Lifeline Internet Access is Not in short Supply in U.S. Market

Some are making a big deal about a Federal Communications Commission decision not to allow nine firms to sell lifeline internet access service. The decision was made largely on procedural grounds. The nine firms are not accused of any shortcomings, but the lifeline program itself has been plagued by waste, fraud and abuse, the FCC says.

At the same time, lifeline service at what many would consider reasonable costs already are provided by all of the largest U.S. fixed network providers.

AT&T lifeline service, depending on a potential customer’s location, offers 10 megabits per second, for $10 per month; 5 megabits per second, for $10 per month; 3 megabits per second, for $5 per month; 1.5 megabits per second, for $5 per month or 768 kilobits per second, for $5 per month.

Lifeline internet access also is sold by Verizon, CenturyLink, Comcast, Cox Communications, Charter Communications, Suddenlink, Frontier Communications and others. Generally speaking, those services sell for about $10 a month.

Will Dumb Pipe Always be the Foundation of the Telco Business Model?

It always is difficult to figure out precisely how tier-one service providers (telcos, cable, others) will reposition revenue streams and services to remain viable in the future, as all legacy revenue streams  decline. The fundamental issue is how far that process can move, beyond “access” services, since that is the fundamental “telco” role in the application ecosystem.

The colloquial way of describing the challenge or dilemma is that telcos and other access providers must “avoid becoming dumb pipes.”

One way or the other, nearly every telco executive would agree with some version of a strategy that involves “moving up the stack” in terms of value and applications, as well as moving into new lines of business.

Left unsaid is the fact that “dumb pipe” (access) has to remain the foundation of the business--whatever other new businesses or apps can be created--because access is the particular part of the ecosystem telcos are in.

To be sure, a telco might divest its whole access business (sell it) and use the proceeds to become another type of company, in another part of the ecosystem. In a sense, Verizon has been divesting fixed network assets to support its mobile segment. And many other firms are harvesting earnings from traditional access businesses to jumpstart new content or app businesses.

On a broad level, that same strategy will be used by every tier-one telco hoping to create new roles in the internet of things ecosystem. Up to this point, for most service providers, smartphones have enabled much of the growth of value-added services.

But access will “always” be the foundation of any business whose fundamental role in the applications ecosystem is, precisely, “access” and transport.

Even if service providers sell unified communications services, hosting services or IoT communications, those services remain partly or wholly anchored in the “access” function

source: Wireless Intelligence

source: Telco 2.0

In principle, a former telco might even contemplate leaving the telecom business altogether.

SK Telecom, for example, says “our new CEO firmly believes that SK Telecom’s goal is to secure the leadership as the new ICT as the leader in the new ICT ecosystem within the era of the Fourth Industrial Revolution,” according to Keun-Joo Hwang, SK Telecom CFO and EVP.

IPTV and internet access are growth areas, but fundamentally are “access” businesses. The big issue is what other new access-related businesses can be created or fostered, assuming the specific role of an access provider in the internet and app ecosystem is, in fact, access.  

By 2025, Mobile Internet Could Contribute $4 Trilliion to $11 Trillion in Economic Value

By 2025, mobile and other telecom technologies could have significant impact on health applications, manufacturing, mining, information technology, software, applications and transportation, according to McKinsey analysts, with the impact from mobility alone contributing between $4 billion and $11 billion in economic impact.

source: McKinsey

FCC Closes Zero Rating Inquiry

The Federal Communications Commission's Wireless Telecommunications Bureau has closed its inquiry into sponsored data and zero-rating practices in the mobile broadband market.

In so doing, the FCC also "sets aside and rescinds" an earlier FCC report that did raise issues

about zero rating. The Commission did not see a T-Mobile US offer, which zero rates all video streams, as problematic.

The FCC had raised more questions about zero rating of AT&T and Verizon offers that allowed data-cap-free access, but--the FCC argued--only to services owned by each firm. Both AT&T and Verizon say they make the same zero rating feature available, on the same terms used internally, to any companies that want to do the same.

The FCC originally had said it would cost a company, like a Netflix or Hulu about $47 a month per customer to offer 30 minutes of free video-streaming a day on AT&T's network, based on a wholesale charge of about $5 per gigabyte.

Shared Infrastructure for Small Cells?

Service provider thinking about infrastructure sharing always is intimately and directly related to their perceptions of business advantage. Actors will favor sharing when economic or business advantage can be obtained, and will oppose it when there is perceived harm.

New questions will arise as small networks become essential for 5G networks. In many markets and scenarios, it will be argued that only a shared infrastructure approach will work.

Networks that are dense, with large numbers of small cells, and virtualized baseband signal processing, will require a huge number of new radio sites, backhaul links and power sources. In markets with multiple suppliers, there is “a clear argument for a single, shared network,” argue Rethink Wireless analysts.

On the other hand, as always, larger suppliers will think hard about any shared infrastructure proposals that allow competitors to compete more effectively. In the U.S. market, that has been a major reason why larger incumbents have resisted and opposed mandatory wholesale requirements that are similar to shared infrastructure proposals.

