U.S. Linear Video Market Concentrates

If the Charter Communications acquisition of Time Warner Cable is approved, as well as the AT&T acquisition of DirecTV, just three companies, Comcast, AT&T and the new Charter would control 82 percent of the broader linear video subscription business (including both networks and distributors), according to an analysis by USA Today.

That might overstate matters a bit, but the general conclusion seems valid enough.

Over time, every consumer communications business eventually is lead by just a few firms. Capital-intensive industries tend to encourage such outcomes.

Analysis of Leichtman Research Group data suggests that perhaps five companies (distributors) control about 75 percent of the linear video subscription market.

Some seven companies would control about 87 percent of the market, using Leichtman Research Group data.

So perhaps six companies would control about 80 percent of the linear video subscription business. That is concentrated, but not as concentrated as the USA Today analysis suggests.

More important, the linear video business is contracting, and will be replaced by streaming services, virtually all observers predict.

What is more important is the high speed access business, which is largely, and eventually largely, the foundation for all fixed network access services.

Cambodia to Get First Direct Undersea Optical Link

Cambodia is getting its first direct connection to the subsea backbone network as Huawei Marine Networks builds a new cable jointly financed by  Telekom Malaysia Berhad, Symphony Communication Public Company Limited and Telcotech Limited.

The Malaysia-Cambodia-Thailand (MCT) Submarine Cable System, 1,300 km long, connects Cherating in Malaysia and Rayong in Thailand with a branch connecting Sihanoukville in Cambodia.

Access to neighboring countries such as Laos and Myanmar will be achieved by connected terrestrial networks.

The 100 Gbps network, with a total design capacity exceeding 30 Tbps, will be commissioned and ready for commercial service by the end of 2016.

Will India Voice Revenues Be Cut in Half, in Years or Months?

Competition from over the top voice and messaging apps might reduce mobile voice revenues in India by up to half, according to industry body COAI.

The proliferation of services such as Skype and Whatsapp could carve 30 percent to 50 percent of revenue from operator's voice services, in months, COAI director general Rajan Mathews has said.

The predictions of revenue decline would not be unusual. Only the potential speed of the decline is unusual.

In 2001, in the U.S. market, for example, about 65 percent of total consumer end user spending for all things related to communications and video services went to "voice."

By 2011, voice represented only about 28 percent of total consumer end user spending.

Over that same period, mobile spending grew from about 25 percent to about 48 percent.

Spectrum Futures

You see the pattern: growth of about 100 percent of new revenue sources and losses of 50 percent in legacy revenues.

We can disagree about how much new revenue some communications service providers will have to create over a decade’s time, to replace lost legacy revenues. But the amounts are quite substantial.

If global telecom revenue is about $1.6 trillion to $2 trillion, and assuming about half the revenue is earned in mature markets, where the displacement arguably is most imminent, then the revenue subject to disruption ranges from $800 billion to $1 trillion.

Half of that represents $400 billion to $500 billion. That, hypothetically, is the potential amount of global revenue that might be lost, and would have to be replaced. And that assumption is based on voice revenue growing, not contracting, in the rest of the world.

One rule of thumb is that service providers must plan for a loss of about half of current revenue every decade or so. That might seem shocking, but simply reflects history.

In the U.S. market, one can note roughly the same pattern for long distance and mobile services revenue. Basically, mobile replaced long distance revenue over roughly a decade.

At one time, international long distance was the highest-margin product, followed by domestic long distance. That changed fundamentally between 1997 and 2007.

Over that 10-year period, long distance, which represented nearly half of all revenue, was displaced by mobile voice services.

A similar trend is underway globally. By some estimates, voice revenue has been falling, globally, since 2011.  

But it is hard to see the impact in industry revenue projections COAI itself presents. The obvious conclusion is that other revenue sources, and an absolute increase in customer base, will have even more impact than the loss of voice revenue, which some would say is reasonable enough, as a prediction.

According to Ovum, global mobile industry revenue will contract by one percent in 2018,

He said OTT competition has already taken a 30% slice of operator messaging revenues in the market.

Ovum has estimated the size of the impact of OTT services on SMS and VAS revenue in India for the last two years at $2.76 billion.

Critics say mobile operators will make more money from data services than they lose in over the top messaging and voice.  

Credit Suisse also recently named India among the companies most exposed to the OTT threat, because the nation's operators still derive 80% of their revenue from voice.

How Long to Satellite Constellations Supporting 50 Mbps to 1.2 Gbps Per User?

If everything goes right, LeoSat could begin launching its new satellite constellation in December 2018, offering bandwidth to any single user site at speeds from 50 Mbps on the low end to a high of 1.2 Gbps. 

LeoSat, which plans to launch a new constellation of 80 or more low earth orbit satellites to provide high-throughput Internet access covering every square inch of the earth, thinks its wholesale business model and high bandwidth makes it a potential partner for virtually every other satellite capacity supplier or retailer, aside from the core markets it has identified.

For starters, LeoSat is focusing exclusively on wholesale capacity for business customers, not the consumer business and not business segment retail.

“We wouldn’t compete with anybody in the current milieu,” says Fotheringham. “Our lowest service tier begins where traditional satellite ends.”

The lowest tier of service offers 50 Mbps to 100 Mbps of Internet connectivity. The middle range offers 100 Mbps to 500 Mbps while the top tier supports 500 Mbps up to 1.2 Gbps.

“We do what they cannot,” Fotheringham says of the comparison with legacy satellite services. So he believes LeoSat will have “many chances to align with incumbents who are delivery partners.”

