"Level Playing Field" Impossible, or Only a Matter of Policy?

One of the least-controversial statements one can make about competition in any market is that a “level playing field” where all contestants are treated alike is a good policy. The problem always comes in the detail. In most markets, contestants are not literally treated the same.

In markets where wholesale access is the main way competition is enabled, the underlying facilities provider is treated quite differently than everyone else.

In markets where mandatory wholesale, provided by one provider, is not the only form of competition, incumbents are governed by rules that do not apply to any other contestants.

That typically is the case for former telecom incumbents, which almost universally face obligations no other contestant faces. In a few markets (North America and Singapore perhaps illustrative in that sense), there are multiple facilities-based providers. Even there, the playing field is not level.

There tends to be a former incumbent operation operating with wholesale obligations, and then one or more facilities-based competitors who do not have any mandatory wholesale obligations.

And that raises regulatory issues. At what point, if ever, does the playing field really need to be harmonized? When can all contestants--at least facilities-based contestants--play by the same rules?

Presumably there still will be differences, even if all facilities-based providers were to be governed by precisely the same rules. Wholesale operations presumably would not have the obligations the facilities firms face.

It is a difficult issue. In Singapore, facilities-based competition almost makes robust wholesale unnecessary. U.S. regulators, while maintaining most incumbent obligations, opted for an approach that creates incentives for facilities-based competition nearly two decades ago.

But anyway one looks at the matter, treating everyone the same is not the practice, anywhere.

Project Loon Faces Interference in India, for the Moment

Who gets to use spectrum, and concerns about interference from other users, now appears to be an issue for Google’s Project Loon in India.

Project Loon proposes the use of the 700 MHz to 900 MHz spectrum for its downlinks and uplinks, but those frequencies are allocated for mobile phone service.

A concern about potential surveillance is a concern of the Defense ministry.

But the chief obstacle is the objection by the Department of Telecommunications, which notes signal interference could be an issue.

This is not the sort of issue Project Loon would have missed anticipating, especially since Project Loon presently views itself as a backhaul technology working with retail mobile service providers.

In Indonesia, for example, the big mobile companies are partnering with Project Loon for a test of the service, and that is not something they would have done if it was believed there is no way to avoid interference.

In2016, the top three mobile network operators in Indonesia--Indosat, Telkomsel, and XL Axiata--will test Project Loon-- balloons to deliver Long Term Evolution 4G signals across the country.

Sri Lanka might be going further, and reportedly is planning on relying on Project Loon to cover the island for Internet access, starting as early as March 2016. There would seem to be some significant issues to be settled, if that timetable is to be kept.

Unless something new has been developed, Project Loon would beam signals to stationary antennas, much as a fixed wireless network would do. There would be no way to deliver signals directly to a mobile phone using LTE, for example.

So though mobile operators would be logical partners, they are not the only logical partners. Fixed network telcos might arguably be better positioned to serve as on-the-ground sales, installation and support partners.

There also has been confusion about whether the service was to be supplied “for free, or for fee.” Both could be correct conclusions, though it seems likely any “free” services would be limited, both in terms of usage or speed. Think of a program similar to Wi-Fi at public institutions.

It is possible, perhaps likely, that some amount of basic service could be made available “for free.” But it seems highly unlikely that most of the service can be provided that way. Nor would most offers of that sort provide unlimited access or large buckets of usage.

But it seems most likely that most of the service will be supplied at some commercial rate.

New Bundlers Will Arise as OTT Streaming Grows

One reason it is easy to predict that new “bundles” will arise in the over the top video streaming business is that people will want convenience, when there are hundreds of branded services and countless individual programs and TV series to choose from.

Nobody will want to spend too much time trying to figure out how to find desired content from hundreds of individual sites. Just as obviously, nobody is going to want to spend too much money buying a la carte, though people will enjoy being able to do so.

That virtually assures a role for aggregators and distributors able to provide a convenient way to buy content.

Amazon’s Streaming Partners Program, an over-the-top streaming subscription program for video providers, makes many services available to Prime members.

Initial launch partners include: SHOWTIME, STARZ, A+E Network (Lifetime Movie Club), AMC (Shudder and SundanceNow Doc Club), Gaia, RLJ Entertainment (Acorn TV, Urban Movie Channel, Acacia TV), DramaFever (DramaFever Instant), Tribeca Shortlist, Cinedigm (Dove Channel, Docurama, CONtv), Smithsonian (Smithsonian Earth), IndieFlix (IndieFlix Shorts), Curiosity Stream, Qello Concerts, FlixFling (Cinefest, Nature Vision, Warriors and Gangsters, Dox, Monsters and Nightmares), BroadbandTV (Hooplakidz Plus), DEFY Media (ScreenJunkies Plus), Gravitas (Film Forum, Daring Docs, Fear Factory), and Ring TV Boxing.

To some observes, the Streaming Partners Program looks like an early way of recreating the “many choices” value that linear video once represented, with the addition of “buy only what you want” features.

