AT&T to Launch 3 Streaming Services

Later in 2016,  AT&T will launch three different streaming services that will work “over the top,” on any fixed or mobile connection and any Internet-capable device.

“DirecTV Mobile” will be aimed at smartphones and is characterized by AT&T as "affordable," though pricing has not been announced.

The service will feature premium video and made-for-digital content directly on a smartphone, regardless of the wireless provider.

“DirecTV Now” likely will be the most like the current DirecTV service, offering a range of content packages, including much of what is available from DirecTV.

That includes on-demand and live programming from many networks, plus premium add-on options and is the closest proxy for the current linear DirecTV service delivered by satellite.

“DIRECTV Preview” will feature some of the quality programming available on DirecTV. The ad-supported service will showcase content from AT&T’s “Audience Network,” as well as other networks and content sources, and millennial-focused video from Otter Media, a joint venture of AT&T and The Chernin Group.

Some will position that as an offer akin to Verizon’s Go90 service.

There will be a lot of TV shows, but not necessarily everything will be available as soon as it goes live. While this service is "mobile-first," AT&T confirms you'll be able to access it from any streaming device.

Among the broader implications is the “OTT” approach, which allows AT&T to sell to all domestic users, not just its own customers. That is a key development, as, up to this point, AT&T has largely been restricted to selling services to customers reached by its “owned” access networks (enterprise and global services being the salient exception).

Service Providers are Getting Less Share of Ecosystem Revenue Growth

Figuring out “where” the communications business is going requires knowing “how” the ecosystem is changing. Since the rise of the Internet, the ecosystem has added new participants.

And, as you might well guess, adding more “mouths to feed” in any ecosystem can mean that revenue, not simply “value,” shifts to those new participants.

Though there are other reasons for changes in business models (new competition, technology, regulations), a shift of value and revenue within the new ecosystem explains, in part, why revenue is shifting away from traditional telecom providers.

In 2015, for example, consultants at EY argued that traditional service providers earn about 55 percent of revenues within the broader communications ecosystem. Infrastructure and platform providers earn about five percent, while device suppliers earn about 20 percent.

source: EY

Retail and distribution represents about 10 percent of ecosystem revenues. The other new wrinkle is that over the top content, app and service providers earn about 10 percent of ecosystem revenue.

Not all those shares are “new.” Infrastructure providers always have earned some part of the total ecosystem revenue. Service providers and others have sold customer premises equipment. But the 20 percent share, largely accounted for by the value of smartphones and mobile handsets, arguably is higher than ever.

The spread of revenue within the ecosystem matters, in one sense. Consumers and households have only so much money to spend on all “non-essential” purchases. Whether communications represents one percent or five percent of disposable income, that spending is not completely flexible.

So while consumer communications spending is not completely fixed, nor is it highly expandable. To the extent that a relatively fixed amount of communications spending is spread among more participants, the share earned by legacy providers is reduced.

Add that to the list of reasons why “communications industry” revenues are under pressure, and likely to continue to be under pressure, in more markets.

By 2020, service providers will earn less than 50 percent of ecosystem revenue, where they earned 59 percent in 2013.

Google Reshaping ISP Business Model

Fewer observers these days believe “what Google wants” from Google Fiber is solely to put pressure on the largest U.S. Internet service providers to upgrade networks faster. That has benefits for Google (Alphabet), but might be only one of several potential benefits.

Quite simply, every incremental user, every incremental increase in access speed and every incremental increase in coverage increases ad inventory and ad impressions, which underpin the core Google revenue model.

Beyond that, every move that "commoditizes" other ecosystem costs likewise raises end user value.

Some think the growing range of deployment models (build and own; leased access; buildings) is part of a deliberate exploration of access economics that might lead to a fuller commitment to an ISP role within the ecosystem.

Certainly, other developments at Google suggest that role is inevitable. That is why Google is testing millimeter wave access for 5G, is testing unmanned aerial vehicles, plans to launch a fleet of balloons to support Internet access, has launched municipal Wi-Fi networks, supplies mobile service, supplies the mobile operating systems with the largest global installed base, builds at least some smartphones and has purchased mobile spectrum.

The full pattern of behavior suggests that, at the very least, Google will act as an ISP if it determines it must do so.

