One Way or the Other, U.S. Cable TV Market Changes

Bright House Networks might be called a consolation prize for Charter Communications if the Comcast bid to buy Time Warner Cable is approved by regulators. As structured, a Charter offer to buy Brighthouse is contingent on regulator acceptance of the Comcast offer.

Charter had made a bid of its own to buy Time Warner Cable, but its offer was topped by Comcast’s own offer. The $10 billion offer for 2.5 million subscribers values Bright House at about $4,000 per subscriber, a valuation metric not used in the broader telecom business.

U.S. cable TV operator rankings will change, in almost any conceivable set of decisions and deals. Comcast, which became the largest U.S. cable TV operator when it acquired the assets of AT&T Broadband, was trailed by Time Warner Cable as the clear number two cable company, ranked by number of subscribers.

If Comcast is successful in gobbling up Time Warner Cable, Charter gets Bright House, creating a new number-two provider for the first time in decades. For decades, Time Warner has been the second-biggest U.S. cable TV provider, behind either Tele-Communications Inc., which sold to AT&T, or AT&T Broadband itself, which then was purchased by Comcast.

Charter has held the number-three spot in the rankings, but with a wide gap between it and a Comcast that has added Time Warner Cable.

If the Comcast bid is scuttled, observers expect Charter to reemerge with a bid to buy Time Warner Cable. That would also create a new number-two provider, but far larger than a Charter that had purchased Bright House.

AT&T Launching Gigabit Service in Cupertino, Calif.

AT&T will launch its “GigaPower” 1-Gbps Internet access network in Cupertino, Calif. The symmetrical network is the first to be supplied by AT&T in California. AT&T also said it is considering other San Jose areas, including Campbell, Mountain View and San Jose, as candidate municipalities for the service, as well.

In April 2014, AT&T announced it was evaluating deployng GigaPower in as many as 100 communities.  AT&T already has deployed the service in neighborhoods in Austin, Dallas and Fort Worth, Texas.

GigaPower networks also are being deployed in Charlotte, Raleigh-Durham, Greensboro and Winston-Salem, N.C.; Houston and San Antonio, Texas;  Jacksonville and Miami, Fla.; Nashville, Tenn. and Overland Park, Kan.

CenturyLink, for its part, is building symmetrical gigabit service now to residential and business customers in select locations in 17 cities, serving residential and business customers in 11 cities, including Columbia, Mo., Denver, Jefferson City, Mo., Las Vegas, Minneapolis-St. Paul, Omaha, Orlando, Portland, Salt Lake City, Seattle and Platteville, Wisc.

CenturyLink is selling gigabit services to business customers in Albuquerque, N.M., Colorado Springs, Colo., Phoenix, Sioux Falls, S.D., Spokane, Wash. and Tucson, Ariz.

Google Fiber Files Paperwork to Support Operations in Colorado

Google Fiber has filed paperwork for Google Fiber to operate in Colorado, though Google Fiber says it has no immediate plans to construct a gigabit network in Denver. 

The filing only means Google Fiber could base equipment and employees in Colorado, some note.

CenturyLink might not be so sanguine, as that firm has ramped up gigabit Internet access offerings in a number of Colorado communities, including Denver. 

"Bandwidth Doesn't Matter Much"

There are lots of reasons why Internet access headline speed and actual end user experience vary so widely, and why, for a typical user, higher speeds (capacity) do not translate into enhanced experience.

In fact, some would argue that more bandwidth doesn't matter much.  

The amount of resource sharing can be affected by headline speed, as when multiple users share a single access connection, either at work, home or a public hotspot.  

Ofcom, the U.K. communications regulator, has found that, for any single user, speeds below 5 Mbps do affect end user experience, on the local access link. Speeds above 10 Mbps, however, have negligible or no impact on end user experience.

The caveat is that experience can benefit if a single connection is widely shared.

On the other hand, one might well argue that latency is the bigger problem for most users, accessing most applications, most of the time. That means better latency performance is an important objective for ISPs and app providers.  

source: Mike Belshe

The larger point is that headline speeds mostly are about marketing platforms, not end user experience, once per-user local connection capabilities reach 10 Mbps per user.

Mobile Traffic Gets Asymmetrical

Oddly enough, for networks designed for symmetrical traffic, Internet traffic now drives bandwidth demand on mobile networks, and that traffic is highly asymmetrical, one reason access to Wi-Fi and other non-traditional networks has become so important.

Telefónica O2’s customers, as an example, are using 60 percent more data than they were 12

months ago, and 600 percent more than at the end of 2010, according to Real Wireless.

The uplink:downlink ratio, on a mobile network supporting 3G or 4G, is now about 1:7, and much of the downstream traffic is bandwidth-intensive video.

Eventually, most believe, new Internet of Things sensor traffic will add other types of load, namely demand for smaller messages of lower bandwidth, but requiring low power performance and high reliability.

LTE was not optimized for this type of usage, so Wi-Fi and other specialized connections

will likely be important.

That is why spectrum sharing, and the move towards dynamic spectrum allocation, are cornerstones of Ofcom’s plan to open up more spectrum for mobile broadband. Currently, around 29 percent of spectrum is shared between public and private sector users, and increasing that percentage is vital to achieving the government goal of opening up 500 MHz of new sub-5 GHz frequencies.

Cloud-based services featuring constant streaming of data and content, rather than

more periodic application and data downloads, also are affecting thinking about the design of networks.

The GSMA believes that mobile cloud traffic will account for 70 percent of total by 2020, as compared to 35 percent in 2013.

While the dominant design of a mobile network will continue to be based on support for roughly symmetrical traffic, future requirements will be for support of asymmetrical traffic.

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.