Cable TV Will Take Hybrid Strategy to Make Transition to Streaming

At this point, it is likely a “no brainer” to argue that incumbent providers of subscription TV will have to follow one clear near term strategy, and a different long term strategy. Sound advice for any business in the midst of fundamental technology change is to adopt a “hybrid” strategy, for a time, while preparing for a different future.

Decades ago, U.S. cable TV operators opted for just such a hybrid strategy when shifting to the hybrid fiber coax network architecture.

Now Comcast is on the cusp of signaling a profound shift to all-optical access with its move to make 2-Gbps all-fiber connections available to 18 million of its present customers.

To be sure, Comcast also is moving to make gigabit access services available to nearly all its 21 million customers by perhaps the end of 2016. Comcast probably will be able to provide 1-Gbps services on its existing HFC network.

But the end is in sight.

Where it comes to subscription TV, expect Comcast and other U.S. cable TV operators to use that same strategy, grafting more streaming features onto its existing linear service.

Over the top (OTT) video continues its strong growth, and should see around 26 percent total revenue growth in 2015, with 24 percent compound annual growth rates through 2019, according to ABI Research.

“Comparatively high priced pay TV bundles are losing customers to more inexpensive, IP-delivered content,” says Eric Abbruzzese, Research Analyst.

The other tack is to mimic the “lower price” feature of many OTT video subscription services by creating skinny bundles that cost less.

With a little luck, such strategies will allow more time for transition to a full, streaming only future.

Cable TV operators have used that hybrid approach before.

How to Tell When a Market is Saturated

Even if call volumes still are growing in many countries, the future already is discernible. In most developed markets, “calling” as an activity is dropping. In other words, fewer calls were made in 2013 than in 2008, even as prices continued to fall.

Up to a point, usage or demand climbs for any desired product as prices are reduced. But demand can saturate, at which point not even lower price leads to higher usage. That seems clearly to be the case for voice services.

There are strategic implications. One might well argue it makes little sense to invest too much in a product line that is mature and declining. Instead, investment must be targeted to new products early in their life cycles.

That suggests investment in high definition voice will be largely ineffective as a means of restoring growth in the voice segment. Investment in voice over Long Term Evolution has a different business rationale: it allows reclaiming of spectrum used for 3G.

Only indirectly does VoLTE contribute in a direct way to new voice value.

source: Disruptive Analysis

Bandwidth Soon Will Not be an Issue; Latency Will be the Problem

Pretty soon, consumer access bandwidth is not going to be a bottleneck of any sort. One example: Comcast is upgrading virtually its entire customer base to gigabit speeds by the end of 2016, with some customers able to buy service at 2 Gbps.

The rest of the market is going to move with Comcast.

But latency is going to leap to the top of problems affecting end user experience. That means we will be turning attention back towards the edge of the network, as that is one way to reduce the latency of cloud-based services.

For many of you, latency likely already is the most-noticeable feature of your Internet experience. If you do lots of writing, using a cloud-based document processor, you understand the difference between a locally-resident app and an app being fetched from a distant location.

Ironically, latency is among the issues packet prioritization addresses directly. Edge caching also makes a difference. Sooner or later, “network neutrality” is going to run full on into the other values that must be balanced, including latency.

"Why Didn't Telcos Think of That?"

Over the past decade and a half, we have heard lots of noise, and significant spending, in support of innovation by telcos globally, despite the clear evidence that most innovation now happens in other parts of the ecosystem (think iPhone, or any mobile app).

While it might be useful for executives to talk about innovating “at Google speed,” there frankly is little evidence telcos have, can, or want to innovate at such rates. 

One might charitably argue large telcos should not bother with most "innovation" in the app space.

For any number of institutional reasons (scale, culture, need for global standards, sunk investments in legacy operating systems, regulatory issues, huge needs for investing capital in dividends and physical infrastructure), telcos arguably cannot move that fast, even when they want to do so.

Still, it is instructive to look at ways text message enabled  e-commerce is being enabled by U.K.-based FetchMe. Right now, FetchMe requires minimum transaction amounts (£20), presumably to cover FetchMe’s own costs of acting as a middleman retailer.

In the United States, “Magic” offers a similar feature, acting as a sort of texting-enabled concierge service.  

Of course, there is an obvious reason why a text-enabled concierge service would not be commercialized, even if innovators inside a telco operation wanted to do so. As with many other potential services, it is difficult to scale.

And scale normally is a key requirement for any proposed telco-delivered service. The reason is that processes have to be routinized enough that they are easily repeatable. A concierge service is, almost by definition, going to be “custom.” And that always is difficult for any industrial process, which is what any large telco operates.

