Verizon to Launch New Streaming Service

Verizon Communications plans to launch a new over-the-top streaming live TV service service that would compete with Hulu, Dish and DirecTV Now, Bloomberg reports. The service would not compete directly with Netflix or Amazon Prime, whose catalog largely is built on movie and other pre-recorded content accessed on demand. The Verizon service would instead compete in the “live streaming” segment of the market that is a replacement for linear TV.

In large part, the move is designed to capture demand from consumers for lower-cost, skinny bundles of channels. Comcast seems also to be preparing to offer a skinny OTT bundle.

Pricing is expected to range between $20 and $35 a month, most expect, as that is the range for the competing services.

The Verizon move shows the “harvest linear, grow OTT” strategy the leading linear video subscription service providers are following. The launch also shows the importance of video entertainment services as a driver of consumer service provider gross revenue.

Beyond that, the OTT video launch also illustrates the strategy for larger tier-one service providers, which is to participate at the application layer of the media business in the consumer segment, and in the Iot, M2M and mobile advertising platform businesses in the enterprise customer segments.

OTT Video is a Challenge, But Not a Fatal Challenge for Access Providers

It goes without saying that the maturation of the linear TV business, and the growth of the streaming business, could have significant repercussions for revenue earned by telcos and cable TV companies in the U.S. and other markets from consumer customers, though not as great an impact as will the development of the internet access business.

The reason is that linear video has become a significant--in some cases very significant--contributor to fixed network telco revenues. Video represents a greater contributor to consumer account gross revenue per account than does voice, for example.

source: Telco 2.0

source: Deloitte  

So a clear and key strategic challenge for fixed network providers serving the mass market is how to finesse the transition from linear to OTT formats. Some will point to leadership by Netflix and others as evidence that linear providers cannot make the transition to OTT. We do not know that, for certain, as linear providers have huge incentives not to cannibalize their existing business by moving prematurely to OTT.

Some 13 percent of US homes (15.4 million)  now buy internet access but not linear TV services,  according to SNL Kagan researchers. Kagan estimates that such cord-cutting  homes will reach 28 million by 2021, and possibly more.

It is not a new challenge. Telcos faced the same problem with OTT voice and OTT messaging. Some urged telcos to embrace OTT fully. The problem is simply that the financial returns for doing so (matching OTT prices and plans, for example) would simply destroy most of the existing business, where a strategy of measured decline (the course virtually all telcos have taken) actually produces better financial results.

That, in fact, was the strategy used by AT&T earlier: harvesting a legacy business as long as possible, to buy time to create a new set of revenue drivers.

Nor is lack of leadership in OTT a show stopper. U.S. telcos--especially Verizon and AT&T--have grown more through acquisition than organic growth.  When the time comes, assets will be acquired.

So it might not, in that view, be too alarming that the number of U.S. customers relying solely on OTT for video entertainment keeps growing. That is the current pattern, and a pattern that is expected to continue. So the classic past pattern--harvesting the legacy revenue stream while building new revenue sources--will hold.

Steps will be taken to retain as much of the linear business as possible. Effective price reductions (skinny bundles and triple play) are part of that strategy. At the same time, efforts to organically grow the OTT business will be undertaken. Ultimately, the tier-one providers will buy their way into the business. They have done it before. They will do it again.

source: IHS

"Dig Once" Might Not Help Much

There arguably are all sorts of barriers to broadband deployment related primarily to infrastructure cost or underlying demand. Some recently have proposed duct placement whenever federal highway funds are used to build new highways. Of course, some might note that the potential upside might come at a cost: less money to spend roads. Most of the reason internet access is suboptimal is access infrastructure, not long haul transport. And, of course, most highways are “long haul” infrastructure, not “access” facilities such as urban streets.

To be sure, middle mile infrastructure is a definite problem for most rural communities. Ductwork placed in the ground when new highways are built might not help solve that problem, as highways generally run between large population centers (east-west or north-south), and long haul facilities likely already follow those routes, as long haul lines already follow railroad rights of way.