Beyond that, some might argue Google also is engaged in an extensive campaign to reshape regulations that directly affect the cost of the ISP business. To the extent Google Fiber succeeds, all ISPs potentially benefit.

source: Vision Mobile

source: Vision Mobile  

Google also has a vested interest in reshaping public policy in ways that benefit application providers (network neutrality perhaps being the best example).

That might be value enough to justify all the access provider initiatives. Whether there might be other value--beyond reshaping the ISP business model--is the question.

Practices such as ad blocking, for example, directly affect Google’s biggest business model, as traffic shaping might have done. By acting both in the policy and access provider domains, Google works to ensure a favorable climate.

The range of domains across which Google has to act arguably are growing, as well. Tax policy and antitrust are other fronts upon which Google is fighting against efforts that could reshape its own business model.

2015 Inflection Point in U.S. Fixed Network Business?

It looks as though 2015 could have been an inflection point, where it comes to installed base and market share in the U.S. fixed network high speed Internet access business. Cable TV operators have had the largest market share, and have been steadily taking market share, since at least 2008 or so.

A logical question is “why” the shift is happening, and the logical answers are several. Cable TV has simply been able to upgrade its speeds faster than telcos have been able to do, in large part because the DOCSIS platform largely allows upgrades without full rebuild of the access network, where telcos generally have to rebuild plant (fiber deeper into neighborhoods or all the way to the customer premises) to match cable TV speeds.

The corollary question might be “why” most telcos have not invested more heavily into next generation access infrastructure.

That is a more complicated question. In some cases, requisite capital is not obtainable. In most cases, the business model is questionable or at least difficult.

One might well argue that the telco fixed network business is post-peak and declining. Voice take rates are close to 50 percent, meaning that telcos have lost nearly half their former voice customers.

Linear TV has helped, but now net linear video customer account additions are dropping. And telcos have been losing the high speed access market share battle as well.

Some might argue a rational executive would harvest returns in the fixed network segment to the greatest  extent possible, and simply invest elsewhere for revenue growth.

That is not to say the business cannot be sustainable, only that it is not sustainable in the current circumstances, with high fixed costs and declining revenue.

In fact, some would argue, cable TV companies are on a growth path that makes them the dominant “communication” providers in the fixed network segment. Whether telcos or newer providers are the number-two providers in at least some markets is a growing question.

source: BTIG

10 Gbps in Singapore

Singapore's M1 has joined SingTel in offering 10 Gbps residential high speed access service, illustrating the difference in “developed” and “developing” Asia, where it comes to high speed access.

M1 is offering the service for S$189 (US$124) per month on a 24-month contract. Residential service at 1 Gbps costs $39 (US$26).

SingTel launched 10 Gbps residential Internet access Internet access  services earlier in February 2016, at the same price now offered by M1.

China is expected to introduce 10 Gbps service in 2018.

source: We Are Social

Revenue-Per-Megabyte "Always" Drops; Sometimes Faster than Others

No market ever grows to the sky, financial analysts sometimes quip, while maturing markets often see competitive pressures that lead to price cuts and thinner profit margins.

The reason is simple enough: in a mature market, new accounts generally must be taken from other existing providers. These days, saturation and new competition can come rather suddenly.

As important as mobile services have been over the past couple of decades as the single most-important driver of service provider revenue growth, big changes are happening. Globally, subscriber growth has flattened.

In many markets, the immediate revenue growth opportunity is incremental data services revenue. Beyond that, similar big new sources remain to be discovered, which is why there is so much attention paid to the Internet of Things.

If sales to humans are saturated, then the next big wave of growth might well come from sales to enterprises who require huge sensor and control networks, or sell retail mass market products using such sensor capability.

source: Cisco

Of course, new competition--in addition to the underlying price-per-megabyte price drops that are characteristic of chip-based products--can disrupt even data markets that are relatively early in their growth cycles.

Reliance Jio's launch of 4G services in 2016 could disrupt data pricing in the Indian mobile service provider market, causing revenue-per-megabyte to tumble 30 percent to 40 percent this year, according to the India Ratings and Research (Ind-Ra).

To be sure, lower revenue-per-megabyte is a fundamental trend in the transport and access business, so a decline is not unexpected. Only the magnitude is unusual, for a one-year period.