So even if e-commerce enabled by text message seems like the sort of thing telcos themselves might have commercialized, they have not done so. One might argue they have good reasons for “not innovating.”

Repeated over enough instances, that reality suggests the fundamental limits to telco innovation. They can handle industrial scale, in fact require it. Customization kills scale advantages, so customization prevents telcos from acting.

The Pareto rule probably continues to operate: 80 percent of the results for telcos will flow from 20 percent of their activities. Those activities will continue to be anchored in “access” operations. Like it or not, that is the specific and unique role they occupy in the broader ecosystem.

Will Incumbents Win Gigabit War in Austin?

If Google Fiber was an effort to spur faster investment by major U.S. Internet service providers, that gambit is succeeding. In Austin, where Google Fiber announced in 2013 it was going to build a symmetrical 1-Gbps Internet access network, progress arguably has been slow.

“So far most of our installs are in apartments,” in two neighborhoods, said Mark Strama, head of Google Fiber Austin.

AT&T, Grande Communications and Time Warner Cable also have announced or begun to implement much-faster access services. Both AT&T and Grande have said they will offer gigabit services in some neighborhoods where there is demand.

So Google Fiber already is succeeding, to the extent part of its mission is to spur competitive upgrades. But Google Fiber might not be moving fast enough to head off preemptive moves by its main competitors in the Austin market.

Ironically, a company known for moving fast is not moving fast enough to gain market share before its competitors have crafted their own competitive offers.

For Google Fiber, which essentially offers only one retail offer, uptake of gigabit services matters.

For the other competitors, which offer packages at a range of speeds, what will matter is retained customer base, on any retail package, not the uptake of gigabit offers.

In other words, for AT&T, Grande or Time Warner Cable, if the upgrade projects simply allow the incumbents to maintain current share, they win, at some level, even if they have been forced to spend more money on infrastructure.

Consumers will win. Google Fiber will have achieved a strategic objective. And even the incumbent ISPs might “win” if their own competitive offers manage to stave off customer chrun to Google Fiber.

New Airtel Zero Program Perhaps Will Offer Use of 100 Apps Without Data Charges

Bharti Airtel has introduced a new program Airtel has launched “Airtel Zero,” offering users free access to certain mobile apps, with no usage deducted from data plans, or perhaps no requirement for a data plan at all.

Airtel now believes it will launch with 100 apps as part of the program.

Zero rating--the practice of offering consumers access to some Internet apps without requiring a data plan or deducting usage from a data plan--is viewed by some as a violation of network neutrality principles.

The fear is that zero rating creates more Internet service provider gatekeeper power and could therefore reduce innovation.

Others might simply see it as a useful way to provide value to consumers who haven’t begun using the Internet because they haven’t been able to sample it.

The analogy often made is that zero rating  is like toll-free calling: some businesses or organizations pay for calls on behalf of customers and prospects.  

But the program is expected to be popular, and experience elsewhere suggests Bharti Airtel will find that the program encourages non-users to try mobile Internet apps, and will drive faster mobile Internet adoption.

That clearly was the experience in the Philippines, where Globe Telecom launched a program offering “no data plan required” access to Facebook.

Over the course of the first phase, the number of data users on Globe’s network doubled, and the portion of Globe’s prepaid subscriber base who were active on mobile data expanded from 14 percent in September 2013 to 25 percent in November 2014, Facebook and Globe say.

Globe’s Free Facebook campaign (and similar internet outreach efforts by other players in the market), led to a six million  increase in the number of active mobile internet users in the Philippines.

During the first phase of the trial, Globe’s user base increased by 17 percent. Along with continuing to use data, these users also shifted core telco spend over to Globe’s network, growing voice and text messaging revenues by five percent.

By the end of the first campaign, prepaid mobile data users grew from 4.8 million to 9.7 million, more than a twofold increase.

Whether zero rating is bad or good for innovation is debatable. Zero rating does increase use of the Internet. And for some, that is the point.

Google Mobile Service Wants to Offer Free International Voice, Text, Data Roaming

Google reportedly is in talks with Hutchison Whampoa about roaming agreements allowing its U.S. mobile customers to talk, text and use the Internet internationally, erasing the difference between local and international tariffs.

The deal presumably would be reciprocal, allowing Hutchison Whampoa Three customers to roam on Google’s U.S. network without additional charge.

If that is correct, it is likely Google would seek additional agreements with other carriers willing to forego international roaming revenue to gain market share.

Google also is expected to experiment with other innovations, possibly including the ability for a customer’s mobile device to register on a local Wi-Fi network or pick the best mobile operator signal (Sprint or T-Mobile US) available at the moment.

All past mobile virtual network operator and facilities-based mobile networks have used only a single network for access.