“Dig once” always sounds good. But it costs money, and might not typically actually result in more facilities-based competition. To be sure, so long as somebody else is paying for the conduit, there is a potential benefit, in principle, for any ISP needing to build new long haul infrastructure. It is not so clear that such conduit actually encourages service providers to build new access facilities, even if the long haul routes might prove useful for enterprise traffic purposes.

Indeed, there are advantages and disadvantages, the Government Accountability Office has said. Some enterprise customers (U.S. government, for example) do not allow their transport providers to use lease infrastructure. Capacity along the routes where conduit is available might not materialize, or develop robustly. Also, the nature of construction matters.

If conduit installation is required fro federal highway construction, one conceivably could end up with short sections of conduit laid (as the result of repair work, for example), with no actual connectivity, end to end, to anywhere. Also, redirecting funds to lay conduit might consume seven percent or more of the allocated road funds.

There are other practical issues, as when municipalities trade conduit access to internet service providers to promote access or metro communications builds.

The point is that “dig once” sounds good, but is likely to have almost no impact on additional internet access facilities, while stranding assets and reducing sums available to repair roads.

source: GAO

Price Matters, Where Public Wi-Fi is Concerned

Causation always is suspect when people say something needs to be done to spur economic growth by the means of better internet access. To be sure, virtually everyone behaves as though there is a causal relationship between internet access and economic growth, even if that cannot be proved.

Quite often, an argument can be made that the reverse actually makes more sense: quality internet access is a result of economic growth or existing wealth, not the cause of those developments.

On the other hand, it bears noting that value and price relationships do have a causal relationship to consumer buying. As with any desired product, lower prices cause more buying of that product.

Way back in the days of dial-up internet access, when most such dial-up services were sold on a metered basis, AOL leapt to leadership of the market by abandoning metered pricing, offering monthly access for a single flat rate.

The point is that, when new supply is added to the market, price matters. In most markets where there is high use of Wi-Fi hotspots for data offload or internet access, the incremental cost of using public Wi-Fi is zero. Low prices should spur incremental use in some markets, but just how much remains to be seen.

Public Wi-Fi now is seen as an important way to make fixed network internet access more widely available in India. As always, much will hinge on market dynamics. In many other markets where Wi-Fi offloading is prevalent, the offloading happens when consumers offload to their own personal internet services. In that sense,  high use of Wi-Fi is dependent upon, and derivative of, widespread fixed network adoption.

Public Wi-Fi (mostly amenity services) also tend to get significant usage because access happens “at no incremental cost” (“free”). It remains unclear how demand will fare in India, if public Wi-Fi hotspot access is a “for-fee” service.

Ironically, high public Wi-Fi usage might be a derivative of already-existing supply of internet access at affordable rates. not a driver of new and affordable supply. So it remains to be seen how well the new push for public Wi-Fi succeeds.

Nationwide Content Rights Mean Comcast Eventually Will Break With Past Industry Practice

Geography and industry culture sometimes can be barriers to success in the over the top applications and services realms. Note past efforts by Comcast to offer a streaming service only to consumers who live within Comcast’s fixed network geography.

That decision was partly an effort to avoid cannibalizing it own linear TV services, and partly to avoid competing with cable operators in other areas (cable TV operators virtually never overbuild over cable tV operators).

So Comcast’s latest move to gain content rights on a nationwide business is an important move. Eventually, success in the streaming service business will require ubiquitous availability, irrespective of which entity owns the actual access networks. That is a fundamental reflection of the way internet protocol networks operate, where any application can be used by any user on any public IP network.

But any such move to nationwide service availability will mark a huge change in industry practices, virtually requiring competing against other cable operators. The same will be true for cable operators who get into the mobile services business at the highest levels.

