Access Platform Decisions Still are Controversial

Debates about when, how or why to deploy fiber to the home have been relevant for decades. Among the bigger juxtapositions: fiber to the home versus fiber to the curb or fiber to the neighborhood; FTTH versus hybrid fiber coax; and more recently, the value of fixed versus mobile investments.

Those debates were relevant because payback is relevant, and it has been no secret that the FTTH business model has been difficult, especially in competitive markets, and particularly so in markets where there are rival facilities-based competitors.

By about 2020, the challenges will grow worse, as fifth generation mobile networks promise end user bandwidth up to 10 Gbps, with one millisecond latency.

In Vietnam, where perhaps only 1.5 percent of locations have access to FTTH, the Fiber to the Home Council Asia-Pacific has urged service providers to invest heavily.

In addition to retail broadband services, telcos could profit from backhaul bandwidth and connectivity for mobile operators, especially those venturing into Long Term Evolution, said Dr. Bernard Lee, FTTH Council Asia Pacific president.

Some might say it is a bit of over-investment to build a ubiquitous residential network only so that network can be used for mobile backhaul.

With so much changing in the access business, statistics alone will not drive business investment decisions.

When more access, at higher speed, is required, service providers will look at all the ways platforms can be deployed, the cost, timetable and also revenue implications of doing so.

In most markets, ubiquitous fiber to home might not be the wise choice. Mobile operators have joined cable TV operators in making that argument. And Verizon seems now almost to regret having made that choice.

What Will ISPS Do When They Cannot Upgrade to a Gigabit?

Though it isn’t yet clear how Internet service providers are going to compete against competitors able to offer much faster speeds, we are going to get more evidence as Time Warner Cable in the Charlotte area are upgraded, in large part to counter Google Fiber and AT&T gigabit access services.

“TWC Maxx” will feature speed boosts as much as six times over current levels, for no increase in price.

Customers who subscribe to “standard” service (up to 15 Mbps) be boosted to speeds as high as 50 Mbps.

“Extreme” customers buying high speed access at speeds “up to 30 Mbps” will be boosted to , “up to 200 Mbps.”

“Ultimate” customers, with access to speeds “up to 50 Mbps” will get speeds “up to 300 Mbps.”

Time Warner Cable also is upgrading its digital video recorder features, allowing customers to simultaneously record up to six different programs, and the ability to save 150 hours of high-definition (HD) programming on its 1TB (terabyte) hard drive, which is twice the storage of the largest prior model.

Customers will also have access to an all-digital lineup and an expanded On Demand library that has reached 19,000 titles, growing to more than 30,000 by the end of the year.

So you can see some elements of a possible strategy, when an ISP cannot afford to upgrade all the way to match the headline offers from Google Fiber and another ISP. Speed will be upgraded, often at no extra charge, to close the gap in practical terms, even if it remains impossible to match headline speeds.

Then other key elements of the bundle experience also are upgraded

Something similar will have to be considered as the number of ISPs offering much-faster speeds continues to grow. A number of contestants, such as fixed wireless providers, satellite providers and some small telcos, simply will not be able to match gigabit speeds.

In many cases, even large telcos will not desire to do so, and the financial return is deemed too small, or even negative.

Increasingly, we are going to find out just what it takes for many ISPs to compete against other ISPs offering gigabit speeds, when that offer cannot be matched.

All be watching to see how successful such efforts might be. After all, the actual end user benefit can be obtained at speeds far below gigabit or even hundreds of megabit speeds. In fact, at the moment, user experience, on a single user or per-user basis, beyond 10 Mbps to 15 Mbps, is negligible to non-existent.  

Will the Fixed Network Be Relevant, and if so, How, by 2030?

There are a few questions which might engage many observers of the telecom business.

The first: will cable TV companies emerge as the dominant suppliers of fixed network services? In the U.S. market, for example, cable companies have the dominant market share in both video entertainment and high speed access, with a substantial position in voice services.

