"No material impact" if Strong Net Neutrality Rules Go Away: Netflix

“Weakening of US net neutrality laws, should that occur, is unlikely to materially affect our domestic margins or service quality,” says Reed Hastings, Netflix CEO. Oddly enough, cable TV companies said the same about common carrier regulations: they did not prevent those firms from investing in faster access services. Telcos clearly reduced capital investment.

But the incentives and behavior arguably fall into a couple of buckets. Netflix believes it clearly benefits from rules that mandate “best effort only” access, in large part because that prevents creation of quality of service (QoS) mechanisms that could raise Netflix costs of doing business.

Telcos believe they clearly are harmed, because they cannot create new QoS tiers of service that could create new revenue models (business services, with QoS assurances, have higher gross revenue and profit margins, for example).

Cable companies, positioned to gain market share because they could quickly improve speeds, were in position to do so even if no QoS were possible, simply because their networks could rapidly and affordably be boosted into multi-hundreds of megabits per second ranges, plus gigabit speeds. Despite the rules, cable was able to justify new investments.

So there is no easy way to assess the impact of the net neutrality rules in some uniform sense. Netflix arguably benefited, but no longer needs the rules. Cable companies also benefited, despite the rules. Telcos, already losing the market share battle, arguably were dissuaded from investing.

The point that might be made is that network neutrality has been a blunt instrument with different impact on different participants in the market. Going forward, and without arguing for imposing new rules on app providers in advance of demonstrable problems, a more nuanced approach could work.

Competition in access markets, for example, would be enhanced if telcos were convinced they could do something--especially in the quality area--to compete more effectively with cable companies, and would invest to do so.

The new perspective that will at least get a hearing is that net neutrality or other rules designed to protect consumers from abuse of market power--the sorts of policies normally the domain of the Federal Trade Commission--might need to be symmetrical. That is to say, they perhaps should apply to edge providers (app providers) and access providers alike.

Netflix continues to favor” strong net neutrality” rules (no QoS). That arguably will not happen, which is why Netflix reassures its investors that it can thrive even without the rules.

Artificial Intelligence is Becoming Quite Practical

For most of us, artificial intelligence (AI) has been a science project for the past few decades: interesting and provocative, but not something that actually affects the businesses most of us deal with on a daily orFor most of us, artificial intelligence (AI) has been a science project for the past few decades: interesting and provocative, but not something that actually affects the businesses most of us deal with on a daily or even annual basis.

There are reasons to believe that is changing. Charles Fan, Cheetah Mobile CTO, said it might seem odd for a mobile app and tools company such as Cheetah Mobile to be seriously evaluating AI. Actually, it turns out to be most practical, as Cheetah Mobile launches new applications in the news aggregation area.

Eventually, the ability to personalize and then predict what a particular person might like will require AI to mine and then predict and deliver “suggested items” to individual people.

Your social profile helps, but only so much. Content providers or advertisers can assume you are somewhat like your “friends” in terms of interests. But only up to a point is that correct. Each individual actually is quite different, at a more-granular level. But it will take AI to rapidly process all the data used to assemble a highly-personalized set of content and then match people with highly-targeted offers and ads. even annual basis.

There are reasons to believe that is changing. Charles Fan, Cheetah Mobile CTO, said it might seem odd for a mobile app and tools company such as Cheetah Mobile to be seriously evaluating AI. Actually, it turns out to be most practical, as Cheetah Mobile launches new applications in the news aggregation area.

Eventually, the ability to personalize and then predict what a particular person might like will require AI to mine and then predict and deliver “suggested items” to individual people.

Your social profile helps, but only so much. Content providers or advertisers can assume you are somewhat like your “friends” in terms of interests. But only up to a point is that correct. Each individual actually is quite different, at a more-granular level. But it will take AI to rapidly process all the data used to assemble a highly-personalized set of content and then match people with highly-targeted offers and ads.

Verizon Buying Comcast or Charter--Absent Huge Divestitures--Would Not Pass Horizontal Antitrust Review

Rumors about big mega-mergers get floated from time to time for all sorts of reasons, sometimes to test the waters or encourage deal making. That seems to be the case for rumors about Verizon buying Comcast, or Verizon buying Charter Communications. Either combination would clearly run into major antitrust issues using the standard screens used by the Justice Department.

So such rumors might be intended to gauge just how far antitrust rules can be bent. But barring major divestiture of assets, it seems virtually impossible that antitrust officials would have an easy time with such huge horizontal mergers.

Some might try to argue that Verizon fixed network triple play services and Comcast or Charter triple play services do not represent horizontal concentration. Or Verizon might contemplate divesting its whole fixed network operation, though it is hard to see who the logical buyers might be.

Some might like to point out that AT&T bought Tele-Communications Inc., the biggest US. cable TV company, but that was totally different. AT&T (not SBC) had zero consumer fixed network assets. So buying TCI did not bring AT&T more than about 30 percent access to U.S. homes.

