AI Gets Practical for Content

The internet’s future, many believe, is intimately bound up with artificial intelligence, used in various forms. But AI already is a practical tool, used by Google to support its advertising operations.

Author Patrick Tucker argues that  “when the cost of collecting information on virtually every interaction falls to zero,”  insights gleaned from activity will transform those interactions. AI will be the enabler, allowing the sifting of huge amounts of data to glean insights and patterns.

To assess what the economic impact might be, some analysts compare AI to other innovations such as computing advances, internet access, mobility and industrial robotics. That is not to say AI will produce value in these stated industries in equivalent volumes, only to note that big and important innovations have produced estimated benefit in about such volumes.  

source: Analysis Group

What is telling, though, is the importance content as assumed in the internet apps space as well as the internet access business.

“It is increasingly clear to us that content is the driver for future growth and AI is a core enabler to connect our user with highly personalized content,” said Fu Sheng, Cheetah Mobile CEO. Though Cheetah Mobile made its mark as a supplier of mobile utility apps, it now sees content services as its growth driver. “Looking forward, we remain both focused in implementing our mobile content strategy, leveraging the big data generated by a massive user base and AI technology to connect our user with more personalized leisure content.”

In fact, Cheetah Mobile sees artificial intelligence being “a very core technology” for content, he said.  

“There is a lot of commonality between robotics, especially in deep learning and AI that may have common applications for what we want to do on the Internet space.”

Rising Content Costs Help Netflix, Hurt Linear Providers

Netflix now is among the reasons video content costs are rising. Netflix, other buyers say, is boosting content prices by snapping up content creators and spending big to do so. But rising content prices are a primary reason linear video subscription prices climb, at rates above inflation, virtually every year.

That is why “skinny bundles” are now such a big trend in the linear video subscription business. With falling demand, ever-higher prices for traditional bundles are becoming unsustainable.

That is even more important when, in the future, most subscription growth is taken either by over-the-top providers or mobile services.

source: J. Mack Robinson

source: IHS

Spectrum Sharing is Likely Value to AT&T of FirstNet

Spectrum sharing fundamentally is important because it can change the business model for existing and new potential providers of communications services, much as increased availability of unlicensed spectrum likewise allows incumbent and new service providers to create services and revenue streams. In other words, shared spectrum is important because it changes the value and cost of spectrum rights.

Many would argue that the nationwide first responder network proposed in the wake of the Sept. 11, 2001 attacks on the World Trade Center in New York have gone nowhere for 15 years because the business model was quite questionable. That FirstNet now will be built and operated by AT&T suggests that something significant in the business model has changed, as is true for several other access technologies or approaches.

In the case of FirstNet, what seems to have clearly tipped is the perceived value of building and operating a network that has great potential societal value, but a questionable financial return. The difference now is spectrum sharing, and the impact that has on potential value to offset the capital investment and operating costs.

The other new element is a $6.5 billion initial subsidy (most of which will be paid back over the 25-year contract length) to help build the network. Estimates of construction cost range as high as $40 billion.  

FirstNet, though, will have to sell its services to first responder entities, so the venture remains a huge gamble. In that sense, the tangible benefits might well be the use of 20-MHz of new 700-MHz spectrum, whenever the emergency services personnel are not using the network. That might be “most of the time,” as the network will rely heavily on small cells.

But state entities already operate their own emergency networks, and will have to be persuaded to switch to FirstNet.  That likely means a long, slow process, so AT&T planners are not likely factoring much revenue into their business models.

So FirstNet is valuable, in all likelihood, mostly as a way of gaining shared access to 20 MHz of low-band spectrum.

source: FCC

FirstNet Gets Ready to Link 10,000 First Responder Organizations

FirstNet is one of the largest public-private partnerships in the U.S. communications business, planning ot build a nationwide 4G Long Term Evolution network to be used by as many as 10,000 first responder agencies across the country

In Phone, App, Access Provider Business, "Winner Take All" Holds

The applications business now is said to have a winner take all structure, where one or two providers have 70 percent to 90 percent market share. The smartphone business long has been dominated by Apple and Samsung. The telecom business likewise seems to operate with a “few providers” structure.

So it is hard to ignore those basic observations when formulating business strategy, almost anywhere in the internet and communications ecosystems. AT&T, for example, now seems to see such limited results from offering a robust array of phones that it is simplifying its line.

BayStreet Research analyst Cliff Maldonado argues that while AT&T is streamlining its phone lineup, since it does not see too many marketing advantages from offering “AT&T-only” phones, while Verizon still appears to believe that device differentiation provides advantages.

