AT&T "Harvest" Strategy is Not New; DirecTV Buy Makes Sense

Some have questioned the wisdom of AT&T’s bid to acquire DirecTV, the argument being that the capital is better invested elsewhere, while the linear video business is declining.

AT&T thinks differently, and perhaps partly because of its historical legacy and business culture. Keep in mind that AT&T (the former SBC) grew primarily by acquisition, organic growth notwithstanding.

Also, AT&T contains many executives who remember vividly the former independent AT&T’s strategies related to a declining business (long distance calling). While attempting to create new replacement revenue streams, AT&T harvested its declining, but substantial long distance business.

That is what AT&T sees in linear video, a mature business that throws off enough cash flow to be interesting, as the legacy business slowly erodes. Yes, there are risks. If the business declines precipitously, the gambit will not play out so well.

But AT&T is betting it will see what it has seen in the past: a major legacy business declining at a predictable rate.

Precisely what happens to the linear video subscription business once over the top streaming alternatives proliferate is as yet uncertain. But it is hard to imagine aggregate revenue increasing, and a stretch to think revenue will be no worse, but no better, than at present.

The best scenario for AT&T is gradual revenue descent, at predictable rates.

And there is reason to believe new alternatives will have incremental impact. Though a full-blown transition to “every channel is available, a la carte” would be more damaging, that does not seem to be the general pattern for developing streaming services.

Instead, the general pattern is smaller packages of channels, not full a la carte sales.

The economics of full streaming access of a la carte channels, should that be the dominant model, arguably would be worse for the ecosystem than a linear model.

Consider the Sling TV package of 20 streaming channels. That “skinny” bundle includes ESPN.

In a full a la carte regime, where a channel such as ESPN could be purchased by itself, the implied cost, at a revenue neutral outcome, would be more than $36 a month, MoffettNathanson analysts have estimated.

Obviously, Sling TV is being sold for far less than the implied cost of ESPN alone, on a revenue-neutral basis.

The same problem is faced by other less-popular channels. Disney might cost more than $8 a month. but HGTV’s implied cost might cost only $1.42 a month.

Many observers believe fewer channels will be viable once on-demand and a la carte content viewing becomes easy and affordable. The reason is simply that the implied cost of a single channel is more than a reasonable consumer would pay.

So the context for AT&T’s bid to buy DirecTV is not that linear video is a growth business; it is not. The expectation is that DirecTV will throw off huge amounts of cash flow, despite a shrinking overall business, long enough to help AT&T make a transition of revenue sources.

Yes, there are risks. But AT&T has done it before.

Sling TV will Cannibalize Dish Network Linear Video, says CEO Charlie Ergen

A recurring phrase used by Dish Network CEO Charlie Ergen, when asked about his plans for monetizing Dish Network’s spectrum holdings, is that “we are not suicidal.” In other words, Dish Network does not intend to deploy or monetize those assets in ways that destroy shareholder value.

“Wireless is an oligopoly,” he noted recently. So that means “we see working with others, not AT&T or Verizon.” In other words, should Dish Network decide to create a retail or wholesale network, it is not likely to build its own facilities, but lease them.

“Optionality” is a concept Ergen has relied on it the past, as well. In other words, get spectrum and then see what can be done to monetize it. “Short term, we had to get the licenses,” Ergen said. “Then we need to get handset compatibility.”

“We will see where it goes from there,” he said. But Ergen also said he will wait to see what happens “with the two big mergers,” referring to Comcast’s bid to acquire Time Warner Cable, and AT&T’s effort to buy DirecTV.

When Ergen says “we don’t know for sure what we’re going to do,” that likely is quite accurate. “Our dream is to compete with AT&T and Verizon, but we’re not suicidal,” Ergen said. “Whatever we do, it is long term value enhancement.”

Ergen also was honest about another thing: “without our spectrum, we would have had to sell.” In other words, like DirecTV, Dish Network would have been in an untenable situation as a stand-alone satellite TV company.