At the same time, given expected lower prices, data services average revenue per user also will decline, although the number of accounts should increase, while data consumption also climbs, over time.

Revenue per megabyte declined by 4.5 percent to 5.5 percent, sequentially, in the third quarter, for Bharti Airtel and Idea Cellular.

Ind-Ra believes expects a further softening of data tariffs in the current year of perhaps negative eight percent to 10 percent.

Those are among the least controversial observations that could be made about Reliance Jio’s entry into the Indian mobile services market.

India Ratings and Research (Ind-Ra) “expects the launch of Reliance Jio Infocomm Limited (RJio) to intensify competition which will squeeze the market share, EBITDA margins and credit metrics of incumbents.”

At the same time, debt burdens will increase, as competitors and Reliance Jio itself invest heavily in their networks and spectrum.

Ind-Ra also expects voice revenue to decline. Airtel and Idea reduced voice tariffs by eight percent to 10 percent last year.

Those changes could come even as growth in the often red hot smartphone market is slowing globally, for example.

Even if India is predicted to become the world’s second-largest smartphone market by about 2017, trailing only China, India smartphone growth rates to 2017 will drop from 47 percent in 2015 to about 17 percent in 2017, according to Strategy Analytics.

Communications Policy is Becoming Disconnected from Reality

High speed access markets in the United Kingdom and United States show a pattern that should fundamentally challenge the prevailing communications policy framework. Simply put, lightly-regulated cable TV operators are emerging as the dominant suppliers of consumer triple-play services.

Telcos not only are losing installed base and market share, but not are facing additional pressure from cable TV suppliers in small business, mid-sized and increasingly enterprise services as well.

Soon, cable TV will enter the mobile business as well. At every turn, some telco advocates have suggested cable would not succeed. Those predictions have been wrong, every time.

Now we also see lightly-regulated Google Fiber, independent ISPs and municipalities creating new alternatives as well.

That is going to cause bigger and bigger problems for regulators and policymakers over time, as policy becomes ever more disconnected from commercial reality.

Increasingly, not only is the “telecom is a monopoly” framework ceasing to be relevant, but policies that assume that framework are clashing with market realities that eventually make clear that legacy telcos are, in fact, not dominant providers, in any sense of the word, in the fixed networks business.

Consider only the strategic high speed access market.

In 2014, for the first time, U.K. cable TV high speed Internet access connections had average speed higher than that of fiber broadband services for the first time.

In the United Kingdom,  cable operators also are providing a disproportionate share of the fastest connections.

Average telco ADSL speeds were 6.7 Mbps in November 2013 compared to 5.9 Mbps in May 2013, according to Ofcom.

In the U.K. market, the average download speed of residential cable broadband connections was 40.2 Mbps in November 2013 compared to 34.9 Mbps in May 2013, an increase of 5.3Mbps over six months.

source: ISP Review

In the United Kingdom and the United States, cable TV high speed connections are faster than fiber to home connections.

Half of households in the U.S. market were, in 2013, able to buy access at speeds between 100 Mbps and a gigabit per second. Some 80 percent could buy service at 50 Mbps or more.

Just about 30 percent of telco customers were able to buy service at 50 Mbps or faster. Just about 10 percent of telco customers were able to buy service at 100 Mbps or faster.

In fact, Bain and Company suggests telcos might have about 30 percent of the installed base of high speed access customers in 2020, and could drop further to about 20 percent installed base by 2030.

source: Bain and Company

Cable access has been faster than digital subscriber line in the U.S. market since at least 2005.

source: FCC

source: Ofcom

The point is that our older models are ceasing to correspond with “facts on the ground,” where former monopoly providers are being displaced by new competitors.

That might not be true--so far--in the mobile business. But trends in the fixed network business are clear enough. Where the original problem was limiting telco market power to encourage competition, the future problem will be whether former telcos have viable business models, and if so, how they will have to change.

Some of us would therefore argue that it almost never makes sense to waste time regulating more heavily any industry--or industry segment--in decline. Market dynamics already are erasing former incumbent market power.

Of course, that still leaves two fundamental choices: equalize and lighten regulation for all providers, or tighten and equalize regulation for all providers. People will disagree about which approach is better, in terms of encouraging continual innovation and investment.

But the current framework cannot continue forever. It is breaking.