By Definition, Universal Service is "Underfunded," Likely to Lead to Tax Hikes

Among the many unknowns surrounding high speed access investment, taxes, fees, consumer prices, terms and conditions of service raised by new common carrier regulation of Internet access, there are similar unknowns about another change declared by the Federal Communications Commission, namely the redefining of “broadband” to a minimum of 25 Mbps downstream and 3 Mbps upstream.

To point to just one potential issue, about 20 percent of rural U.S. households lacked access to Internet access of at least 4 Mbps downstream. Under the new definition, 53 percent of rural U.S. homes lack access to broadband.

The redefinition has to affect universal service funding, eventually.

For starters, more households now be found to lack “broadband” capability. And many Internet service providers once deemed to be providing broadband will find themselves suddenly not providing broadband.  

That means ISPs will have to invest more. Also, the amount of money allocated for USF purposes might now be viewed as too small to upgrade many more millions of locations.

In other words, the fees charged to Internet access customers to support universal services now will climb.

On one hand, it is reasonable enough to point out that average or typical U.S. Internet access offers are bounding ahead. Comcast, for example, now will be offering gigabit access to nearly 21 million households--virtually its entire footprint, by the end of 2015.

At the same time, it also will sell a 2-Gbps services to 18 million of its households, also by the end of 2015. Rarely in Internet history has a leap so high been made so fast.

On the other hand, one might argue that the changing definition, intentionally or not, is one way an agency can create a bigger problem for it to solve.

The implications for service providers of the Comcast attack are fairly significant. One has to wonder whether most telcos will be able to respond in kind.

It is entirely possible that a great many telcos will simply have to content themselves with offering high speed access that is not the best in the market.

It would not be surprising to see some telcos shift more assets to mobile and international expansion, as investing in domestic fixed network assets becomes ever more unrewarding.

Oddly enough, if the intent of some government action is to ensure competition those acts tend also to dent the attractiveness of investment, at least by a major class of competitors.

Comcast now has shown the fruitfulness of Google Fiber’s strategy to create incentives for other ISPs to invest faster in higher speed access. The number of customers able to buy Google Fiber will remain quite small, for quite a long time.

Comcast, on the other hand, immediately is able to sell gigabit services to 21 million U.S. homes, and 2 Gbps to 18 million.

AT&T cannot react so fast. Verizon may not wish to. Small telcos have big decisions to make as well.

On the other hand, the net effect of all that gigabit marketing will be to increase sales of services in the 50 Mbps to a couple hundred megabits per second. In truth, no consumers, when web browsing, are really going to experience benefit beyond about 10 Mbps to 15 Mbps, in any case.

Perhaps downloading operations are the one area where visible benefit is gained, though.

Nigerian Mobile Internet Adoption is 59% of all Mobile Users

The Mobile Africa report, released this week, finds that many Africans access social media, including Facebook and Twitter, using their mobile phones.

They also use mobile for medical applications and banking, among other purposes. Lower cost mobile-capable handsets are one reason for growing mobile Internet usage. “Feature” phones that can access the Internet are now selling for less than $20, far below the $100 threshold deemed important for smartphone adoption.  

Nigeria has well over 140 million mobile phone subscribers and close to 82 million mobile Internet users, according to monthly subscriber data that has just been released by the Nigerian Communication Commission (NCC).  In other words, Nigerian mobile Internet adoption is 59 percent of all mobile users.

Must ISPs be in the Apps Business?

There are many business analogies between video entertainment and Internet app ecosystems, with similar underlying ecosystem tensions.

In both ecosystems, distribution partners widely worry that they are being relegated to low profit margin “dumb pipe” status, while value is created, and revenue gained, by the app providers.

In the video ecosystem, that is why over the top streaming services such as Netflix are viewed ominously by linear video subscription providers.

In the Internet ecosystem, all apps are, by definition, provided over the top. Distributors might try and create managed services (carrier voice or linear video subscriptions are the best examples) they actually own and deliver, but all “Internet” apps are logically separated from the underlying access.

In the video subscription ecosystem, there long has been an argument about whether distribution or content “was king.” In times past, one or the other views has tended to reflect reality.

The Internet analogy is whether Internet service providers or Internet apps have power in the ecosystem. Most might agree that the app providers have the scarcity value and end user brand names that represent value.

The recommendation, in the video ecosystem, has been that distributors need to own content assets. So Comcast owns NBCUniversal. So far, ISPs have made smaller investments in Internet apps and firms, often through incubators or investment funds.

But it might be hard to point to a big success, so far, in the Internet ecosystem, for ISPs seeking to create valuable assets in the apps sphere.

On the other hand, some might point to Google Fiber as an example of an app entity going the other way and directly displacing incumbent ISPs altogether. It is reasonable to argue that displacing the whole ISP function would be horrifically expensive for even the biggest app providers.

It would be less implausible to argue that leading app or device suppliers might well displace much of the value of a mobile service provider, at less cost, using a wholesale access mechanism, in conjunction with Wi-Fi, for example.

In other words, app providers are in a better position to keep and extend value towards the access function, than access providers are to keep and extend value towards the app function.

