EU Ponders More Regulation for OTT Voice, Messaging

How to regulate new services and apps, how to foster innovation and yet maintain a “level playing field” always are key issues in the telecommunications business, exemplified most clearly by the debates policymakers, app and service providers have had for decades over IP-based voice services.

In India, mobile operators have argued that over the top voice and messaging apps are, in fact, full substitutes for traditional mobile voice and messaging, and therefore should be covered by the same rules as carrier voice and messaging.

The European Union, for its part, is considering mandating some security rules  for WhatsApp, Skype and Apple Inc's FaceTime.

The proposed rules would increase levels of regulation for OTT apps.

Sometimes, aside from the sheer merits of regulating competitors, there are industrial policy issues as well.

“The proposal is part of a broader drive to level the playing field between European companies and mainly U.S. tech firms,” Reuters reports.

CenturyLink Will Meet Minimum Internet Access Speed Conditions: Will it be Good Enough for the Market?

Internet speeds in the former Qwest territories are a good news, bad news story for CenturyLink.

The good news is that CenturyLink is going to meet conditions related to its acquisition of Qwest, related to consumer Internet speeds.

The bad news is that lagging rural speeds, and to some extent future urban customer speeds, show what an existential problem fixed network telcos often face, where it comes to revenue sources and ability to compete with cable TV companies.

Markets have moved way beyond the minimums CenturyLink will meet.

CenturyLink, in reporting the status of speeds across the legacy Qwest 14-state region, notes that 23 percent of rural households can buy service at a minimum of 40 Mbps, compared to 51 percent of urban households.

By April 2018, CenturyLink, as a condition of its acquisition of Qwest, has to supply 30 percent of household locations with 40 Mbps minimum speeds. Qwest already has met that objective.

Qwest also has lower-speed targets to meet, all merger conditions related to Internet speed, and is very close, overall, to its required goals.

Rural customers, as it always might be expected, are lagging in terms of speed minimums, however.

The former US West (Qwest, now CenturyLink) always had the most-rural, least-dense footprint of all the former Regional Bell Operating Companies.

That remains the case, with some very-obvious implications for Internet access speeds, as well as the capital required to provide faster speeds in rural areas.

That data is part of a larger strategic problem for U.S. telcos. Recently, cable TV companies have been gaining all the net high-speed Internet access additions. Not even Verizon’s FiOS networks have been able to avoid losing accounts, on a net basis.

If one assumes high speed access now is the strategic service, most likely to propel future revenues, that is a very-big problem. The largest telcos also lost linear video entertainment customers in the second quarter of 2016, and have been losing voice accounts for more than a decade.

It really is becoming an existential (relating to existence) problem. Some of us already believe cable TV companies will emerge as the dominant suppliers of fixed network services to consumers, and perhaps dominant suppliers of fixed network services to business customers as well (best prospects in the small business and mid-market).

Cable companies will be strong contenders in the next-generation (IP and Ethernet access) data access markets, in all business customer segments.

If so, telcos will have to find big new roles in new services to offset the coming decline of all their legacy services (including high speed access and business services). It will not be easy, and will be particularly hard for rural and smaller providers.

Not only will stranded assets be a growing problem for next generation network investment, but smaller and rural operators have less opportunity to create or participate in the lucrative new services that should develop from Internet of Things and machine-to-machine communications markets.

Lower FTTH Costs Improve the Business Model, But How Much?

It is not clear where customer revenue or network cost now are the biggest obstacles to wider deployment of high-bandwidth or “gigabit” networks in either the United States or United Kingdom.

A U.K. group representing competitive access providers claims fiber-to-home network costs now are substantially lower than in 2008, and faster fiber-to-premises investment would be made if some policy changes were made in the U.K. market.

On the other hand, Google Fiber seems to have encountered not so much a network cost issue as a “lack of customers” (revenue) issue with its own fiber to home efforts. And cost reductions might have hit a plateau.  

To be sure, both capital investment and revenue are key components of the business model. But Google Fiber seems to have concluded that even lower FTTH costs (equipment, make ready, construction) are not sufficient if take rates are too low, as the stranded assets problem is so significant at low adoption rates.

And Google Fiber is not the only major ISP (or would-be major ISP) looking at newer alternatives, especially fixed wireless. For some providers, including Verizon, the network facilities required to support a mobile business with lots of small cells and millimeter wave spectrum also change both the business model for fixed wireless and fiber-to-customer.

To be sure, key cost elements have declined in cost since 2008. Since then, fiber-to-home deployment costs are either “substantially” or “to some extent” lower, the U.K. Independent Network Cooperative Association says.

INCA argues that electronics costs are lower by 15 percent to 25 percent since 2008.

New construction methods, for example micro trenching in urban areas, deliver a cost saving of around 30 percent.

Fiber optic cables cost 15 percent to 20 percent less than in 2008, while backhaul and trunking network electronic costs are lower by as much as 50 percent.

Of those elements, it is the 30 percent cost reduction for tranching that likely is most significant, since construction, civil works engineering, obtaining permits and right-of-ways account for roughly 67 percent of total cost, while the equipment accounts for about 33 percent.

If network element costs are down 20 percent overall, those price reductions might shave the network gear portion of FTTP costs about seven percent.

If construction can be reduced 30 percent, and if construction itself represents 80 percent of outside plant cost, actual construction represents about 54 percent of total FTTP network cost.

Slicing that cost by up to 30 percent is the most-significant change in investment requirements.

