2011 produced $71 million worth of revenue and a contract with Mercedes Benz.

AT&T has identified services for the connected car as including advanced diagnostics, family tracking, enhanced safe driving via telematics, ability to remotely warm, find one’s car in a parking lot or open locked doors, voice recognition for hands-free driving, automotive app stores, vehicle updates of firmware, rear seat entertainment and connected media.

Mobile Networks Generate 80% of All Internet Traffic

With access to unlicensed spectrum, mobile networks probably would collapse. 

Globally, about 80 percent of all Internet data is generated by the mobile network, says Robert Pepper, Cisco VP.

Wi-Fi offload is about 66 percent of all mobile data consumption, and will reach 71 percent within about five years.

Mobile service providers might still prefer to operate their businesses using licensed spectrum, but unlicensed spectrum now is necessary, since the mobile network likely could not easily support all the traffic people already use.

When AT&T introduced the Apple iPhone in June 2007, almost no AT&T customers used a smartphone, so AT&T had no firm idea of the impact adoption would have on its network.

By the the end of the first quarter of 2012, 59 percent, or 41.2 million, of AT&T's postpaid subscribers had smartphones, lifting AT&T mobile data traffic 20,000 percent in five years.

In fact, AT&T mobile data volume has doubled every year since 2007. “It’s been a challenging year for us,” said John Donovan, AT&T CTO, said in 2009.

“Overnight we’re seeing a radical shift in how people are using their phones,” Donovan said. “There’s just no parallel for the demand.”

In many cases, iPhone users were consuming an order of magnitude more data than users of other smartphones and 24 times more data than feature phone customers.