Which Way for AOL Under Verizon?

Verizon’s decision to buy AOL inevitably raises lots of questions about synergy and strategy. Most of the speculation will center on synergies between AOL and Verizon Wireless, especially the role AOL might play in a future Verizon over the top mobile video service.

Some might argue AOL helps Verizon build a branded mobile streaming service, with notable original content supplied, in part, by AOL. In that view, AOL helps Verizon build a branded streaming business.

Others think the advertising platform is what Verizon really requires, as nice as the other potential advantages might be. That might be the more prevalent view if one assumes Verizon really wants to build a streaming capability Verizon can sell to everyone, not just Verizon customers.

The former view sees AOL contributing to a “closed” managed service intertwined with Verizon Wireless. The latter view sees the greater upside in an “open” service available to all, more on the model of Netflix.

It is not yet clear which path will be taken.

High Speed Access Now is the Anchor Service for Telcos and Cable TV

GVTC, Smithson Valley, Texas rural telephone cooperative, now sells more high speed access  accounts than voice accounts, much as cable TV companies now sell more high speed access than video accounts.

AT GVTC, Internet access customers now outnumber telephone accounts by five percent based on sales figures for the first quarter of 2015. GVTC telephone accounts are down 2.3 percent during the same period.

At the end of 2014, the largest U.S. cable TV operators had about 52 million high speed access accounts in service. At the end of 2014, those same firms had some 49 million linear video customers.

In its first quarter of 2015, Comcast Internet access revenues grew 10.7 percent while business services grew 21.4 percent.

Year over year, Comcast gained 407,000 high speed Internet access customers and 77,000 voice customers and lost 8,000 video customers.

In other words, not only does the “new” Internet access business represent more customers, it also is the fastest-growing consumer service. Video subscribers actually are shrinking.

Verizon AOL Buy: "You Need to Own Some of What You Deliver Over Your Pipe"

Verizon Communications has been skeptical about its own prospects in the linear video business, unhappy with the low profit margins and convinced over the top video is coming faster than people think, with negative implications for the linear TV business.

Verizon also is more committed to mobile delivery than fixed. At the same time, the AOL buy puts Verizon into the mobile advertising business.

“AOL is a leader in the digital content and advertising platforms space, and the combination of Verizon and AOL creates a scaled, mobile-first platform offering directly targeted at what eMarketer estimates is a nearly $600 billion global advertising industry,” AOL says.

Given those beliefs, it might not be too surprising that Verizon is buying AOL, to support its digital media rather than linear video strategy.

The acquisition also is one way of avoiding a “dumb pipe” strategy where Verizon provides best effort, lower margin Internet access for consumers, but owns and benefits little from the value of applications.

Verizon would not be unusual in making investments in the digital media or advertising spaces. Many tier one service providers have launched investment funds, development efforts or made outright acquisitions of such assets. Singtel’s Amobee acquisition provides one example. Telefonica’s many development efforts an Deutsche Telekom’s acquisitions of firms such as Jajah provide other examples.

Some might argue there is no “fit” between the typical telco domain expertise and that of a firm such as AOL. “Over the top” is the crucial difference. So long as Verizon does not interfere with the running of the business, AOL is not a “managed service” sold only to Verizon customers.

It is a true, over the top service available to any potential user (consistent with copyright issues that could limit access in some locations).

As some might describe the strategy, it is not too complicated. “You need to own some of what you deliver over your pipe,” said Richard Green, former CableLabs CEO.

Nobody Pays to Participate in Internet.org

Facebook has been undertaking serious efforts to explain to bloggers, government officials and others how different the Internet.org program is, compared to the now-discontinued Airtel “Zero” program, which would have offered app usage without data fees.

The “Zero” program would have allowed app providers to pay a fee to Airtel in exchange for zero rating customer use of the sponsored apps.

That is nothing like what Internet.org has been doing, where nobody gets paid anything to participate, said Chris Weasler, Facebook global head of spectrum policy and connectivity planning. Internet.org.

App providers do not pay Internet.org, Internet.org does not pay mobile operators who participate, and end users do not pay for use of the apps.

Some, including possibly the Indian government, still consider any form of app sponsorship--with or without any payments--a violation of network neutrality principles of “treating all applications alike.”

The issue, of course, is that allowing people to sample apps has proven to increase end user understanding of the value of the Internet, as well as paid mobile data subscriptions for mobile service providers. That, in fact, is why mobile service providers have participating in Internet.org.

One can point to any number of other standard marketing and sales techniques that likewise do not treat all apps, all customers, all users the same. Promotional programs to lure new users are commonplace in every industry. 

