Words Matter

Words matter. YouTube says T-Mobile US is throttling its video. T-Mobile US has not directly responded, but T-Mobile US does process video, as part of its Binge On program, for bandwidth efficiency, in ways that can reduce image quality. The trade-off is that viewing Binge On video does not count against mobile data usage.

YouTube is not part of Binge On, so some think the issue is that T-Mobile US has not yet figured out a way to identify YouTube video content, one way or the other.

So is video encoding, for better bandwidth efficiency, at the risk of lower image quality, throttling or only processing?

Some might argue, oh by the way, that processing media types for better performance (lossless) is a good thing. Image degradation that is not asked for, or wanted, is not a good thing. But Binge On partners have agreed to have their video processed as part of the program.

Nor, some would argue, should content providers be prohibited from coding that actually boosts image quality or loading times. That is, after all, what they pay Akamai and others to provide.

Why IoT is Necessary

There is an easy way to illustrate why there is so much interest and effort in the mobile industry around “Internet of Things.” Simply, every other major product category is mature, or declining.

The next wave of products to drive revenue growth must be discovered or created, and IoT seems the best candidate for such growth.

Though we might not have always seen telecom products as having life cycles, that appears to be the case.

First fixed network voice, then messaging, then “talking” have experienced either declining usage, or declining revenue, or both. Now linear video entertainment also seems to be past its peak. The only two services that so far have defied decline are mobile service and Internet access, both of which continue to grow.

Mobile service revenues, which had been the growth driver for more than a decade, not have reached maturity in Europe, for example.

source: 451 Research

Will Reliance Jio Content Services be "Managed" or "Internet" Services? Why it Matters

As part of its effort to position itself as a “digital content” provider, not a mobile service provider, Reliance Jio has planned to emphasize video streaming and other content-related services.

To make that positioning work, Reliance Jio has planned to sell content that includes use of the bandwidth to consume it, on the model of cable TV services or the delivery of Amazon book content to mobile data-equipped readers without a separate mobile data charge.

In present beta tests with employees, Reliance Jio is giving “employees access to numerous applications for free,” including Jio Beats (a music app), Jio Drive (a cloud service to store digital content), and Jio Play (entertainment app) featuring movies, for example.

One wonders whether a storm of controversy (unwarranted, some will argue, as has been the case of opposition to Free Basics) will erupt over the practice of allowing “no extra charge” access to content.

Much could hinge on whether the content access is a managed service (such as over the air broadcasting or cable TV) or an Internet service.

Presumably, a managed service would not be subject to network neutrality rules. So it matters which course is taken.

There is a Private Interest Corresponding to Every Public Policy. Always.

With the caveat that there are some important and foundational elements embedded in ongoing debates about what network neutrality, should, and does mean, many of the arguments around programs such as Free Basics, or sponsored data or even any third-party-supported access and usage inherently are arguments about sources of perceived advantage in the Internet ecosystem.

That is unavoidable, as every public policy decision inherently has implications for commercial advantage, favoring some in the ecosystem to the perceived detriment of others in the ecosystem.

That is why at least some seem to object to Free Basics or any sponsored data programs. Whatever the stated public policy rationale, it often seems as though the sub rosa objective is to restrain some other major participant from making further gains.

We should not object to contenders fighting for their own interests. That’s life. But it sometimes seems as though the veiling of “interests” as “good public policy” is a problem only for the successful providers, not for those who wish to profit from their competition with those providers.

In fact, every protagonist in every debate about Internet policy stands to gain, or lose (at least that is the clear perception) from every particular policy decision.

Despite those vested private interests, public policy must still be made, as best we can. So implementation of good policy should not be prevented simply because some firm or industry segment happens to benefit. That will be the result, for better or worse, no matter which policies are adopted.

Private winners and losers cannot be avoided when any public policy is adopted. That simply is not the point. The point is creation of good public policy. Arguing, directly or indirectly, that a particular policy should not be adopted because X will benefit is simply wrong.

X, Y,Z and others might benefit from any particular bit of public policy. Get the policy right--on policy grounds--and be done with it. The entangled commercial interests simply are there. We cannot do policy without also favoring or damaging some private interest. But the private interests are not the reason we do policy.

LIke it or Not, Oligopoly Often is the Only Possible Market Structure

Once upon a time, fixed network telecommunications was thought to be a “natural monopoly,” akin to roads, bridges, sewer services, water and electrical services.

In many markets, that clearly is not true. There is at least some room for facilities-based competition, though the number of viable contestants will be limited.

So fixed and mobile telecommunications are best thought of as oligopolistic, where only a few leading suppliers actually can exist in a market.

There are key implications. It likely never will be possible for more than a few facilities-based competitors to survive in any market.

That naturally will lead to thinking about regulatory policies based on robust wholesale obligations. The downside: robust wholesale tends to depress both investment by the existing carrier, and market entry by new carriers.

