US. 600-MHz Auction Bidding Will Begin in July

The first stage of the Federal Communications Commission’s 600-MHz auction, clearing former TV broadcast spectrum, might end soon, with some indication of how much spectrum TV broadcasters are willing to give up, and therefore setting minimum bids for the follow-on auction to mobile service providers.

The forward auction is expected to begin in July 2016, and might--some observers believe--generate about $30 billion in bids on the low end, and possibly as much as $70 billion on the high end.

Perhaps more than has been the case in important mobile spectrum auctions, alternatives will be part of the bidding calculations participants make. More than is typically the case, other options for gaining spectrum arguably exist.

T-Mobile US widely is expected to be sold, at some point, so acquiring T-Mobile US not only gives the buyer spectrum assets, but also operating cash flow and customer base.

Sprint has excess spectrum it almost certainly would be willing to sell, and many now believe Dish Network eventually will sell all of its mobile spectrum assets as well. Some day, Sprint itself will be sold, many speculate. That also would allow a buyer to acquire rich spectrum assets.

Coming, eventually, is lots of millimeter wave spectrum useful for adding capacity, if not necessary coverage.

One consideration everyone will be watching: will Comcast try and acquire spectrum? Some think that would be a tip off about Comcast’s expected entry into the U.S. mobile basis, as it initially could operate as an MVNO, though nobody expects that as a permanent solution.

Comcast also is viewed as a prime candidate to eventually buy one of the weaker U.S. mobile carriers, probably T-Mobile US.

New Street Research now expects both Comcast and "maybe" Charter to launch nationwide U.S. mobile service mobile service using their MVNO agreements with Verizon, as early as this year.

"We expect cable companies to launch commercial wireless offerings over the next twelve months, with Comcast likely leading the charge," New Street Research predicts.

Cable operators could provide wireless services to 20 percent of their residential customers in the next five years, New Street said in a "very conservative" prediction, stealing 35 million customers from incumbent cellular companies, Fierce Wireless reports.

That would give cable operators 13 percent of the U.S. wireless market, leading to slower growth for T-Mobile US and a one percent decline in Sprint subscribers over perhaps five years.

"We would expect them to roll the product out gradually at the outset; however, once they get going, they could take share pretty rapidly."

Carriers could lose between $1.8 billion and $3.8 billion in EBITDA to cable companies during that time, New Street said, with Verizon and AT&T seeing a seven percent to nine percent reduction in EBITDA in 2021.

T-Mobile would see EBITDA growth fall from 13 percent to 9 percent, while Sprint would see growth fall from five percent to roughly zero.

Value and Price Misaligned?

To a certain extent, one always has to discount consumer responses to surveys, since people often do not do what they indicate they will do, and just as often do what they say they will not. 

Still, it is shocking how little many consumers say they will pay for "premium" video network fare. 

Of course, one might also not that "value" and "price" might, in this case, be misaligned. Many of us would be willing to bet that many consumers would actually value HBO, Showtime or Starz at some number above "zero." The issue is what that number will turn out to be. 

Developers Working on IoT Apps Up 34%, Year over Year

The number of developers currently working on Internet of Things (IoT) applications has increased 34 percent since last year to just over 6.2 million today, according to a study sponsored by Evans Data Corp.

In addition, the increase of development for mobile devices, up 14 percent since last year, has led to smartphones being the most commonly connected IoT platform.

Asia will lead, in terms of most developers, to 2021, the study suggests. Growth in India and China will be key, in that regard.

Alphabet (Google) Might Win Smart Cities Transportation Business Model

And the winner of coming smart cities initiatives might well be…..Google. Sustainable business models are the key problem for smart cities initiatives. By some estimates, up to 30 percent of U.S. urban car traffic is created by people looking for parking spaces.

In the U.S. “Smart Cities Challenge,” Columbus, Ohio has won a $40 million grant from the U.S. Department of Transportation to develop a smart transportation capability.

Sidewalk Labs (part of Alphabet, formerly part of Google) is one of many U.S. firms working to support parts of the Columbus project. Sidewalk is initially offering its Flow software to Columbus.

Flow applies Google’s expertise in mapping, machine learning and big data to urban problems such as public parking. Sidewalk says Flow would use camera-equipped vehicles, like Google’s Street View cars, to count all the public parking spaces in a city and read roadside parking signs.

Then Flow would then combine data from drivers using Google Maps with live information from city parking meters to estimate which spaces were still free. Arriving drivers would be directed to empty spots.

“Only Google or Apple are in a position to track parking occupancy this way, without expensive sensors on poles or embedded in the tarmac,” says Alexei Pozdnoukhov, director of the Smart Cities Research Center at the University of California at Berkeley.

Sidewalk also hopes to persuade private parking garages to add their spaces to Flow’s database, and even proposes something called “virtualized parking”. A bit like Airbnb for cars, this would allow retailers and offices to temporarily rent private parking spaces usually reserved for shoppers and workers.