Sales of some brands of merchandise are standard at supermarkets globally. Some consumers user coupons; some do not. Airline seats, on any route, at any time, are not priced "the same." Uber rides, by definition, are not priced the same, across the day. 

The point is that we arguably are overstretching the analogies. Innovation, by definition, means some supplier does something differently. 

Messaging, voice communications or video entertainment might be offered for no incremental cost, or very low cost. Promotional pricing for some period of time is a routine practice. Volume discounts are standard practice.

Somewhere between the desire to maintain an open Internet and "unfair gatekeeping" is the broad arena within which normal and standard marketing methods are permissible. We are, in many cases, being extreme.

PCCW-HKT to Offer 10 Gbps Internet Access in Hong Kong

As promised in February 2015, PCCW-HKT has teamed up with Huawei to launch the world's first 10 Gbps fiber to the home service in Hong Kong.

HKT initially will offer the service for specified customer during a pilot phase commencing this quarter, and plans to make it available to all existing GPON customers in the third quarter.

The service promises 10 Gbps download speeds, 1 Gbps Wi-Fi speed and 5 Gbps USB3.0 speed.

For TDS Fixed Segment, "More Advanced Technology" Means Cable TV

Talking about a name change for its Baja Broadband cable TV company, acquired in 2013, TDS reminds observers that the acquisition was made “with the intent of bringing more advanced technology to customers.”

For TDS, the seventh-largest U.S. telco, that says something--”more advanced technology.”

Baja Broadband operates in the U.S. Southwest (New Mexico, Utah, Nevada, Colorado) and Texas.

TDS also has acquired Bend Broadband, serving Bend, Oregon.

To be sure, TDS these days makes most of its money from mobile operations (US Cellular) than fixed network telephony or cable TV. US Cellular serves 4.7 million accounts, while TDS fixed network operations serve 1.1 million accounts. Its cable operations have about 267,000 accounts. TV

Does VoIP Cost 3 Times as Much as PSTN Voice?

The Internet and Mobile Association of India claims a VOIP call costs three times more than a traditional voice call.

"It is a myth that OTT communications are cheaper than the traditional calls," the group insists.

That might strike you as an odd statement. You would be hard pressed to find a single example, anywhere, where making a one-minute VoIP call costs more than a one-minute call, to the same location, using mobile or fixed networks.

The statement only makes sense when looked at it in terms of “total cost of ownership” or “total cost of use” for the customer, even when most consumers likely do not calculate costs in that way.

To the extent the statement is “true,” it is largely a function of high mobile data tariffs, not the actual cost of using VoIP or over the top messaging.

The association says a 60-minute call over IP can consume around 25-35 MB for voice alone and 240 MB for video plus voice.

"A one-minute voice call on Skype to Skype will cost on an average Rs 3 depending on bandwidth (HD Video) and connection speed on 2G or 3G. This translates to Rs 180 per hour or more, which is almost three times the cost of an average call per hour on a normal subscriber," it said.

That sort of price differential is large enough that one would expect consumers to behave rationally, and use the cheaper service. If they are not doing so, something else is going on. The “something else” is that consumers do not include the cost of bandwidth when evaluating the cost of making a call or sending a message.

They apparently only look at incremental cost. As when a consumer evaluates the cost of watching an OTT movie, the actual total cost--including sunk costs--is not relevant.

Consumers look only at the incremental cost--”how much will it cost to watch this movie”? They do not calculate the cost of bandwidth. The same process apparently affects use of OTT messaging and voice.

As usually is the case when Internet-based services confront legacy services, policy decisions directly affect business models. In principle, two methods could be used to create a level playing field.

Legacy regulations could be applied to new providers, or legacy regulations could be lifted. Regulatory parity results, either way. Of course, as a practical and historical model, it almost is the case that existing rules are applied to new players.

Rarely is the choice made to reduce regulations for all providers in a market, to the level of the least-regulated industry segment.

“If the pricing for all services (including VoIP) will be the same, then the current tariffs of voice (75 paise/minute), SMS (20 paise/SMS) and data (25paise/MB) will have to converge to anywhere between 108 paise/MB to 250 paise/MB for data just to maintain the current revenue,” Idea Cellular has argued.

Generally speaking, service providers and Internet app firms might agree that overall ecosystem costs in India are too high. In part, that is caused by regulatory burdens, but also by lack of spectrum.

“India has 40 percent of the spectrum that any other country has,” TRAI Chairman Rahul Khullar has said.

There are only two ways to fix this: either by making more spectrum available or by using it far more efficiently,” Trai chairman Khullar said.

source: Financial Express