One Clear Way Net Neutrality Rules are Driving Up ISP Costs

One practical concern some had about reclassifying Internet access as a common carrier service was that there would be an explosion of complaints, leading to higher overhead costs simply to deal with the administrative compliance.

That appears to be happening.

In just the first month that net neutrality regulations have been in effect, consumers have filed about 2,000 complaints to the Federal Communications Commission against Comcast, AT&T, and other Internet service providers, according to records obtained by National Journal.

Officials in the FCC's Enforcement Bureau can choose whether to investigate any of the complaints for further action or penalties.

Justified or not, Internet service providers must respond to both the FCC and the complaining consumer within 30 days.

Harold Feld, the senior vice president of Public Knowledge, a consumer-advocacy group, acknowledged that most of the complaints probably do not identify real violations of the FCC's net-neutrality rules.

ISPs will have to hope the torrent of new paperwork does not become an avalanche. All the costs of responding will be borne by legal and support staffs. And all those costs will have to be recovered from ISP subscribers and business partners.

You can read the complaints, if you like.

Why Consumers Won't Pay Much for Any Single Show

There is a logical reason why most consumers likely consider the fair price for any single piece of content (a story, a song, a picture, a video, a TV show) normally purchased as part of a subscription service to be a fairly low number.

Consumers “logically” compared the cost of a compact disc, with 10 to 12 songs, to the download of a single song.

It wasn’t very hard to figure out a “fair price” of about $1 to $1.30 each.

Much the same sort of logic is likely to play out as TV content services are unbundled. Consider a single channel, with a wholesale price to the distributor of less than $1 a month. Triple that number to cover network, marketing and other overhead costs, plus profit and taxes, to $3 a month.

Consumers are going to conclude that any single show should not cost very much.

Nobody will be able to rationally figure out how much attributed cost is the “right number.” And delivery costs in a fully unbundled market are likely to be much higher, actually.

It won’t matter. Consumers simply are going to assume that if a whole channel costs “X” for a whole month, then a single show should not cost much at all.

X divided by 30 will be the assumed “all you want to watch for a day” cost. Then assume 48 discrete shows in a day, and the assumed cost for one show is going to be X/30/48. It will be a small number.

The reality of costs in a new unbundled environment won't matter much 

source: Wall Street Journal

Based on its Churn Rates, Netflix is Way Ahead of its Competition

Are churn rates for over the leading over the top video services high or low? The answer, of course, is always “in relation to what?”

Netflix subscriber churn, for example, might be considered quite low for a consumer service.

Over the last year, four percent  of U.S. broadband households cancelled their Netflix service, representing nearly nine percent of Netflix’s current subscriber base. At 0.075 percent monthly churn, that represents a churn rate lower than experienced by AT&T and Verizon Mobile, for example.

Hulu Plus customers churn at higher rates. Over a year, Hulu Plus churn is in the 50 percent range, meaning that about four percent a month, which most observers would consider high churn.

Other services fare even worse, with churn rates as high as 60 percent annually, or about five percent a month.

Currently, 85 percent of U.S. broadband households subscribe to a linear video subscription  service, while 59 percent of U.S. broadband households have an over the top video subscription.

Of those who use OTT video, a bit fewer than half use two or more OTT services.

Half a decade ago, for example, mobile subscriber churn   was far higher than it is today. About 2010, monthly churn of two percent to three percent a month among some of the largest four U.S. mobile service providers was not unusual.

And churn has consequences, tending to decrease the average lifetime value of any account.

High churn rates might be explained in different ways for apps (especially free or low cost apps), as compared to low-cost or high-cost subscription services. Very high rates of churn--well beyond three to five percent a month--might be normal for mobile apps, for example, where consumers sample lots of apps and find most not to have long-term value, leading to high churn rates.

Churn also tends to be higher for new services consumers are unfamiliar with, since there is lots of sampling.

Churn is a more-serious problem for established products that consumers understand well. High churn for those sorts of products tends to indicate some consumer issue with the product.

The point is that Netflix seems to be a service with very low churn, even when one might otherwise predict high levels of churn.

Netflix--especially the streaming product--is a new type of product, competing against many other functional substitutes.

Ultra-Low Latency Not Needed by All, or Most Apps, But Mobile Networks Will be Designed to Support Them

One often hears it said that one-millisecond latency is a useful or necessary attribute of network performance for a relatively small number of applications. That is true. 

But the applications requiring such responsiveness are important because lives are at stake, as in the case of autonomous vehicles, or for the realism of an experience, as for augmented reality.

Networks, though, are designed and dimensioned for the most-stringent apps, even when many--or even most--other apps do not require that level of performance.

