In Video Era, Mobile Zero Rating is Essential

Some people do not like zero rating, the policy of allowing consumers to watch video without incurring any usage charges on their data plans.

As with many other issues in life, this a matter of competing values, philosophies, benefits and policies.

Allowing consumers to watch entertainment video on their devices is a “good thing,” as it avoids the huge data charges those consumers might otherwise incur.

On the other hand, some argue, such policies do not “treat all apps or bits the same.”

T-Mobile’s Binge On, Verizon’s zero rating of go90 or Walmart’s Data Saver are examples of such practices.

Policy, in this case, is bumping up against business economics, specifically, the bandwidth intensiveness of video. Put simply, if people are to be able to consumer entertainment video the way they want, at prices they can afford to pay, then zero rating, or at least “very low costs,” are essential.

If policymakers really want robust competition between platforms, industries, networks and competitors, they must recognize the video is quite different, in terms of network load, supplier cost and end user willingness to pay.

It is easy enough to explain why video entertainment consumption poses a huge--some would say nearly fatal--challenge to mobile operators: there if a fundamental mismatch between revenue and bandwidth required to deliver narrowband services (voice, messaging) and that required to support full-motion video.

Simply, revenue per bit for messaging and voice can be as much as two or more orders of magnitude higher than for full-motion video or Internet apps.

The revenue per bit problem is easy to describe, for fixed, mobile or untethered networks.

Assume a fixed network ISP sells a triple-play package for a $130 a month retail price, where each component--voice, Internet access and entertainment video--is priced equally (an implied price of $43 for each component).

How much bandwidth is required to earn those $43 revenue components? Almost too little to measure in the case of voice; gigabytes for Internet content consumption and possibly scores of gigabytes for video.

By some estimates, where voice might earn 35 cents per megabyte, revenue per Internet app might generate a few cents per megabyte. At one level, a network engineer might argue that such fine distinctions do not matter. The network has to be sized to handle the expected load.

Business strategists do not have that luxury. Entertainment video simply generates too little revenue per bit to support gigabit networks, especially in all wireless domains.

McKinsey analysts have argued in the past that a 3G network costs about one U.S. cent per megabyte. The problem, in many developing markets, is that revenue could drop to as little as 0.2 cents to 0.4 cents per megabyte, for any mobile Internet usage, before we even load on extensive video consumption.

That implies a strategic need to reduce mobile Internet costs to as little as 0.1 cent per megabyte, or an order of magnitude. Tellabs similarly has warned about revenues per bit dipping below cost per megabyte, leading to an "end of profit" for the mobile business.

Of course, all of that analysis occurred under conditions where it was web browsing that largely represented Internet bandwidth demand.

Streaming video is another order of magnitude or two orders of magnitude sort of problem, though, in part because it is so hugely bandwidth intensive and because it will represent as much as 70 percent of all Internet bandwidth consumption, in a few short years.

Consider the wide variance in revenue per bit represented by a few different potential mobile Internet use cases.

One use case is a $20 a month smartphone data plan and 2GB of usage, representing retail revenue of $10 per gigabyte.

A Netflix subscription generates no direct revenue for a mobile operator but could represent network consumption of between a few gigabytes and  30GB of traffic, if usage approaches fixed network levels. Revenue arguably is zero dollars per gigabyte.

A work environment might represent $100 a month revenue and consumption of between 10 GB and 50 GB. So revenue might range between $2 to $10 per gigabyte.

And that’s the problem with video: much of it does not actually represent revenue for the ISP. But even if it does, what is the revenue and cost per gigabyte?

Even if one assumes consumption of just one hour of standard definition video, and that product is owned by the ISP, revenue might be $1 to $2 per gigabyte. But most video content is not owned by the ISP. It simply has to be delivered, at prices the consumer will pay.

Some would argue the cost per gigabyte for a mobile ISP is higher than $1 to $2 per gigabyte.

And it is almost nonsensical to think that as video moves from linear to on-demand and streaming, mobile consumers are going to pay for bandwidth representing multiple gigabytes per day, per device, at $5 to $10 a gigabyte.

If today’s linear video consumption were instead viewed on mobile devices, consumers might really expec to pay $200 to $400 a month--or more--in mobile Internet access charges, to say nothing of the actual retail price of the content service.

That is unworkable, and explains why zero rating, or very low cost rating, will be necessary.

Marketers might argue that revenue per account is what matters, for a multi-product business.

That is true, up to a point. An ISP might fare okay if providing a mix of products with disparate revenue per bit values.