Strictly focused on business-to-business customers, LeoSat’s primary focus will be delivering “ industrial-grade communications to major organizations,” both commercial and government, says Fotheringham.

At the same time, by using a mesh network, LeoSat will avoid a key stranded assets problem that has plagued most prior constellations using the low earth orbit. 

In U.S., Cable TV Companies are Consumer Services Market Leaders, Not Telcos

Should the Charter Communications bid to acquire Time Warner Cable pass regulatory muster, and some of us would bet it will, more light will be shed on the relative roles of cable TV and telephone companies in the fixed network high speed access market, and also of market power generally.

The perhaps surprising result would be that In the fixed network Internet access segment, Comcast would be number one, Charter number two, AT&T third.

Think about that: the two largest legacy telcos would rank no better than third and fourth in the core service provided by the fixed network.

Verizon would rank fourth. CenturyLink would rank fifth, Cablevision Systems sixth and Frontier Communications seventh.

In the top five spots, cable TV companies would be number one and two providers, with even the largest U.S. telcos ranking third, fourth and fifth.

That would make cable TV operators the leaders for consumer services, though telcos would continue to lead in enterprise and business services. Keep in mind, however, that business services are the big growth leaders for cable TV companies.

Comcast and Charter would represent perhaps 40 million customers, while AT&T and Verizon have about 25 million.

AT&T has about 16 million Internet access customers. Verizon has 9.2 million.

Most observers would agree Comcast’s market share in high speed access was the deal killer when Comcast tried to buy Time Warner Cable.

Comcast would have had about 57 percent share of high speed access. That was an issue--and frankly always has been--whenever any fixed network supplier reached 30 percent share of U.S. homes.

A Charter-owned Time Warner Cable, plus Bright House Networks, would have substantial share, but probably well below the 30-percent level that traditionally has triggered antitrust concerns (some might peg high speed access share closer to 30 percent).

Charter Plus Time Warner Would Have Up to 22.6% High Speed Access Share

Some believe a Charter Communications bid to acquire Time Warner Cable would not raise regulatory objections, certainly not the concerns that made the Comcast bid for Time Warner Cable a problem.

That seems to be the case. Most observers would agree Comcast’s market share in high speed access was the deal killer. Comcast would have had about 57 percent share of high speed access.

A Charter-owned Time Warner Cable, plus Bright House Networks, would have substantial share, but well below the 30-percent level that traditionally has triggered antitrust concerns.

The combined firm might have up to 20 million high speed access customers. If there are 88,5 million U.S high speed access customers, then Charter would have 22.6 percent share.

Charter would have about 17.8 million video subscribers, trailing Comcast with up to 22.3 million. The new number three provider would be Cablevision Systems Corp., at 2.6 million video subscribers.

AT&T has about 16 million Internet access customers. Verizon has 9.2 million.

Comcast and Charter would represent perhaps 40 million customers, while AT&T and Verizon have about 25 million.

The perhaps surprising result would be that In the fixed network Internet access segment, Comcast would be number one, Charter number two, AT&T third.

Verizon would rank fourth. CenturyLink would rank fifth, Cablevision Systems sixth and Frontier Communications seventh.

In the top five spots, cable TV companies would be number one and two providers, with even the largest U.S. telcos ranking third, fourth and fifth.

Zero Rated Content Consumption Obviously Shapes Usage; So Do Other Policies

When prices for any desired commodity decline, demand increases. It therefore stands to reason that subsidizing data usage would boost consumption. It does.

In Germany, mobile operators allow customers to use branded mobile operator owned video streaming services and affiliated apps without counting usage against monthly limits.

Perhaps not surprisingly, over data consumption in Germany is lower than in Scandinavia.

On average, Germans used 410 megabytes per month in 2014 (up from just 280 megabytes per month in 2013). Finns, by comparison, used 5.1 gigabytes a month, according to Rewheel.

At the same time, data tariffs are higher in Germany than in Scandinavia. Some will suggest that consumers are rational and therefore use the zero-rated services rather than others which would incur charges

“If you have a lot of data you don’t care about zero rating,” Pal Zarandy, a Rewheel senior partner said. “But if you have half a gigabyte or even two gigabytes you can’t stream video. You hit your monthly cap in half an hour. Zero rating in those countries makes a huge difference.”

Either demand or supply could explain the disparities. One might note that consumption preferences (demand) also might exist, irrespective of the pricing incentives.

The difference in cost per gigabyte between European Union countries is two orders of magnitude, a Rewheel study finds.

Rewheel argues those operators with the most restrictive volume caps, and charge the highest prices for incremental usage, tend to most aggressively favor their own volume-heavy internet content, such as mobile cloud storage and movie streaming services, by zero-rating their gigabyte consumption.

Rewheel believes zero-rating plays a big role in shaping consumption.

While €35 buys about 2 Gbytes in the German, Italian, Spanish, Belgian, Austrian and Portuguese markets,  in the Nordic and Baltic countries about 19 gigabytes could be purchased for that amount in the first half of 2015, Rewheel argues.

U.S. prices are about €5 ($6) per gigabyte, about the high German rate, Rewheel says. Some would contest the notion that U.S. data prices are at the German level. Consumption of 2 Gbytes in the U.S. mobile market, using Rewheel’s own figures, would be less than €5 ($12).

U.S. data consumption might be “low,” compared to Scandinavia. Recently, U.S. consumers have been consuming 1.8 Gbytes a month. But that is mobile network data. If Wi-Fi accounts for 40 percent of total mobile consumption, U.S. mobile consumers are using about 4.5 Gbytes a month.

If Wi-Fi represents 80 percent of total consumption, U.S. consumers use about nine gigabytes.