For ISPs, the danger is dumb pipe status. But for some ISPs, that might prove quite sustainable as a business model.

At the moment, one would have to conclude that “apps are king.” If that remains the case, ISPs will want to participate, as equity owners, in apps. That might happen through the creation of managed services or simple ownership of app firms outright (Singapore Telecom might be the best example of this strategy).

The point is that, long term, the access function might remain margin challenged, when not directly gross revenue challenged (as when Google Fiber competes directly with other ISPs).

To the extent that the video ecosystem provides an analogy, ISPs might want to own more of the content moving through the pipes. Many app providers see this as a danger, for obvious reasons. But ISPs might have no choice, at all. Value might continue to reside in the apps, not the access.

If so, then ISPs have to be part of the apps business.

Sprint Launches International Free Calling, Texting, Mobile Internet Plan

Sprint is giving customers the ability to travel to major areas in Latin America, Europe and Japan and roam with up to 2G speeds to read emails and surf the web at no additional charge, as part of its new International Value Roaming feature.

When on the plan, customers also can send unlimited text messages for no extra charge and they can call anywhere in the world from these countries for 20 cents per minute.

Argentina, Brazil, Chile, Costa Rica, El Salvador, Germany, Guatemala, Japan, Mexico, Nicaragua, Panama, Russia, South Korea, Spain and the United Kingdom are countries included in the plan.

Customers can easily add International Value Roaming to any Sprint domestic plan atwww.sprint.com/internationalroaming or by visiting a Sprint store.

Customers also can use Sprint’s “Wi-Fi Calling” feature to make free calls from over 200 countries back to the United States.

Wi-Fi Calling is available at no additional charge when calling a United States,  U.S. Virgin Islands or Puerto Rico phone number.

Wi-Fi Calling is available on iPhone 6, iPhone 6 Plus, iPhone 5c, iPhone 5s and select Android devices.

Some will say the new Sprint feature is a reaction to T-Mobile US, which recently added no extra charge no extra charge calling, texting and Internet access in 2013.  

One might argue this is another instance where T-Mobile US and Sprint are attacking the market with additional value, while AT&T and Verizon try and maintain either a premium position (higher price, better quality) or at least an industry-standard (about what you’d expect in terms of price and value) position.

Amazon AWS Revenue Grows 40% Year over Year

Amazon's AWS cloud infrastructure business is the fastest-growing billion dollar enterprise IT business in the world, Amazon execs now say. 

Amazon EC2, which provides on-demand computing resources, grew 93 percent between the fourth quarter of 2013 and fourth quarter of 2014.

Data transfer volume for Amazon S3 grew 102 percent over the same time period. 

Revenue appears to have grown 40 percent, year over year. 

When Will T-Mobile US Become the 3rd Biggest U.S. Mobile Company?

The only question many observers have is how soon Sprint, now the third-largest U.S. mobile service provider, is passed by T-Mobile US. Some think that could happen in the first quarter of 2015. Others think it might take until the second quarter.

But most think the change will happen. 

Sprint executives are right that it doesn't matter much whether Sprint is third or fourth, for the moment. The difference in subscriber counts won't be so large. 

But if T-Mobile US growth rates continue at anything near present rates, that gap will widen. At some point, quantitative change becomes qualitative change. 

And such changes of market share, at the top of any mobile market, and driven by organic growth, are quite rare. 

True, market share does change substantially when there are major acquisitions in a market. But a market share shift driven principally by organic growth is a more dangerous trend. Instead of a reshuffling of ownership, which is what a merger represents, an organic growth shift means consumers are shifting demand. 

Near term, perhaps the change in market share means little. Longer term, it could be quite significant. 

ISPs Risk Consumer Ire in Fighting Gigabit Marketing Wars

It always has been difficult to conduct marketing campaigns whenever a service provider is upgrading or introducing network-dependent local access services. Major metro area cable TV network builds (new builds or rebuilds) often take three years.

So what is the marketing team supposed to do about it mass media efforts when, by definition, a sizable number of would-be customers will contact the firm about buying, only to be told the service is not yet available “in your neighborhood.”

It is a messy process, more expensive and almost certain to generate consumer ire. That is why some firms, in the midst of such construction projects, end to eschew mass media marketing in favor of lower-key programs that can be targeted neighborhood by neighborhood.

Some firms might be taking different risks, though, touting gigabit services using mass media outlets.

Doing so, when the company knows the new services initially will be available only in some neighborhoods, is bound to generate ill will. In such cases, the firms appear to be taking such risks to tout the magnitude of upgrades, part of the access marketing wars that are building across the United States.

It will not help that Comcast, arguably the leader in U.S. high speed access, will upgrade virtually all customer locations for gigabit access by the end of 2015, with 18 million out of 21 million locations able to buy 2 Gbps service.

That is about as big a deal as was Google Fiber’s “symmetrical gigabit for $70 a month” offer.

But the downside, for would-be competitors, is the risk of increased potential customer ire, since most of the offers--Comcast being the big exception at the moment--being targeted only to high-demand neighborhoods.