The revenue earned from text messaging is almost arbitrarily high, as SMS is a byproduct of using the signaling network. Voice revenue might be moderately high, if users can be coaxed or compelled into paying for access to the feature, rather than for usage.

Ericsson hs calculated the cost per bit for a mobile network at about one Euro per gigabyte. So total revenue per bit has to exceed that cost.

Heavy video consumption--especially of third party content-- is likely to exceed cost per bit under almost any scenario, unless zero rating, or very low cost rating, is allowed.

Google Fiber to Introduce First-Ever 100 Mbps Tier of Service in Atlanta

As would any competent Internet service provider, Google Fiber takes note of what has worked in the past, and the local characteristics of each new market. In Atlanta, for example, Google Fiber will make two changes to the packaging and pricing plans it originally offered in Kansas City and other markets.

In Atlanta, it does not appear there is a “free” 5 Mbps offer (after the customer paid a $300 connection fee). In Atlanta, there will be a new 100-Mbps tier of service, sold for $50 a month.

The $130 video plus gigabit access, as well as the $70 a month gigabit Internet access plans will be available as well.

The new $50 plan will likely be quite important, for several reasons. For starters, many users will understand that 100 Mbps suits all their requirements, even if a gigabit is deemed “better.” But “better” also costs more.

As other ISPs have found, consumers often do not buy the most-expensive tier of services, instead choosing other moderate-speed options that satisfy their requirements. That might be 20 Mbps for some, 40 Mbps for many, or 100 Mbps for lots of people.

Up to this point, Google Fiber has not been able to gauge the extent of demand for speeds far lower than a gigabit, but in triple digits. Atlanta will be its first chance to find out how important that tier is, in terms of customer demand.

Significantly, the $40 tier, offering 100 Mbps, is going to compare favorably, one might argue, with Comcast and AT&T offers in the Atlanta market.

Comcast sells a 2-Gbps symmetrical service for $300 a month. Comcast also sells service of 150 megabits for $130 a month and 250 megabits for $150 a month.

AT&T sells (on an initial promotional basis), U-verse 1 Gbps starting as low as $120 a month, or speeds at 100 Mbps as low as $90 a month, at least for the first year.

Since potential buyers typically will compare local offers, Google Fiber’s new $50 for 100 Mbps offer might appeal to many consumers who see Comcast and AT&T selling that level of service for triple digits.

Games Represent 85% of Mobile App Revenue

Games generated approximately 85 percent of app market revenue in 2015, representing a total of $34.8 billion across the globe, says App Annie. “We expect the games category to grow to $41.5 billion in 2016 and $74.6 billion in 2020 thanks to strong monetization in mature markets, especially China's tier-one and tier-two cities, as well as Japan and South Korea,” App Annie says.

Revenue from other apps is expected to grow even faster, from $6.3 billion in 2015 to $9.4 billion in 2016 to $26.4 billion in 2020, principally on the strength of subscription-based revenue models.

Music streaming, video streaming and dating apps have become major revenue drivers in these markets, says App Annie.

Source: App Annie

When You Have Only a Hammer, Every Problem is a Nail

As the adage suggests, “when all you have is a hammer, every problem looks like a nail.” That is true for our understanding of network neutrality as well.

These days, many policies and practices that have little to do with consumer access to all lawful apps, or little to do with app blocking, acceleration or delays, are swept into the network neutrality orbit, unnecessarily, or perhaps even unlawfully.

Generally speaking, net neutrality does not apply, and many would argue, should not apply, to managed services, any more than applying common carrier rules to retailing, publishing, music creation, films, TV shows, radio, banking, finance, transportation, agriculture or many other spheres of human life.

Nor does network neutrality address what a “lawful app” happens to be, in any particular country. All problems are not nails; we have other tools than hammers.

And there are huge grey areas where it comes to content or app curation. App stores are not generally required to host “every app” that wishes to be carried in every app store.

Retailers are allowed to select the products they want to sell, the prices they want to sell those products for, and the range of promotions to move the merchandise.

Newspapers, magazines, TV station or radio stations, streaming content services and virtual private networks of any sort are allowed to select their own content. They are inherently curated.

No online shopping network, music service, content site, payment or banking app, for business or consumers, is a common carrier, even if accessed over the “Internet.”

It bears repeating that not every service using IP is an “Internet” app.

Carrier voice, entertainment video, information services, security services and so forth generally are managed services using IP, not not “Internet” access.

In other words, not every human activity involves an Internet access “problem.” Network neutrality was intended only to protect consumer access to lawful apps. It does not apply to business apps, enterprise apps or managed services, which exist in parallel with over the top “Internet” apps.