With roaming agreements, virtually any mobile service provider, such as any mobile virtual network operator, can offer service nationwide. But marketing sometimes is conducted on a regional basis. The main point is that the business now inherently requires nationwide scope, in terms of network coverage, if not in terms of marketing efforts.

Intel Says Moore's Law Not Dead

Intel insists it can keep innovating in ways that keep rates of progress based on Moore's Law a relevant assumption. Intel’s success or failure will have direct implications for the cost of many products requiring computing.  If other industries experienced innovation at the rate of Moore’s Law, car owners could drive a distance equivalent to traveling between the earth and the sun on a single gallon of gas, according to tacy Smith, Intel SVP.

Agriculture productivity would be so high we could feed the planet on a square kilometer of land, said Smith. As for the speed of travel, humans would be traveling at 300 times the speed of light.

So yes, Moore’s Law matters. But Intel is making some shifts in the way it measures progress, focusing less on the number of transistors and more on the cost of computing. Intel now will emphasize such matters as the manufacturing cost per transistor, which Intel expects to cut by about half with each new manufacturing process, which is in line with Moore's Law.

Moore's Law continues to face physical constraints, as the packing of more transistors into a finite space reaches physical limits, at least using silicon technology. So Intel now focuses more on output metrics, rather than input measures, such as transistor count. In fact, some might argue that Moore's Law is broken.

With the new measurements, Intel will be able to boast that its manufacturing improvements are surpassing Moore's Law. The company also said it would cut the manufacturing cost per transistor by half with each new manufacturing process, which is in line with Moore's Law.

Growth Gambles (Moving Up the Stack) are Dangerous, Difficult but Also Necessary

Not to pick on Ericsson at all, but the last several decades have not been kind to legacy providers in the telecom business, as growth has ended in some geographies (developed markets, mostly) , and is nearing the end even in emerging markets that are stronger now (Asia) , or poised to be stronger (Africa).

Many now are too young to remember it, but in the monopoly era  (pre-1980), both the United States and Canada were home to a couple of the biggest telecom infrastructure providers in the world (Northern Telecom and Lucent, formerly Western Electric). But some of that era’s leading firms also now have been absorbed, including Alcatel (to Nokia Networks), while the biggest growth has happened among the ranks of Chinese firms (Huawei and others).

At the same time, as activity and investment have flowed to all things internet, other suppliers traditionally more viewed as “computing” suppliers have surged, as virtually all networks now are “internet protocol” networks. To a large extent, that also means all “telecom” networks are “computer networks,” while the telecom industry is part of the larger internet ecosystem.

Some might fault Ericsson for betting it could create an important new business in media services. What else it might have done is the question, and there are no easy answers. In virtually every part of the legacy telecom business, questions about how to ignite growth have few easy answers, beyond horizontal acquisitions to add bulk.

Value has moved inexorably towards the separated application layer, as all apps now have become “over the top” apps, by design. In principle, and by design, IP networks are dumb pipes.

So “moving up the stack” essentially means transport service providers literally must create roles on the applications side of the business. That is never easy. The best template is provided by cable operators, who have in some instances “vertically integrated” (in a new way) by acquiring content assets.

Instead of trying to capture value by restricting content availability, the new pattern is to seek the widest possible distribution of those content assets. Though it remains to be seen how much that strategy might apply to enterprise apps and services in the internet of things realm, it seems clear enough that the really-big wins would come if and when access providers own highly-popular apps and services that are not restricted to customers of just one network.

In other words, it makes no sense to restrict HBO sales only to AT&T customers, or Netflix only to Verizon customers. Nor would it make sense for any access provider owning other assets (Netflix or any other popular app) to restrict access to its own customers.

It isn’t clear what else Ericsson might have tried, since it was going to have to step out of its comfort zone, no matter what it attempted. It will not be the last firm to struggle with a growth strategy. Growth now has to come in new areas outside the core competence. That is risky and hard.