The second question: will “dominance” mean much, if and when mobile networks are able to match fixed networks for features and functionality, such as headline speed?

A third question is whether higher cost telcos will continue to invest aggressively in their fixed networks if financial returns are better in mobile and international arenas, especially if no amount of investment allows them to “catch” cable operators?

Some insight on the answer to the first question has been provided by Comcast, which is upgrading all 21 million customer locations to gigabit access speeds by the end of 2015. Comcast also plans to make 2 Gbps service available to 18 million customer locations as well, by the end of 2015.

In fact, some have argued that U.S. cable TV companies eventually would emerge as the dominant fixed line suppliers of communication services for consumers, as telcos--with higher fixed and operating costs--simply could not compete.

In many ways, that already has happened: telcos no longer are dominant providers of fixed network services for consumers.

At the end of 2012, incumbent local exchange carriers (telcos) had 34 percent share of the consumer voice market, 14 percent of the high speed access market and 10 percent of the video subscription market.

In fact, some might argue that cable TV operators are destined to dominate consumer high speed access. Others might argue a long-term duopoly, nationally, will exist, with Comcast and AT&T having dominant market share in different markets.

Some might argue that AT&T and Verizon have cost structure issues that will continue to hamper their fixed network operations. That is one good reason why effort and investment have shifted to mobile operations.

Telcos might not be able to match Comcast’s 2 Gbps high speed access offer easily, as they will find 1 Gbps challenging on a sustainable basis. The issue is the business model, not the technology. In competitive markets, the low-cost provider tends to win Telcos are almost never the low-cost providers.

The second question might be more meaningful sometime after 2020, when fifth generation mobile networks are commercialized. If performance matches present plans, end user bandwidth will be as high as 10 Gbps and latency as low as one millisecond.

At that point, it might reasonably be argued that the mobile network is superior to fixed for nearly any imaginable application. To be sure, prices, terms and conditions of service will matter greatly.

But, for the first time, it might be reasonable to say the mobile network actually outperforms the fixed network.

The third question also is germane. It seems unlikely most telcos will be able to match the speeds, the deployment timetable or investment cost, not when better returns are available in mobile and internationally.

Under such conditions, would a rational strategy not entail harvesting the fixed network, while putting most new investment elsewhere?

Consider what has happened in the voice business, even the mobile segment. Mobile has displaced the fixed network as the way most people want to use voice services. Some consumers are starting to do so for Internet access, already.

About seven percent of U.S. residents own a smartphone but do not buy fixed network high speed access service at home, and therefore rely on their smartphones for access. That data point provides some evidence about consumer ability to substitute mobile access for fixed Internet access.

About 15 percent report they have a limited number of ways to get access to the Internet aside from using their phones, according to a study conducted by the Pew Research Center.

Today nearly 66 percent of U.S. residents own a smartphone and 19 percent rely to some degree on a smartphone for online access.

It could get worse for service providers.

Separately, a U.K. survey found that 33 percent of mobile phone users claim they do not use voice at all.

“Voice” or “making phone calls” were not on a list of the top 10 most-used mobile phone features in a recent poll of 1,000 people in the United Kingdom, conducted by Oxygen8.

Granted, the online poll appears not based on a randomizing process, so likely is not representative of the “typical” user, but the results are a surprise, nonetheless.

The point is that very big questions loom for fixed network service providers. It isn’t clear that the telco role is stable. It isn’t so clear that telcos “ought” to invest in fixed networks, when other alternatives, especially those where they might challenge other fixed networks, are feasible.

Could Cable Use LTE-LAA to Create Its Own Mobile Network?

If new protocols will allow Long Term Evolution networks to run over unlicensed Wi-Fi spectrum, using licensed assisted access, there is no reason to believe that same technique could not be used by a cable operator with a huge footprint of public Wi-Fi hotspots. 



Comcast is the foremost example of a firm that could leverage LTE-LAA to run most of its access operations using the already-deployed public hotspot network. 

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.