So future fifth generation networks will be designed to support the most-stringent apps, in terms of latency and bandwidth, despite being a case of "overkill" for most other apps.

source:  GSMA Intelligence

92% of 2014 Mobile Devce Models Produced by Asian Suppliers

Why this matters: if you are a policymaker or regulator in any country where you believe mobile devices or mobile apps represent a growth industry, you will feel pressure to encourage the device or app segment of the mobile and Internet ecosystem, possibly even to the detriment of the Internet service provider or other segments of the ecosystem.

If, on the other hand, one believes a domestic device or app industry is unlikely to develop, it is rational to take steps to encourage the ISP segment of the ecosystem. 

The device and apps business tends to develop on a "winner take all" pattern.

If so,  the tasks in most countries will tend to center on supporting ISPs and access availability, there being little possibility of fostering a globally-significant device or apps industry. 

Consumer Segment a bright spot for BT Revenue

BT faces many issues in common with other European Community telecom service providers, with flat to declining revenue growth being the most salient issue.

BT also faces the possible divestiture of its wholesale Openreach business, representing about 28 percent of total revenue. BT obviously considers the ownership of that chunk of the business important, in part because it represents a stable revenue segment.

Virtually all other revenue drivers have fallen since the 2009/2010 financial year, with the exception of the consumer segment, where sales of video subscriptions are growing.

The consumer segment represents about 24 percent of total revenue.

Mobile net additions and high speed access also show growth.

In the most-recent quarter ending June 30, 2015, revenue was down about two percent.

Global Services dropped about six percent, while BT Business dropped about two percent.

The consumer segment grew three percent while wholesale shrank about one percent.

Openreach was essentially flat.

Why 15% Non-Internet User Base is Not a Long Term Problem

A stubborn 15 percent  of U.S. adults do not use the Internet, according to the Pew Research Center.

The size of this group has changed little over the past three years, despite recent government and social service programs to encourage internet adoption.

Two observations: perhaps we sometimes forget that people have the right to exercise lawful choice. If people do not want to use the Internet, as much as we might think they “should,” they have the right to refuse, for any reason.

At some point, in any business or endeavor, the last increment of progress is so costly it is rational to consider not bothering to achieve it, and allocating effort and resources to some other important problem where the input will achieve greater results.

The other observation is that we have seen such technology laggard behavior before. Such problems fix themselves, assuming the innovation is widely perceived to have value.

The point is that the 15 percent of people who do not use the Internet may not wish to use it, and that the number of non-users will likely fall to insignificance over a relatively short period of time, if only because “using the Internet” will take so many forms that people may not even recognize.

Traditionally, some non-users have said they simply do not want to use the Internet.

A 2013 Pew Research survey found 34 percent of non-users did not go online because they had no interest in doing so or did not think the internet was relevant to their lives.

Some 32 percent of non-internet users said the internet was too difficult to use.

Cost was also a barrier for some adults who were offline and 19 percent cited the expense of internet service or owning a computer.

One might argue that the “owning a computer” will be a minimal problem in the future, since all smartphones will provide that function, as will tablets. With the spread of Wi-Fi, private and public, we also can reasonably assume that the cost of access will cease to be a real problem.

The latest Pew Research analysis continues to show that internet non-adoption is correlated to a number of demographic variables, including age, educational attainment, household income, race and ethnicity, and community type, as most would expect.

Seniors are the group most likely to say they never go online. About 39 percent of people 65 and older do not use the internet, compared with only three percent of 18- to 29-year-olds.

Over time, that implies non-use will be a status three percent or fewer people actually have. We can assume that free Wi-Fi will be plentiful enough that the cost of access will not be a real barrier. Nor will devices, as smartphone adoption will be nearly universal.

Rural Americans are about twice as likely as those who live in urban or suburban settings to “never” use the internet.

Racial and ethnic differences are also evident. One-in-five blacks and 18% of Hispanics do not use the internet, compared with 14% of whites and only 5% of English-speaking Asian-Americans – the racial or ethnic group least likely to be offline.

Despite some groups having persistently lower rates of internet adoption, the vast majority of Americans are online.

Over time, the offline population has been shrinking, and for some groups that change has been especially dramatic.

For example, 86 percent of adults 65 and older did not go online in 2000; today that figure has been cut in half.

And among those without a high school diploma, the share not using the internet dropped from 81 percent to 33 percent in the same time period. The other issue is whether mobile apps “count” as Internet use, since many population groups over-index for smartphone usage.

The point is that, over time, the percentage of people who do not use the Internet will naturally drop nearly to zero. Chasing the last increment of change, when change will come even if we do almost nothing, might not be the best use of resources and effort.