The business case also hinges on revenue, however, and that likely is the biggest problem. As Google Fiber apparently has discovered after building and activating its own fiber to home networks, take rates--and revenue--are the crucial variable.

No matter how much construction, make ready and equipment costs have fallen, “lack of customers” is the really-big problem.

U.K. Competitive Carriers Want Fast Shift to "Fiber to Premises"

Independent facilities-based service providers in the United Kingdom want the U.K. government to shift priorities away from hybrid fiber backbone distribution networks with copper drops to fiber-to-premises technology, along with measures to speed construction, raise capital and create incentives for faster fiber builds.

That would help fulfill Ofcom’s view that “a good long-term outcome would be to achieve full competition between three or more networks for around 40 percent of premises, with competition from two providers in many areas beyond that.”

The implication is that third parties (other than BT and a cable TV operator) would need to operate in about 40 percent of the country.

Given a “more supportive policy and regulatory environment,” INCA believes the independent providers could increase fiber-to-premises deployment by between 25 percent and 50 percent.

The plan does not call for direct subsidies

Among measures the group seeks:

1. Creation of a broadband investment fund
2. Modified or 10-year suspended taxes on “lit” fiber
3. Ease “make ready” rules
4. Ensure speedy access to ducts and poles, with streamlined permitting
5. A prohibition on public financial support for “overbuild FTTP” facilities
6. Encouragement of local government partnerships with service providers
7. Universal service support awards that allow altnets to receive such support
8. No use of universal service support funds where competitive networks are being built

INCA’s (Independent Network Cooperative Association) 2016 Member survey shows that “Altnets already pass more than twice as many premises with FTTP as BT.

By 2020 independent providers believe their FTTP networks will pass nearly five million premises (18 percent of total locations). That would represent 1.5 million more premises than BT and Virgin Media’s planned FTTP builds combined.

Mobile Towers are Created Highly Unequal

source: techneconomy blog

Whether you look at revenue, profit or traffic, mobile network cells are not “equal.” Basically, a Pareto distribution typically holds: perhaps 80 percent of traffic is generated by 20 percent of total tower sites.

Looking at usage on a given day, by any single user, perhaps 80 percent of traffic is carried by just three towers. About half of traffic is carried by one tower. The remaining 20 percent of traffic is carried by 28 additional cell sites.

The implications are that some towers are highly profitable, others are self-supporting and some towers probably lose money.

source: FCC

The traditional rule of thumb for revenue and profit for fixed networks in the U.S. market is that service providers make money  in urban areas, break even in suburban areas and lose money in rural areas.

source: techeconomy blog

One way of illustrating the pattern is to note that population density and network cost are inversely related. An analysis by the Federal Communications Commission shows that the cost of networks, per location, grow dramatically as density falls.

Without subsidies of some types (governmental or internal subsidies by the service provider), rural area services likely are not possible.

Rural market capital investment always is higher than investment in urban or suburban areas.

Other studies of 3G network traffic in Western Europe suggest that 20 percent of the towers carry  60 percent of the 3G data traffic.

In U.S. and U.K. Markets, Cable Operators Supply Disproportionate Share of "Really-Fast" Internet Access Connections

source: Huawei

In 2016, Virgin Media has about 19 percent market share of U.K. Internet access subscribers. Yet, in 2014, Virgin Media had 56 percent of “superfast” connections.

In 2016, Comcast had about 24 million U.S. Internet access customers, compared to 16.6 million for AT&T and seven million served by Verizon.

Comcast has in operation a program to upgrade 100 percent of those locations to gigabit Internet access.

Verizon does not yet have a gigabit fixed network upgrade program in place. AT&T is building actively, but it is unclear how many customer locations actually are passed. CenturyLink also is building aggressively.

Google Fiber has not released customer account numbers, but is believed to serve accounts in the low six figures.

That means Comcast alone will have more gigabit-capable locations than all the other ISPs put together.

In both U.K. and U.S. markets, then, cable operators are supplying a disproportionate share of all “superfast” (24 Mbps to 100 Mbps), 100-Mbps and higher, or gigabit capabilities.

Over the medium term, virtually all access platforms--and some new platforms not yet tracked--will be supplying gigabit connections.

Mobile Data Pricing Now is Unstable

source: Jackdaw Research

With the recent addition of “does not count against data cap” DirecTV viewing on AT&T iPhones policies, and with Sprint and T-Mobile US exempting streaming video from data usage caps, it is clear we are in an unstable period for mobile data pricing.

The issue, of course, is that mobile service providers are exempting the most data-intensive apps from usage calculations, and usage drives requirements for network investments.

The pricing anomalies are easy to illustrate. On a revenue-per-bit basis, narrowband apps such as messaging and voice produce the highest returns, video the lowest returns (even if entertainment video represents much more gross revenue).

Assume a fixed network ISP sells a triple-play package for a $100 a month retail price, where each component--voice, Internet access and entertainment video--is priced equally (an implied price of $33 for each component).

How much bandwidth is required to earn those $33 revenue components? Almost too little to measure in the case of voice; gigabytes for Internet content consumption and possibly scores of gigabytes for video.

So, by some estimates, where voice might earn 35 cents per megabyte, revenue per Internet app might generate a few cents per megabyte.

Video might generate fractions of a cent per minute of use (access fee compared to usage).

In addition to the fact that revenue per megabyte tends to drop over time, the bigger issue is that profit per megabyte, and revenue per megabyte, is inversely related to consumption of bandwidth, from an access provider standpoint.