SBC, now that it has acquired the former AT&T, did so only after AT&T sold off those former TCI assets to Comcast, allowing Comcast to become the biggest U.S. cable TV company.

As Comcast and Charter now are the largest U.S. ISPs, and the largest U.S. cable TV companies, adding Verizon’s fixed network customer base and either cable company’s households passed would easily surpass the 30 percent maximum reach that historically has been the size limit for any local access provider.

Verizon could try and divest enough Comcast or Charter assets to stay under, or at, the 30-percent reach of U.S. households, keeping all its own fixed network assets.

Still, all those would be complex divestitures, with other complications. It isn’t so clear how much Verizon would want to operate hybrid fiber coax, all copper and all-fiber access networks, with all the differences in outside plant operations that would represent.

Nor is it so clear that Verizon would want to get bigger in fixed networks, since it has built its business on mobile services. Likewise, it is not so clear Verizon wants to be as big in media as owning Comcast would entail.

Charter’s footprint, meanwhile, is more rural than Comcast’s footprint, something Verizon definitely would not prefer.

To be sure, assets could be divested. They would almost certainly have to be, on the fixed network side of the business. Then there are all the cultural issues, union and non-union workforces to blend.

It seems unlikely Verizon would be looking strictly for a vertical merger, as AT&T proposed with Time Warner. Talk of Verizon using the HFC network for small cell and other backhaul makes sense, but the issue is the 30-percent homes passed test.

It all seems too complex, too likely to draw antitrust rejection, to be a likely outcome.

Reliance Jio Sets Interim Mobile Data Price of US$1.50 for 4 GB Per Day

Though we might still have to wait a while to find out what Reliance Jio do about “every day” pricing of mobile data after the six-month free trial it has been running, Jio now has launched another retail offer to replace the free data offer, creating a new mobile data plan sold for a nominal cost for the three-month period after the free data offers end at the end of March 2017.

The new offer,  valid till June 30, 2017,  will charge a fee of about Rs 100 (about US$1.50) for data, while voice will be free.

Depending on when customers signed up, the monthly usage allowance can be as much as 4 GB per day, or as little as 1 GB per day.

If Telecom Survives, It Will be Because it Finds a Way to Replace Revenues from Services Sold to People

In many ways, 5G is a confusing and complicated topic. Some question the need for 5G, others its cost. Armand Musey, Summit Ridge Group founder, says the talk about 5G remains him of 2000 and the internet bubble, with all the wild talk about unlimited growth.

Ironically, some of us would argue, those inflated hopes actually were fulfilled. The internet did up being the “next big thing.” So it is possible that some expectations are unrealistic, in the near term.

But if even the shattering history of the internet bubble burst suggests dashed expectations--even huge disappointments--are a possibility, some would argue the direction is correct. Wild spending of course is a danger.

But the fundamental premise of 5G--a network designed from the beginning to support machine-to-machine communications and sensor networks--is a necessary bet on the future of whole telecom business. That is not always so clear, it seems.

A U.K. government report says mobile connectivity now is essential, not a luxury. “Today, 93 percent of adults in the UK own and use a mobile phone,” says the Connected Future report.

“5G means seamless connectivity. Ultra-fast and ultra-reliable, transmitting massive amounts of data at super low latency.” To be sure, the document also says 5G “will support the ever increasing requirements of the existing network and new applications.”

But the main thrust still seems to be on the “faster” angle. The big focus arguably should be on the exhaustion of the existing business model, and the role 5G is supposed to have as the platform for creating new revenue streams at least as big as the entire present industry earns.

When people argue there is “no spectrum shortage,” as does Pierre de Vries, Silicon Flatirons spectrum policy initiative co-director, there are several angles. Except at peak hours, one can argue that collective capacity for all U.S. mobile networks, for example, is sufficient to handle demand.

That is particularly true as as much as 80 percent of total mobile data demand is met by Wi-Fi, as Bob Pepper, Facebook global connectivity and technology policy executive notes.

There is even debate about whether spectrum sharing is a response to immediate scarcity. Spectrum sharing in the 3.5-GHz band, for example, is not necessarily driven by spectrum shortages, but by exploration of  new methods of allocating spectrum, says Tricia Paoletta, Harris, Wiltshire & Grannis partner.

But Kalpak Gude, Dynamic Spectrum Alliance president, argues that there are spectrum shortages, and that dynamic spectrum can help solve such problems.

Even if one believes there is a need for much more spectrum, and that scarcity is a problem we want to replace with abundance, that is not actually the main reason 5G is “required.”

One of the persistent misunderstandings about 5G is that it is primarily about “more bandwidth” or “higher speeds” accessible to consumers. In fact, it is a practical attempt to create the underpinning for a major shift of mobile operator business models.

The coming 5G platform might be the most-radical break we ever have seen in the mobile and broader telecom business since the end of the monopoly era.

Some of us would argue that the telecom business cannot, long term, support itself on revenues earned by selling services to people.