“With the Streaming Partners Program, we’re making it easy for video providers to reach highly engaged Prime members, many of whom are already frequent streamers, and we’re making it easier for viewers to watch their favorite shows and channels,” said Michael Paull, Vice President of Digital Video at Amazon.

Consumers Seem to Want "Real" OTT Video, Not Half Measures

Half measures do not work, one might conclude from an Adobe report on consumer use of “TV Everywhere” services that allow cable TV subscribers to stream some content to their own devices, within their own homes.

The study finds slow growth of TV Everywhere, while mobile video grows rapidly. Where smartphone video viewing grew 33 percent, year over year, TV Everywhere viewing grew just one percent, year over year.

TV Everywhere essentially is an effort to add some “streaming-style” access to a linear service. It hasn’t worked very well, one might argue, because it does not add enough value. Mobile video viewing, on the other hand, is going bonkers.

There is a good reason why Verizon, AT&T and other tier-one mobile service providers believe mobile video is an attractive opportunity.

Mobile video views have increased 616 percent since the third quarter of  2012, and now make up 45 percent of all video views globally and more than half of all views in some regions, Ooyala reports.

For content less than 10 minutes in length, mobile gets 69 percent of views.

Despite mobile growth, consumers still trend toward larger screens for longer-form content.

For content longer than 30 minutes, connected TV share of time watched was 61 percent, almost doubling since the first quarter of 2015.

Over the past nine months, for video over 10 minutes long, the share of time watched on connected TVs (CTV) has increased from 43 percent to 71 percent.

In the third quarter of 2015,  mobile video share was up 50 percent, year over year.

Smartphone views made up 88 percent of mobile video views during the quarter, compared to just 12 percent for tablets, according to Ooyala.

Verizon Testing Sponsored Data

Verizon says it will begin a test of “sponsored data,” potentially allowing advertiser-supported app usage. T-Mobile US already offers its “Binge On” carrier-sponsored app usage, where use of streaming services do not count against subscriber data usage buckets.

At least so far, the U.S. Federal Communications Commission has said it sees no immediate and obvious problem when ISPs offer such "no incremental charge" features, but is monitoring the developments.

The issue is complicated, as there are many areas where understanding of what network neutrality means bumps up against standard business practices. Consider any program where subscribers can use some apps without those charges counting against data plan usage.

"Binge On" essentially has the ISP underwriting usage, while other programs aim to have advertisers or sponsors underwriting usage.

The business model in the former case is subscriber additions and reduced churn, while the business model in the latter case is advertising revenue.

Considered by some a violation of network neutrality rules, sponsored data in fact is no different than toll-free calling or ad-supported broadcast TV or radio, others would argue.

“We’ll be out in a larger commercial way in the first quarter of 2016,” Verizon Executive VP Marni Walden said.

Such programs also are similar, in concept, to giving consumers something of tangible value in exchange for taking some action a sponsor or advertiser values. Signing up for a trial offer, viewing offers or answering survey questions provide examples.

Again, some would argue such transactions violate notions of “treating all bits equally.” Others would argue only business models and value exchange models are involved.

There are many nuances here, it is fair to say. If no money exchanges hands--if carriers do not pay sponsors, and sponsors do not pay carriers--but consumers get access, services and apps “for free,” is that a violation of network neutrality, or only a business policy?

If users get something of value in exchange for taking actions (participating in surveys, entering contests, watching ads), is that a real problem, in terms of consumer protection?

If users get something of value because an advertiser or sponsor is willing to pay for the charges on behalf of the user, is that necessarily a problem?

If a service provider is willing to effectively cut its own prices, is that necessarily a problem? If an Internet service provider is willing to run a promotion allowing limited-time access, to encourage sampling of a service, is that intrinsically an issue?

Irrespective of the policy issues and judgments, much of the controversy about any understanding of network neutrality is about perceptions of business advantage, on the part of contestants, policymakers and policy advocates.

As with so many other issues in the Internet ecosystem, every practice and policy is perceived to help or harm one or another participants in the value chain, even when end users and people benefit.

CenturyLink Pondering OTT Video Service of Its Own: What are the Implications?

With the news that CenturyLink “is looking at offering an over the top video service, while AT&T has hinted it is certain to do so, we now have additional evidence not only of a fundamental shift in the video entertainment business model, but also an interesting twist on operating costs, with some possible implications for longer-term strategy as well.

To be sure, the main reason CenturyLink, AT&T and Verizon offer, or want to offer, streaming video is that the market is shifting in that direction. To remain relevant “triple play” providers, they need an OTT streaming option.

At a tactical level, there also are possibly-significant operating cost advantages, some incrementally helpful capital investment implications and at least a potential new opportunity to escape geographic limitations.

Consider the tactical considerations, which are important. Operationally, installing linear video now requires a truck roll that represents about 42 percent of the total cost of an install for a cable TV operator, for example.