Nor does AT&T feature some  traditional device promotions (buy one, get one free, phone-service bundles). In part, those changes reflect a mature market where customers understand they can make a phone decision separate from a service provider decision (using unlocked phones), since service providers no longer require such device bundles.

Internet and communications markets, at least for the foreseeable future, will be highly concentrated in terms of market leadership.

For Cable, Old Monopoly Behaviors are Going to Change

Telcos and cable TV companies historically have not generally competed head to head with each other on a facilities basis, though mobile companies quickly moved to facilities-based competition. That is not to say fixed network telcos and cable companies now are unused to competition. They compete with each other, with satellite and mobile companies and sometimes overbuilders (independent ISPs).

But, as a rule, telcos have not overbuilt other telcos and cable companies have not directly confronted each other. The direction, though, clearly is in the direction of growing competition, nationwide, albeit on the basis of “over the top” applications competition, and only partly in terms of physical facilities.

For telcos, mobile services were the big break from the historic monopoly pattern. Now AT&T offers nationwide video service for the first time, using it DirecTV asset. Over time, AT&T and Verizon are likely to compete nationwide, or globally, to an extent, in various areas related to applications and services related to internet of things, connected cars, connected health and other services.

For cable companies, it also is likely that mobile entry will lead, for the first time, to nationwide competition that oversteps the historic geographic boundaries. Streaming video is likely to be the other area where competition breaking the historic pattern will happen.

Comcast, for example,  has acquired rights from cable network owners to offer their channels nationwide.

To be sure, cable operators are likely to continue to avoid head-to-head competition in their fixed network coverage areas. That obviously will not be possible if and when both Charter and Comcast get into the mobile business. Should Charter and Comcast both wind up in the streaming video service business, they are likely to compete with each other directly, though not on a “facilities” basis.

Still, markets and services are going to push cable operators into unusual behaviors, such as competing directly with each other. Mobile companies have grown comfortable with that notion. Fixed network telcos have found their primary competition comes only from cable operators, as have cable companies, who mostly face only telcos as primary rivals. But that is the fixed networks business.

Mobile is a national basis, as are the major apps businesses. So change will come. The old adage used to be "we have the best of all possible worlds: we are an unregulated monopoly." That is going to be less true, in the future. At least in the "new business" areas, there will be no monopoly, and no avoiding competing against other cable operators. They'll eventually get used to it, as tough a change as that will represent.

No Mystery about Cancelled Google Fiber Installs

If one accepts the logic of building new fiber-to-home (FTTH) facilities on the basis of neighborhood demand--building first where there is the greatest chance of getting a significant customer base--then it makes sense that some potential customers who live in neighborhoods without such critical mass might have to wait for facilities to be built.

Some appear to think there is mystery around what Google Fiber is up to, as reports surface of customers in Kansas City having their install orders cancelled. There might be less mystery than some would think.

Google Fiber has halted expansion, using FTTH. It is just that simple. So potential customers in new areas are not going to get that particular service. That means cancelled orders in areas Google Fiber will not now reach. In some cases, it is possible that even new orders in existing areas might be refused. That tends to happen for a number of logical reasons.

An ISP might have made a decision to switch technology platforms. An ISP might be planning to sell the asset, or exit the business.

And, if an internet service provider decides it is having trouble with the business model for FTTH, then it is not unreasonable to see a halt, or a pause, in new construction, as was the case with Verizon’s FiOS deployments.

If you have been around actual installation operations, or the people who have to manage those operations, you know there always is a risk of irritation when a new network is built, as “demand that cannot be immediately fulfilled” is created. In other words, potential customers hear that a new network (cable TV where there was none, 4G or 5G, fiber to home, gigabit services) is coming, but do not understand that it might take several years to build out a whole metro area.

Similar irritation happens when a formerly-announced project is cancelled, because the business model comes into question. That seems a large part of the apparent “mystery” about Google Fiber’s pause in construction of FTTH in existing and proposed markets. There should be no surprise. Google Fiber is not the first to discover the potential business model challenges.

Nor is Google Fiber the first to discover potential customer irritation when construction does not happen everywhere, right away.  

In other words, almost by definition, some potential customers live in areas where demand is less than in other areas, which will be built first. That is the whole idea behind the “neighborhood” build approach. ISPs build first where demand--and therefore breakeven--can happen fastest, building revenue and cash flow to support more construction.

All that will cause some irritation, but not as much as when an ISP has to halt construction for some business reason.  

There is no mystery about why Google Fiber install contracts might be cancelled. Aside from the clear halt in network expansion for business reasons, and the possible use of different access platforms (which might not be ready yet), some neighborhoods might well be marginal in terms of business case, using any access technology.

There is no mystery here about cancelled install contracts.