Will U.S. Cable TV Industry Also Need to Replace 1/2 Current Revenue Over Next 10 Years?

The most-recent SNL Kagan analysis of cable TV industry revenues predicts cable TV revenues will decline by $2.7 billion over a decade.

But SNL Kagan also predicts the cable industry will also generate $11 billion in new residential broadband revenues.

There is room to question the SNL Kagan optimism on linear video. The product could decline much faster than that. But the substitution of new Internet access revenues for former video revenues illustrates an important point about service provider revenues.

It is becoming something of a rule that leading service providers must replace about half their revenue every decade or so. Assume SNL Kagan is about half right. That could mean video losses of perhaps $5.7 billion, and Internet access gains of about $5.5 billion.

That would be almost a one-for-one revenue substitution.

Total residential video revenue for Comcast, Charter Communications and other American cable operators is projected to fall from $57.7 billion in 2016 to $55.0 billion annually in 2026, declining at a compound annual growth rate of 0.5 percent over the next 10 years, according to SNL Kagan.

Some observers think that is far too modest a projection, as second quarter losses in 2016 would suggest a decline as high as three percent on an annual basis. Granted, the second quarter is the toughest reporting period of the year. Still, the point is that SNL Kagan arguably is being much too optimistic about linear video losses.

Basic video subscriptions are projected to drop from about 53 million today to 45.4 million by 2026.

Internet access subscribers, on the other hand, could grow as much as 13 percent, SNL Kagan estimates.

Remember When 10 Mbps was Really Fast?

AT&T has launched its GigaPower gigabit Internet access service in the Sacramento market, in parts of Placer County (Roseville, Rocklin, Lincoln, and their surrounding communities).

These communities are in addition to the parts of the Bay Area where we initially launched service in 2015, and expanded in parts of Fresno, Clovis, and other areas of the Central Valley in June.

That is notable in some ways because the Roseville market was one of the first in the United to get fiber to the home services from SureWest Communications, formerly Roseville Telephone Company, back in 2002.

It might seem quaint now, but back then SureWest was selling access at 10 Mbps over its fiber to home network. It was symmetrical, but at 10 Mbps. With Comcast and AT&T both upgrading to a gigabit in the Sacramento region, the former SureWest offer no longer is so unique, or so fast.

How Many Telco Voice Lines Will be Left by about 2018?

How many telco fixed network voice lines will still be in use by about 2018? Not too many, industry associations and the Federal Communications Commission tend to suggest. Some have in the past forecast as few as 20 million total residential voice lines sold by telcos by about 2018.

That does not necessarily mean only 20 million lines will be in service, but that the number sold by former telcos could well be that low.

It is easier to note that “peak voice” happened around 2000, and that lines have been falling ever since.

source: Larribeau Associates

source: Federal Register

Linear Video Subscriber Losses Continue in 2Q 2016, But Inflection Point Not Yet Reached

There were not too many--if any surprises--in the latest Leichtman Research Group survey of the U.S. linear TV business. The second quarter of 2016 showed net subscriber losses, but that is consistent with the trends of the last several years.

Some might point to the magnitude of the net losses--665,000 net video subscribers--compared to 545,000 subscribers in the same quarter of 2015.

But the second quarter always is the worst quarter of the year, and the magnitude of those losses could decline for the next three quarters. And most of that came from losses of AT&T U-verse accounts.

Statistically, a loss of 665,000 customers represents about seven-tenths of one percent. Perhaps not pleasant for linear video service providers, but hardly a jarring loss.

On an annualized basis, if continued at the same rate, that would work out to about three percent annually. That would be historically high for any one-year period. And, granted, at that high rate, it wouldn’t take long for the industry to lose most of its business over a decade or so.

And that is what observers will be watching.

Fixed network voice accounts supplied by incumbent telcos (cable TV companies have gained accounts) have fallen far faster than that over the last couple of decades.

From 2000 to 2015, incumbent telcos lost about 70 percent of switched access lines and 79 percent of switched retail residential access lines.

source: US Telecom

From 2006 to 2011, U.S. fixed voice lines fell from about 139 million to 89 million, a drop of 50 million lines, or about 36 percent, or roughly seven percent a year.

From 2010 to 2015, voice lines fell at a slower rate, from about 153 million to 135 million, a loss of 18 million lines, or about 12 percent over five years, or perhaps 2.4 percent annually.

If past is prologue, the steep period of losses of linear video accounts has yet to begin.

Linear Video Subscribers, Second Quarter, 2016
Pay-TV Providers	Subscribers	Net Adds
Cable Companies
Comcast	22,396,000	(4,000)
Charter*	17,312,000	(143,000)
Altice**	3,639,000	(25,000)
Mediacom	842,000	(11,000)
Cable ONE	338,974	(11,602)
Other major private company***	4,330,000	(30,000)
Total Top Cable	48,857,974	(224,602)
Satellite TV Companies (DBS)
DirecTV	20,454,000	342,000
DISH^	13,593,000	(281,000)
Total DBS	34,047,000	61,000
Phone Companies
AT&T U-verse	4,869,000	(391,000)
Verizon FiOS	4,637,000	(41,000)
Frontier^^	1,340,000	(70,000)
Total Top Phone	10,846,000	(502,000)
Total Top Pay-TV Providers	93,750,974	(665,602)
Source: Leichtman Research Group

More Dark Fiber to Backhaul Traffic From Small Cells?