And, these days, since nearly any type of service, content or function can be delivered or facilitated using Internet Protocol--if not the “Internet”--we need to keep in mind those key distinctions.

All problems are not “nails.”

Telekom Austria Reports First Profit in 5 Years

Telekom Austria reported its first full-year profit in about five years in 2015, on revenues up only about 0.2 percent.

Operational improvements, and better performance especially in its home Austrian market, drove the change. Results in its other markets either were negative or flat.

Telekom Austria’s experience illustrates industry challenges: growth has gotten very difficult, meaning incremental gains in operating efficiency are crucial for growing earnings. Average revenue per account remains under pressure, for competitive reasons.

Organic subscriber additions likewise were flat, with account growth largely coming from acquisitions. That move “outside the core region” remains a principal method for service providers to keep adding accounts and gross revenue.

Sooner or later, the tactic stops working so well, as capital to fuel acquisitions becomes unavailable or as acquisition targets become scarce.

Strategically, uncovering or creating big new sources of revenue remains imperative.

source: Telekom Austria

source: Telekom Austria

Comcast Will Rearrange U.S. Mobile Market

Most people underestimate the impact Comcast is going to have in the U.S. mobile market, either underestimating Comcast’s resolve or the likely impact on installed base and market share.

One only has to look at what Comcast already has done to glimpse the impact. Comcast is the absolute leader, among all Internet service providers, in the U.S. high speed access market, and has grown its retail bandwidth capabilities faster than all other competitors, since about 2002.

Since at least 2008, Comcast has been the leading supplier of high speed access services in the U.S. market. Perhaps more important is that Comcast’s market share was growing at more than three times Verizon’s share and six times AT&T’s rate in 2014.

The voice services is a bit more complicated, in large part because the fixed network voice market has declined so much, with users shifting to mobile for calling.

In fact, Comcast believes, by about 2023, nearly 60 percent of U.S. households will not buy fixed network voice service at all. That is one reason why Comcast believes it must enter the mobile market.

Between 2000 and 2011, for example, U.S. mobile share of voice connections doubled, while telco fixed network share dropped 300 percent. Fixed network voice share obtained by all others--primarily cable TV companies--more than doubled.

Still, in 2013, cable TV operators had 37 percent of the fixed network voice customers .

The point is that Comcast--and cable TV operators generally-- have demonstrated an ability to take serious market share, and become serious providers, in virtually all the new markets they have entered. In addition to consumer high speed access and voice, that success extends to business services.

So it does not take special insight to predict that Comcast will become a major factor in the U.S. mobile market. Just how big Comcast will become is the only issue.

If one assumes AT&T and Verizon have between 33 percent and 35 percent share, each, of the U.S. mobile, it does not take much imagination to suggest that Comcast will get 30 percent installed base, taking share from the other four leading contestants.

It might be quite reasonable to assume that perhaps half of that share will come from a Comcast acquisition of at least some assets of Sprint or T-Mobile US.

source: Comcast

source: Investors.com

source: Leslie Marx  

source: Comcast

source: Comcast

20 Years After the Telecom Act of 1996

Though it hardly seems possible, two decades ago on Feb. 8, 1996, the Telecommunications Act of 1996 was signed into law. Though the Act largely focused on methods believed to improve competition for voice services, there were a few clauses that were relevant for develop of Internet apps.

Section 230 made clear that app providers are not legally responsible for content and speech of their users, which arguably helped make Facebook, Twitter and other apps built on user-generated content possible.

Without section 230, such platforms would have been held liable for the speech of their users.

In an effort to stimulate competition for “local access services” for the first time, the Act did legalize telco entry into the entertainment video business. In 1984, Congress had prohibited telcos from providing video service.

Congress also outlawed the issuance of exclusive video franchises. The Act also removed price regulation of video services, in place since 1992.

To stimulate investment, the Act directed the Federal Communications Commission to institute a new unbundling (wholesale) access program with very-large mandated discounts for wholesale customers.

Unfortunately, some would argue, the Act did not clarify whether such wholesale obligations would apply to new fiber to home networks telcos wanted to build. Not until 2003 was the matter resolved, allowing telcos to build fiber to home facilities without mandatory unbundling obligations.

Also, some would say, the Act did not harmonize regulations applying to contestants from different regulatory silos. The Act maintained the legacy framework whereby broadcasting (Title III), telephone (Title II) and cable (Title VI) services were regulated differentially.

Title I continued to apply to data services, which were essentially unregulated.

Tech Freedom, which argues the Act has to be updated, especially to encourage more facilities-based competition. Tech Freedom  has produced an informative podcast on this subject.