So the issue is not monopoly versus widespread market entry, but between monopoly and the best-possible (sustainable) level of competition among a limited number of contestants. That always will be a judgment call.

But that also poses issues for telecom regulators. If the regulated markets will, under the best of circumstances, only support a few suppliers, where is the boundary between oligopoly conditions where there is not enough competition, and oligopoly under which there is reasonable competition?

“High market concentration levels in a given market may raise some concern that the market is not competitive,” the Federal Communications Commision says. “However, an analysis of other factors, such as prices, non-price rivalry, and entry conditions, may find that a market with high concentration levels is competitive.”

In other words, says the FCC, even high levels of concentration do not necessarily mean a market is uncompetitive. Such markets might, in fact, be substantially competitive, even when other measures say they are not competitive.

We might not like the situation, but in some industries--including telecommunications--oligopoly is the pattern. There always are smaller niches within the market, but typically the amount of activity is a small fraction of total market revenues.

The U.S. mobile market is no exception. The four U.S. nationwide mobile service providers accounted for approximately 98 percent of the nation’s mobile wireless service revenue in 2014, up from approximately 91 percent in 2012, and the service revenues of AT&T and Verizon Wireless together accounted for approximately 71 percent of total service revenue in 2014, according to the Federal Communications Commission.

Of the four nationwide facilities-based service providers, AT&T and Verizon Wireless continued to maintain the largest market shares throughout 2014.

Sprint stayed relatively flat, and T-Mobile had the largest quarterly increases in market share to end 2014, as measured by revenue.

The same pattern continued in the first half of 2015, with AT&T and Verizon Wireless continuing to account for approximately 71 percent of total service revenues.

While T-Mobile continues to narrow the gap against Sprint, as of mid-2015, Sprint remained the third largest service provider in the mobile wireless marketplace in terms of service revenues.

http://transition.fcc.gov/Daily_Releases/Daily_Business/2015/db1223/DA-15-1487A1.pdf

The practical issue, then, often becomes the actual number of sustainable providers in any market. In the mobile arena, that tends to be the difference between three and four.

Why Amazon Cares about Drone Delivery

There is a very simple reason why Amazon is interested in commercial drone delivery services. For parcels weighing less than five pounds, the thinking goes, Amazon could potentially cut delivery costs up to an order of magnitude, compared to using UPS Ground, or “only” about nine times less than same-day shipping, or five times less than U.S. Postal Service one-day shipping.

Such changes also illustrate channel conflict. By internalizing delivery cost, and using a new platform. Amazon slices its distribution costs dramatically. Of course, that means less business for one of its traditional delivery partners.

Channel conflict dangers never fully disappear, in any business.

source: Business Insider

How Much Advantage Does Quad Play Provide?

Just how much advantage--beyond the free cash flow--AT&T will derive from DirecTV remains unclear. In some large part, one’s optimism or pessimism is driven by one’s beliefs about the coming power of quadruple play offers.

Many are skeptical of consumer demand for bundles of fixed services and mobility, while others, including cable TV operators, believe quad plays will drive both customer acquisition and loyalty.

To be sure the actual benefit of triple play offers has been driven by consumer discounts for buying the bundle, and not necessarily some new service or app potential based on the buying of voice, video and Internet access.

The issue for AT&T might be the extent to which that also extends to the quad play, while mobile services are added to fixed network services.

Count Walter Piecyk of BTIG Research among those who remain skeptical about the benefits AT&T can wring out of DirecTV. The upside?

DirecTV has 15 million customers who don't use AT&T for mobile services and three million DirecTV customers who have access to U-verse but use another Internet service provider. If AT&T can convert a significant percentage of those customers into AT&T mobile or fixed network Internet access customers, there is upside beyond the ability to take advantage of DirecTV’s free cash flow to support AT&T’s dividend.

The downside? Consumer willingness to switch mobile or fixed ISP accounts for relatively modest bundle discounts might be limited, especially when the level of promotions for mobile switchers is presently so high, and churn levels for AT&T and Verizon so low.                                                                                                                             

The analysis all comes down to the expected value of bundling now possible.

AT&T has argued the DirecTV buy would help reduce churn, overall. But Piecyk expects AT&T postpaid account losses to widen from 1.4 million in 2015 to 1.6 million 2016 and further to 1.7 million in 2017, in large part on account of fierce promotional activity by T-Mobile US.

On the other hand, many would argue that DirecTV will be a useful asset as AT&T launches a streaming TV service of its own, soon.

It is fair to say the divergence of opinion is largely centered in the legacy telco part of the market, not the cable TV segment. Where some believe telcos will not get many benefits from quad play, most believe cable TV operators will win.

For some of us, that implies the quad play does have strategic value, even if, as always, the attackers in the market benefit disproportionately.

Incumbents arguably do benefit from enhanced retention (lower churn) and, in AT&T’s case, some incremental ability to cross sell.

The former will be hard to quantify; the latter easier to demonstrate. One way or the other, we shall know, in a rather few years, whether the upselling reality matched the potential.