There is going to be massive confusion in some quarters as some mobile operators, cable TV providers and others start to think about monetizing their high-capacity local access networks for small cell backhaul. The reason is that "dark fiber networks" traditionally have been built to serve wholesale customers.

It is unlikely that Verizon or AT&T, for example, have strong--if any--motivation to do so. Instead, they will be looking to build their own optical backhaul facilities. Many will call this a dark fiber strategy. That might not be the best term.

Small cell backhaul is just mobile backhaul. As dense as those networks will be, it will make sense to build and own the facilities, rather than pay to use another carrier's assets.

Verizon Communications, for example, has announced it is going to install much more dark fiber  to support existing 4G LTE services, but more importantly to serve as the backhaul network for 5G small cell networks.

Those actions partially will be supported by Verizon’s acquisition of XO Communications. That deal also includes the right to lease  XO’s Local Multipoint Distribution Service wireless spectrum, with an option to buy them in 2018. XO has a portfolio of 102 LMDS licenses in the 28 GHz and 39 GHz bands.

Verizon, in particular, has been looking at backhaul fiber options for several years anticipating that it will be building dense new small cell backhaul facilities to support its 5G network. What remains unclear is whether those “dark fiber” assets will be “lit” to support Verizon’s internal requirements, or might also be sold commercially to other customers.

Such a move would largely be out of character, so one likely can assume the primary use for the new dark fiber to to light it to support backhaul from dense new small cell networks. Just how dense is easy to illustrate.

If, as expected, millimeter wave small cells have a transmission radius of about 50 meters (165 feet) to 200 meters (perhaps a tenth of a mile), Verizon and others will have build backhaul networks far denser than they are used to in the mobile business, but less dense than they routinely deploy in some parts of the high speed access business.

In the past, mobile operators have only required backhaul to macrocells to towers spaced many miles apart. All that changes with new small cell networks built using millimeter wave spectrum (either for 5G mobile or fixed use, or for ISP fixed access).

Right now, a useful analogy is to think about the problem as “fiber to the light pole.”

Keep in mind that street lights are spaced at distances from 100 feet (30.5 meters) to 400 feet (122 meters) on local roads.

As a rough approximation, think of a small cell, in a dense deployment area, spaced at roughly every other street light, up to small cells spaced at about every fourth light pole.

That suggests the sort of dense backhaul network that also will be required. You can argue that a new “fiber to the light pole” network must be built. You can argue that a new mesh backhaul network must be built. You can argue that some other leased backhaul (cable TV network) could be feasible.

In all cases, there are potential business model costs in the backhaul and small cell transmission network that exceed anything engineers have had to design, yet. That is why ots of people now are asking very-practical questions about millimeter wave spectrum and its potential impact on access network business models.

People want to know how far signals will reach, how much rain or snow will affect signal levels, how signals will bend or otherwise get around line of sight issues and how backhaul will be provided.

Impact on the business model for existing and new Internet service providers lies at the heart of those questions. And those are important questions.

Monetizing a new dense small cell network also is among the reasons one hears so much talk about 5G to support fixed Internet access. Adding those new customers is a logical way to add direct incremental revenue for a small cell network that will be fairly capital intensive.

When Will 4K "Better Image Quality" Actually Make a Difference?

If 4K displays actually are in use by as much as 10 percent of the U.S. population, by 2021, it is reasonable to ask what is the “driver” of adoption. “Better image quality” is the standard, but possibly facile, answer.

Consider a 4K display on a smartphone. As any TV engineer will tell you, unless you are very close to the screen, the human eye cannot discern the difference between a picture at HDTV and 4K coding.

But eyes are close to smartphone screens, so we ought to be able to “see” the difference, yes? Maybe not. Some would argue that human eye cannot tell the difference, much of the time, between HDTV and 4K content, even when viewed up close on a smartphone.

The same problem exists for 4K when used on larger TV displays. One has to sit closer than perhaps seven to eight feet from a 65-inch display to have any chance of perceiving the difference between HDTV and 4K picture quality. Few of us will do so.

So if consumers really cannot “see” the difference, where is the value driver? It really is not “picture quality,” since small devices and large TV displays will not be able to show those picture quality improvements.

There are, of course, other drivers of value. For some people, having a big 4K TV is a status symbol. There, the value is the perceived status, not the quality of the picture.

Historically, one can argue, there always has been a tension between image quality and content richness as drivers of consumer spending on entertainment video.

Consider streaming video services consumed on mobile and other small screen devices: image quality, per se, is not the driver. Content access “anywhere” is the adoption driver, since image quality on a mobile is limited, compared to what is available on a TV screen.

Even in a standard TV screen experience, much streaming content is consumed in standard, rather than high definition format. So it is not “image quality,” in and of itself, that is the adoption driver.