As always, that might be an argument better received in some markets than others. Where one or two suppliers believe they have financial or other advantages favoring building and owning their own network, they are likely to act that way. In other markets, where no single provider believes it can reap advantages for building and owning its own small network, cooperation and shared infrastructure are likely to be better received.

Those third party networks might work much as tower companies now operate, offering colocation and backhaul to multiple mobile operators. There are some differences, where it comes to small cells.

Cable TV operators long have expected their dense high-capacity networks would allow them to become retail or wholesale operators of small cell infrastructure. That means multiple entities might believe they have advantage where it comes to access networks. AT&T, with its large fixed network footprint, is among them.

Most other fixed network telcos, including Verizon, have smaller in-region fixed assets to leverage. Sprint and T-Mobile US would be most likely to favor some shared approach, as they own virtually no fixed network assets. It is possible each of those firms, if acquired by a cable operator, would have less interest in third-party shared small cell infrastructure, unless their parents wished to consider it.

And even there, cable operators are more likely to partner with other cable operators to fill in the out of region coverage.

At the moment, one might argue the prospects for small cell infrastructure in the U.S market are less favorable than in some other markets.

Line Between Managed Services and OTT is Getting Harder to Define

Managed services  are not the “internet,” a source of some confusion about the proper limits of

policy intended for one or the other domains. Managed services such as business access services are specifically exempted from “net neutrality” regulations. In the consumer arena, subscription video or no-incremental-charge “over the air” services also are managed services.

There are clear business model implications. Consumers who watch “free, over the air TV” do not pay the provider for bandwidth consumed to deliver the services. Neither do buyers of linear subscription TV services.

The situation is a bit less clear for  “over the top” services, where there is no charge levied by the app provider, but the customer “pays” for bandwidth only in an indirect sense, for an internet access connection. But one business model “rule” is clear. Consumers do not expect to pay, and have not in the past, paid for bandwidth used to deliver their subscription TV services.

Debate and confusion are likely to grow, as legacy linear video providers increasingly move into on-demand, over-the-top services themselves. Among the reasons for confusion: the same physical facilities and bandwidth can support internet access and managed services alike. That is virtually always the case for single-fiber access (fiber to the home) using one wavelength and time division. In principle, the services could be logically and physically separated using two or more wavelengths on the same fiber.

In fact, it is clear that the existing TV subscription business model would not work at all, in most cases, if consumers had to pay for bandwidth charges in a direct sense. The implied full cost of a video subscription--assuming half of all account bandwidth is consumed when watching subscription entertainment video--could be higher by about half the cost of the whole internet access subscription.

That might range from a minor annoyance to a bit of a problem on a fixed network, where usage caps are generous and per-gigabyte charges are low. The same cannot be said for mobile consumption.

On a fixed network, a $100 video subscription, consumed on demand, would have to cost about $125, assuming a $50 fixed network subscription and use of half that bandwidth directly by the video subscription.

That might not be a model killer; just a key impediment.

Where the model breaks down almost completely is consumption of that same video on mobile networks, where bandwidth costs as much as an order of magnitude (10 times) more than on a fixed network.

If consumption of a mobile gigabyte represents about an hour to three hours of video, depending on resolution, then watching one hour of video could cost nearly $10 to $30. That is unsustainable.

If you want to know why some mobile video service providers consider  “zero rating”  so important, that is  why: if data consumption charges are required, the entertainment video model collapses.

There are lots of other ways the business model is affected. Bundling policies and access rights, for example, affect the business model, as when access providers require the purchase of one service to use a feature.

Comcast, for example, has released a beta version of the Xfinity TV app for Roku, allowing Xfinity TV customers the ability to watch their TV content on a Roku box. That fundamental principle--granting access to the streaming product when a customer has a linear product account, is fundamental for Comcast: a clear way to protect the legacy product while creating the new product.

Among the implications: access to the streaming product is a feature of the managed service subscription. Think of that as a strategy akin to adding steam engines to a sailing ship, a hybrid stage in the evolution from sail to steam.

Biggest Impact of Gigabit is Sales of Lower Speed Services, AT&T Finds

Success-based deployment of capital is one way access providers try and match incremental capital investment to incremental revenue. That is why firms from Google Fiber to AT&T build gigabit networks in neighborhoods, not whole cities; where demand for gigabit services and faster speeds is higher than average.

In its latest statements about take rates where it is building its fiber-to-home networks, AT&T suggests it is finding what other internet service providers have tended to find, when offering a range of speeds. Among the primary effects of launching gigabit service is that it spurs buying of services at lower speeds (40 Mbps, 100 Mbps, for example).

“After we launch our 100-percent fiber network in the new market, we're seeing about half of the new broadband customers buying speeds of 100 megabits per second or higher with 30 percent of the customers taking a gig,” says John Stephens, AT&T CFO.

In other words, 70 percent of customers buy speeds other than a gigabit per second, when it is possible for them to buy a gigabit access service.