But Ergen has been more willing to cannibalize his legacy revenue streams to remain a leader in the new business he sees emerging, much as Disney has been in the forefront of streaming, when other peers are more hesitant.

That’s a somewhat unusual strategy for any firm that is a leader in its space. And Ergen does believe even Sling TV will cannibalize Dish Network’s linear subscription business. But it is the future. In the past, Ergen has said that if he were starting in the video entertainment business today, he might not use satellite delivery.

25 Annoying Phrases to Avoid at Work

Here are 25 cliches or "annoying phrases" we all should try not to use. I suppose the phrases are annoying because they are almost value free throw aways. 

I've been working on avoiding "at the end of the day" for some months. But "touch base" and "ping me" are on my list.

At the end of the day

Back to the drawing board

Hit the ground running

Get the ball rolling

Low hanging fruit

Thrown under the bus

Think outside the box

Let's touch base

Get my manager's blessing

It's on my radar

Ping me

I don't have the bandwidth

No brainer

Par for the course

Bang for your buck

Synergy

Move the goal post

Apples to apples

Win-win

Circle back around

All hands on deck

Take this offline

Drill-down

Elephant in the room

On my plate

Johnson and Johnson, Google to Create Surgical Robotics System

Johnson and Johnson says Ethicon, a medical device company in the Johnson & Johnson family of companies, will work with Google to develop a surgical robotics platform.

Robotic-assisted surgery is a type of minimally invasive surgery that uses technology to give surgeons greater control, access and accuracy during the surgical procedure while benefitting patients by minimizing trauma and scarring, enabling accelerated post-surgical healing, Johnson and Johnson said.

Cable TV Unbundling Coming to Canada, in 2016

Cable TV channel unbundling--though not complete unbundling--is coming to the Canadian market. By the end of 2016, subscription TV customers in Canada will be able to buy many channels they want, one by one or in small packages, the Canadian Radio-Television and Communications Commission has ruled.

By the end of 2016, TV subscribers will have the option to add those networks to a “skinny” basic cable package that will cost no more than $25 a month. But consumers can buy a traditional bundle of channels if they choose.

Distributors must have the “skinny” basic service announced Thursday in place by March, 2016.

That tier must include all local and regional stations, public interest channels such as the Aboriginal Peoples Television Network (APTN), education and community channels, plus provincial legislature networks.

If distributors wish, they can add national over-the-air stations such as CTV, City and Global, or U.S. networks ABC, CBS, NBC, FOX and PBS. But they cannot raise the price beyond $25 a month.

By December of 2016, other channels must be available a la carte. But those channels also can be sold in a small bundle of perhaps five or 10 channels, which might be built by the viewer or the distributor.

It isn’t yet clear what the impact will be, as consumer can buy the traditional bundles or the skinny bundles, plus a la carte channels. At some point, the traditional bundle is cheaper, so many consumers will not switch.

One issue might be how many non-subscribers will find the skinny bundle--with or without a la carte channels--attractive. Another issue is the extent of downgrades to the skinny bundle.

Some of us would not expect significant changes in subscription rates. But to the extent there are changes in average revenue per account, the pressure has to be to the downside.

AT&T Boosting High Speed Access to 75 Mbps, Prelude to Gigabit

AT&T has boosted consumer Internet access speeds to 75 Mbps in parts of Houston ; Baton Rouge, La; Grand Rapids, Michigan, Milwaukee, Wisconsin; Mobile, Alabama; New Orleans, Louisiana; and South Bend, Indiana.

Those speeds also are available in Augusta, Ga.; Charleston, S.C.; Cleveland, Columbus and Toledo, Ohio; El Paso, Texas; Fort Lauderdale and Miami, Fla.; Monterey and Sacramento, Calif.; and St. Louis, Mo.

Those efforts are part of AT&T’s broader effort to enhance speeds in markets across the country, including gigabit access networks in a number of metropolitan areas across the United States.

AT&T invested nearly $1.4 billion in Houston between 2012 through 2014, and about $1.5 billion in Los Angeles over the same period and $2 billion New Jersey, among investments across the United States.  