Instead, the industry must find big new services and revenues earned some other way. The importance of 5G is that it sets the stage for a business model built on selling services to enterprises, to support sensor and control networks.

In a simple--but reasonably accurate way--the change is from selling services used by people to selling services used by machines.

There is only so much people are willing to pay for voice, messaging, even internet access or video. And all those markets are mature, or about to become mature. The 5G network will not change that.

So if 5G succeeds, and if the telecom industry survives or thrives, it will be because huge new revenue streams are created or discovered that replace revenues earned by selling services people use. It is just that simple.

Biggest Misconception about 5G: It's About Bandwidth Used by Consumers

One of the persistent misunderstandings about 5G is that it is primarily about “more bandwidth” or “higher speeds” accessible to consumers. To be sure, 5G is the latest mobile platform to support higher data bandwidth, as illustrated by Dr. Mick Etoh of NTT Docomo. But Etoh also points out that the platforms also have increasingly been about creating new markets and revenue streams, ranging from mobile multimedia (3G) to application markets (3.5G) to personal storage (4G).

The coming 5G platform might be the most-radical break so far. In fact, some of us would argue, the big change is that the mobile business--if it is successful--will change from a business based on selling services to people, to selling services to enterprise sensor and control networks.

In a simple--but reasonably accurate way--the change is from selling services used by people to selling services used by machines.

There is only so much people are willing to pay for voice, messaging, even internet access or video. And all those markets are mature, or about to become mature. The 5G network will not change that.

So if 5G succeeds, and if the telecom industry survives or thrives, it will be because huge new revenue streams are created or discovered that replace revenues earned by selling services people use. It is just that simple.

Among the other complications is that the cost of supplying the capabilities people want to use is far higher than was the case for voice and messaging. About three times as much, per customer, so say. There are a couple of reasons. Every network, in a competitive environment, strands a good part of the investment (there is no revenue earned). Also, data infrastructure costs more than voice infrastructure.

Eventually, without creation of huge new markets and revenue streams, that is going to cause huge disruptions and bankruptcies in the telecom business.

Already, it is only possible to sell some services to people by radical discounting. In consumer markets, that takes the form of product bundles that are a form of price discounting. The bundle both boosts value (voice, video and internet access or mobile) and lowers effective price (the bundle costs far less than the services bought individually.

How Do You Sell Landline Voice to Consumers Who Do Not Want it?

How do you sell fixed network voice to consumers that do not really want to buy? It is a growing issue, as 52 percent of U.S. adult respondents live in households that are mobile-only, according to GfK MRI. In fact, 77 percent of Millennials do not buy fixed network voice service.

Basically, suppliers have to boost the value, cut the price, or do both. Fundamentally, that is what a bundle if all about (triple play, quadruple play or dual play).

Telcos and cable companies long ago concluded that bundles create value by price cutting. Consider what Verizon is doing as it introduces its new 750-Mbps symmetrical service. It sells standalone internet access for $150 a month. It sells a bundle including that same access, plus a full TV service and landline voice, for just $170 for the triple-play bundle. That’s a lot of extra value for $20 a month incremental spending.

There are other ways to spin the offer. You also can argue that many consumers face a choice that essentially boils down to “I want internet access and video, and will take the voice service if it essentially costs nothing.”

Some U.S. consumers have been doing so for years, buying triple plays when they really only want internet access and video, and then simply not using the voice line.

Other consumers have continued to justify the purchase of fixed line service because mobile service inside the home is occasionally or always flaky. That also might change, though, as voice supported by Wi-Fi access gains traction. That should eliminate many mobile network signal reception issues.

Some believe quadruple play bundles could explain regional differences in fixed line voice purchases. Others of us might argue the issue is really in-home signal reception, as bundles are available everywhere. There also could be other factors at work, including demography, as mobile-only behavior varies by age and ethnicity.

The Northeast has the smallest concentration of mobile-only households, at 39 percent. In other regions, levels of no-landline homes range from 53 percent  (Midwest) to 57 percent  (South).

GfK MRI data show that a full 57 percent of Northeast homes buy a bundle, compared to 49 percent in the South and even less elsewhere.

As often is the case, trends start with younger consumers, then gradually also are adopted by older consumers. The proportion of senior citizens (ages 65+) in mobile-only households quadrupled over the past six years to 23 percent, while the figure for Millennials (born from 1977 to 1994) climbed to 71 percent from 47 percent.

After Millennials, Generation X (born 1965 to 1976) is the age group most likely to live in mobile-only households, at 55 percent. Some 40 percent of Baby Boomer (born 1946 to 1964)households are mobile-only.

Among ethnic and racial groups, adults of Hispanic or Latino origin or descent have the highest incidence of mobile-only behavior, with 67 percent reporting cell-only status. Other groups have roughly 50 percent incidence, with Asian Americans at 54 percent; whites, 51 percent; and African Americans, 50 percent.