So there is the sustainable business model, in part. Revenues from sales of virtualized parking spaces might be worth $2,000 a year to the city, for each rented spot, also using surge pricing that varies prices by the level of demand.

Flow also would allow parking meter staffs to plot the most-efficient routes, generating perhaps $4 million in additional parking infraction revenue.

By incorporating data from ridesharing and public transportation modes, Flow could estimate the cost of a journey, as well as travel time, using everything from buses and taxis to Uber, Lyft, car-share services like Zipcar and even bike-shares.

Sidewalk Labs was spun out from Google with a mission to “improve city life for everyone,” and is providing use of the Flow software and 100 public Wi-Fi kiosks in Columbus.

Rent Rather than Own: First Music and Video, Then Airbnb and Uber. What Next?

It is not yet clear how far the "rent rather than own" trend can spread. Cloud computing represents one aspect of the trend, allowing enterprises and content or app providers to rent computing services rather than owning computing hardware and software.

Public Wi-Fi hotspots might be cast as a form of renting, rather than owning, Internet access.

In consumer markets, audio and video content always has had a "rent" rather than "own" character for most of its existence. Prerecorded video had a big upsurge in the 1980s, but not has fallen hard, and now prerecorded music is suffering.

Airbnb has shown people have a willingness to commercialize latent "lodging" assets, while Uber shows a similar willingness to commercialized latent transportation assets. How many more industries might be similarly affected is the big issue.

Some might argue almost any industry where zero marginal cost economics can be obtained, will be subject to "Uberization." One way of looking at it is that such markets can be created where there is demand for some product that must be fulfilled in real time, by people using smartphones to signal that demand, and where smartphones (and the backend processing) allow assets to be moved to fulfill, in real time. 

Almost any digital content product fits the bill.  On-demand transport works. So the issue is what other on-demand fulfillment is possible, in how many other segments of industries.

In 2015, the U.S. radio industry generated about $17.4 billion in revenue from advertising, while prerecorded music, streaming services and downloads produced about $9.4 billion. In other words, streaming, downloading and packaged media generated about 35 percent of network-delivered music revenue (not including live performance).

What the data also suggests is that music “ownership” in a classic sense (albums, discs, downloads) is disappearing. Some would say that is an example of people choosing to rent rather than own, much as it might be argued people now spend increasing amounts of money on video streaming services, compared to buying DVDs or downloading content to own.

source: PwC

source: Morgan Stanley

Fitch Ratings Sees Longer Term Constraints on ISP Investment Because of Common Carrier Rules

The U.S. Court of Appeals for the District of Columbia has upheld Federal Communications Commission rules on common carrier regulation of Internet access services, but an appeal is certain.

Fitch Ratings says “we believe there will be very little near-term effect on revenues or operating profits from existing services” as a result of the ruling, because of the certain appeal.

But Fitch also believes that unless the rules are overturned, the major telecom and cable operators are likely to constrain investments in potential new growth areas affected by the net neutrality rules.

“Ultimately, Title II rules could change the way Internet traffic is managed, as well as affect future revenue opportunities and business models,” Fitch Ratings argues.

Some analysts, and Internet service providers themselves, have argued that common carrier rules imposed on U.S. Internet access services would depress investment. Critics have argued that would not happen.

At risk are not simply common carrier rules that could include rate regulation and prohibition of some business models.

Title II regulation--despite the FCC’s current “forbearance” on imposition of wider common carrier rules--opens the door for much greater regulation of the Internet in the future.

As presently applied, the common carrier rules do not impose  rate regulation, tariffs and last-mile unbundling, but a future commission could decide to enforce the provision.

Additionally, the FCC believes it can, under those rules, ban "zero-rating.”

At a high level, Fitch Ratings says, a long term negative impact of common carrier regulation is “reduced opportunity for wireline or wireless operators to benefit from potential new business models that deliver targeted advertising.”

The winners? Google and Facebook.

Will Google Launch Own Line of Smartphones?

Channel conflict is an almost-inevitable occurrence in any industry where sales, manufacturing and intellectual property are distinct segments of the value chain.

In the Internet value chain, it frequently happens that app, device and service segments of the ecosystem are in some state of tension. That happens most often when leaders in one portion of the value chain conclude they can profit by entering other parts of the value chain. So far, Google is the foremost example, operating in the operating system, application, device and access services portions of the value chain.

But Google might be aiming to take a bigger role in mobile devices, a step some have suggested would be required if Google was to integrate end user experience on the Apple model, amidst what every observer would say it a tendency to fragmentation of the Android market.

If Google does enter the market for branded smartphones, the move will be risky, not just because of execution issues, but because it causes channel conflict with partners using the Android operating system to power their own brands of smartphones.

Never has the phrase "coopetition" been more apt. Up to this point, Google has run the Nexus program largely on the basis that it showcases what Android can do, on a handset built to showcase operating system features.

Now Google might be thinking of producing and marketing its own branded smartphones, on the Apple model, essentially. So Google might gamble that the damage to its operating system efforts will be offset by the upside from a device and apps ecosystem that actually showcases and optimizes Android operation on compatible hardware.