The same might be true for 4K and future 8K TV services. They will be touted as “better” because of image quality, even when not all deployment scenarios can people actually see the quality differences.

Juniper Research predicts that revenues from subscription video on demand services, such as Netflix and Amazon, are set to more than double from $14.6 billion in 2016, to $34.6 billion in 2021.  

Netflix already has U.S. subscriber numbers level with leading network providers DirecTV & Comcast (47 million and 47.7 million respectively).

In the end, 4K image quality is not just hype. You can tell the difference, on some content, on some devices, some of the time, if you are close enough to the screen. But few large-screen apps will allow people to “see the difference,” because they will not be sitting close enough.

Occasionally, smartphone users with 4K displays might discern some quality improvement, but “better image quality” will not be consistent. Most people are not going to notice.

So consumer beware, if you are paying significantly more money for 4K.

"Fiber to the Light Pole" Might be the Required Backhaul Network for Millimeter Wave Access Networks

If, as expected, millimeter wave small cells have a transmission radius of about 50 meters (165 feet) to 200 meters (perhaps a tenth of a mile), it is easy to predict that an unusually-dense backhaul network will have to be built (by mobile network standards).

In the past, mobile operators have only required backhaul to macrocells to towers spaced many miles apart. All that changes with new small cell networks built using millimeter wave spectrum (either for 5G mobile or fixed use, or for ISP fixed access).

Keep in mind that street lights are spaced at distances from 100 feet (30.5 meters) to 400 feet (122 meters) on local roads.

As a rough approximation, think of a small cell, in a dense deployment area, spaced at roughly every other street light, up to small cells spaced at about every fourth light pole.

That suggests the sort of dense backhaul network that also will be required. You can argue that a new “fiber to the light pole” network must be built. You can argue that a new mesh backhaul network must be built. You can argue that some other leased backhaul (cable TV network) could be feasible.

In all cases, there are potential business model costs in the backhaul and small cell transmission network that exceed anything engineers have had to design, yet. That is why ots of people now are asking very-practical questions about millimeter wave spectrum and its potential impact on access network business models.

People want to know how far signals will reach, how much rain or snow will affect signal levels, how signals will bend or otherwise get around line of sight issues and how backhaul will be provided.

Impact on the business model for existing and new Internet service providers lies at the heart of those questions. And those are important questions.

With some 29 GHz of new spectrum for communications set for release by the Federal Communications Commission (including 7 GHz or more of unlicensed spectrum, spectrum sharing set to add additional spectrum in the 3.5-GHz band, there are potentially-disruptive changes in network costs, revenues and competition in the works.

What remains unknown is how much propagation distances might change as 28 GHZ is adapted for small cell network architectures, instead of point-to-point links. In an earlier period, reach of 1.5 miles was routine for point-to-point links, and distances up to three to five miles sometimes were possible.

In a new small cell deployment, transmitting at lower power, distances of 1,000 meters (about 0.6 miles) might be possible. Others think reasonable distances will more likely be in the 50 meters to 200 meters range.

Potential bandwidth is among the key differences between bandwidth in the below-6 GHz frequency bands and those millimeter bands in the 24-GHz and higher bands.

Simply, compared to 2-GHz (mobile) or 3.5-GHz signals, potential bandwidth is from five times to an order of magnitude higher. The trade-off is propagation distance.

The bandwidth differences are based on frequency itself: Basically, the waves oscillate between their high and low states much more often as frequency increases. And, in principle, every oscillation is the foundation for representing a physical bit.

On the other hand, as frequency increases, the waves start to act more like particles, in a sense, and are affected by physical objects, which stop them, and by oxygen and moisture in the atmosphere, which absorb them.

Those trade-offs mean it is not easy to model the potential business impact of abundant millimeter wave spectrum on business models.

source: YateBTS

Professor Robert Heath, Jr.

“The beauty of these frequencies is that the new bandwidth they make available is tremendously large,” said Alpaslan Demir, InterDigital principal engineer. “You are talking about Mbps or multiples of- 100 Mbps bandwidths, with up to 2 GHz bandwidths, or multiples of 2 GHz, especially at 70 GHz.”

“The definition of capacity should not be limited to bps/Hz but it should involve space as another dimension,” he also argues. “For example, if there are 50 links deployed over one sq km, each with 10 Gbps over 2 GHz channel bandwidth, then the total capacity can be defined as 500 Gbps/sq km.”

The bottom line for millimeter wave access networks: lots of bandwidth but limited physical reach.

Also, in the U.S. market, 7 GHz of unlicensed spectrum will be released, with obvious impact on the cost of such an access network.

The business model issues, aside from the new small cell radio network, is the requirement for some sort of "fiber to the light pole" backhaul network. It doesn't have to be optical fiber as the physical medium, but tht's the right sort of thinking about the density of a millimeter wave access network backhaul requirement.

As always, cost and revenue will get a hard look. In fact, the ability for a mobile operator to create a new fixed Internet access business--using the same infrastructure required to support mobility services--is one major reason fixed access likely will be a key feature of 5G mobile networks.

New revenue is required to pay for the new dense small cell networks, and cannibalizing fixed Internet access might be one way of doing so.