AT&T announced a major initiative in 2014 to expand the availability of U-verse with AT&T GigaPower in up to 25 markets nationwide, including Houston. The upgrades to 75 Mbps are a first step in that process.

Will History Repeat for Major New Satellite Constellations?

The assumption made by a number of would-be operators of brand-new satellite constellations designed to bring Internet access rapidly to users across the globe is that there is a sizable untapped market.

That is true today. How true the assumption might be in several years is the issue. That has been a market-opportunity killer in the past. An earlier generation of entrepreneurs argued new satellite constellations would supply huge unmet demand for mobile telephone use.

Instead, mobile operators moved dramatically to fill the demand before a couple of the ventures could launch, while Iridium, which did launch, went bankrupt.

That scenario is at least conceivable, once more.

Consider Thailand. Though details are yet unsettled, Thailand wants to launch a national high speed access program to reach literally all villages in Thailand, and provide affordable Internet access for all,  within about 18 months.

If implemented, the initiative could affect the addressable market for new providers, as well as market share of mobile and fixed service providers in rural areas of Thailand. Replicated more broadly across South Asia and Southeast Asia, the market opportunity for affordable Internet access provided by satellite could shrink dramatically.

It is unlikely mobile Internet service providers, for example, will do nothing, and wait for the demand to be filled by rival suppliers. In Thailand, the government itself has ambitious plans.

"Infrastructure  is the fundamental factor of the digital economy,” said Deputy Prime Minister MR Pridiyathorn Devakula.

The focus on digital-economy policy is touted as the key foundation of the country's economic development. To be sure, previous governments have made the same argument.

Thai Internet access adoption currently is about 26 percent of households.

Thailand also is preparing for an auction of spectrum to support fourth generation Long Term Evolution networks in Thailand.

Just how much spectrum will be made available is yet unclear.

NBTC Secretary-General Takorn Tantasit announced that a 50 MHz spectrum cap would be put in place for private sector bidders in Thailand's upcoming 4G auction and would take into account current spectrum holdings.

That move is intended to stimulate competition by ensuring that smaller bidders can acquire spectrum.

Two licenses of 12.5 MHz each in the 1800-MHz band will be available, as well as 20 MHz of 900 MHz spectrum, the bulk of which is currently being used by AIS under concession from state-owned TOT.

The Thai government also has asked the Information and Communication Technology Ministry to reclaim 100 MHz of unused 2.3 GHz spectrum from state-owned operator TOT for re-bidding as part of the upcoming 4G auctions.

At a meeting of the digital economy committee last week, deputy prime minister Pridiyathorn Devakula asked the National Broadcasting and Telecommunications Commission (NBTC) to look at including additional spectrum bands in the auction as well as the planned 900 MHz and 1.8 GHz bands.

The ICT minister has suggested that in return for giving up spectrum, TOT might be allowed to keep the 17.5 MHz of 900 MHz spectrum now used by market leader AIS.

At issue is whether some 2.6 GHz spectrum will be part of the auction. That seems unlikely, as use of 2.6 GHz for Long Term Evolution is not a global standard. Those frequencies were previously used by state-owned broadcaster MCOT.

Though Thailand is free to do so if it chooses, costs of handsets would be affected, as suppliers would have to create special Thai versions of their devices. Some other infrastructure implications, such as cell site planning, also would be affected.

National Broadcasting and Telecoms Commission (NBTC) the freedom to choose which spectrum bands it will auction and what format the sale will take. It has 900 MHz, 1800 MHz and 2.6GHz frequencies at its disposal. http://www.totaltele.com/view.aspx?ID=489415

The 1800 MHz spectrum the state has earmarked for 4G was previously used by True Move and AIS unit Digital Phone Co (DPC) for 2G services.

Some would argue the 50-MHz spectrum cap is specifically intended to help Dtac, a smaller provider in the market.

The larger point is that the market for consumer Internet access across South Asia and Southeast Asia seems to be entering a more-aggressive phase. ISPs will have to move faster to take advantage of the opportunity.