Delivering an OTT video service does not. To the extent a truck roll costs  no less than $150 to $200, and could range much higher, the ability to turn up a service without a truck roll saves the provider money. Costs for cable TV providers are likely to range closer to $150, while telcos likely routinely spend closer to $200 for each install.

That is the cost of the truck roll for physical activation, not the cost of other hardware.  To turn up a video service requires one or more decoders, representing capital investment of perhaps $700 or more for set-top decoders. The investment varies with the number of decoders required at each location.

So, for starters, an OTT “install” can be done without a truck roll, and without the cost of a decoder, since the consumer likely uses their already-purchased Internet access modem and Wi-Fi (integrated into the modem, increasingly).

So OTT saves a great deal of money in the form of truck rolls, ancillary hardware and decoder costs, assuming the customer already has purchased fix network Internet access from any Internet service provider.

"As others are doing, we're also looking at an over the top product that we could deliver either some of or all the content we have today," said Stewart Ewing, CenturyLink CFO. "This is a product that we'll trial in 2016 that we believe we can get to the customer without a truck roll so it could help us decrease the cost of delivering the video to the customer."

CenturyLink logically would seek to use OTT video to reduce its capital and operating costs across the areas where it already operates fixed networks, and where, at a minimum, 10 Mbps downstream speeds routinely are available.

So far, only Verizon has intentionally structured an OTT service designed to work on “any mobile network.” But that is the final strategic angle.

Assuming advantage can be gotten, can a geographically-bound former telco create market-leading over the top services in other areas? Over the past decade, many tier-one fixed network telcos have pondered the value of providing OTT voice or messaging services, with relatively limited success.

More recently, mobile service providers have begun adding voice over Wi-Fi features that essentially make voice an OTT app.

The broader strategic issue is how much further OTT can grow, as a business strategy, for access providers and ISPs, and where the opportunities are greatest.

Verizon’s go90 can be viewed by any mobile phone with data access. Telefonica’s Tu Me was designed to be used globally, but was shut down, as the business model did not work.

The Internet access function, as it turns out, remains the sole area where a facilities-based approach (retail or wholesale) is required, and mandatory. All other “apps” are designed to run independently of the underlying physical layer, though they might be bundled with the physical layer access.

Still, any OTT service able to gain traction might not necessarily have to be limited to use “on my network only.” In fact, that would be non-sensical for any other app provider.

Service providers (retail fixed or mobile) have not yet seen major success operating over the top, out of region, with the exception of the MVNO business, perhaps.

So far, the pattern has been to expand by buying facilities outside of the historic core region.

Whether that “always” is the pattern is the larger question.

Smaller Cells or Additional Spectrum: Which Matters Most?

For decades, most mobile service providers have created new capacity more efficiently (at least cost) from adding spectrum than from changes in network architecture (smaller cells).

“For years spectrum was a much more efficient way to get capacity because of the price of it,” said Shammo. But “AWS-3 flipped that equation over.”

In other words, spectrum might now be getting so pricey that network architecture changes are more affordable ways of adding capacity.

“You need both (additional spectrum and network densification) but spending $10.4 billion and getting the top 48 markets out of the 50 with AWS-3, I walked away from New York and Chicago because of the price,” said Shammo. “ I'm building that through densification at almost 20 percent less cost than I would have in the spectrum.”

The majority of Verizon mobile capital investment now goes to “densification” of the network, mostly small cells in-building and distributed antenna systems. In other words, Verizon’s strategic need is for capacity, not coverage.

“This year alone we are seeing 50 percent to 75 percent increases in data usage on our network,” said Fran Shammo, Verizon CFO.

And lower prices for small cell infrastructure is helping Verizon maintain profit margin despite lower average revenue per device.

At least for the moment, Verizon continues to say it can add capacity more efficiently using small cells and densification, rather than adding 600-MHz spectrum.

Shammo claims Verizon now uses only about 40 percent of its LTE spectrum, carrying more than 87 percent of total data traffic.

So Shammo argues Verizon already has an additional 60 percent of spectrum-based capacity in reserve.

Some will see validation of the general rule that most of the capacity gains made in the mobile industry come from applying new network architectures, not deployment of new spectrum.

Others will see something different, namely a historic change in methods for bandwidth expansion. Where additional licensed spectrum historically has been key, use of small cell architectures (densification) might be more important--and more affordable than buying new spectrum--in the future.

Nor does Verizon necessarily agree that the number of leading providers in the mobile business will remain at four, over the long term. But the direction of change is the startling claim.

“Look, I think if we sat here and said it is only going to be the four carriers in the wireless industry I think that would be pretty stupid on our part,” said Shammo. “I think that if you look at the wireless world and you believe that the world is going to move to wireless, all wireless with no wires, eventually the pie is going to get much bigger for the industry.”

“And people are trying to figure out how they get a piece of that pie,” Shammo said.