Will Customer Service Ever Cease Being an Issue for Access Providers?

Comcast customer service scores are improving--apparently by substantial amounts-- in Oregon, where Comcast has been testing new procedures and processes to improve customer service, the company says.  Comcast says complaints have dropped 25 percent in two years.

Oddly enough, one of the changes involves a new use for an old trouble-detecting mechanism. Decades ago, a cable operator would learn it has a problem because trouble calls started to pour in. Now, in a new way, Comcast monitors one specific behavior--customers using speed test apps--as an indicator it might have a problem in a neighborhood.

It really is not easy being a network-based service provider of any type, whether the service is electricity, mobile or fixed phone service, internet access or linear subscription video.

For years, customer satisfaction scores for internet access service and linear TV have been at the bottom of industry rankings, though there are signs of improvement, recently. That seems to always be the case.

Other “recurring services,” such as electrical utilities, fixed network voice or mobile phone service, also score relatively worse than many other types of products.

It never is so clear to me why that is the case, though any number of possibilities exist. Given the number of hours a television is used (often on in the background, and perhaps not being actively and intently watched), any network outage is going to have a higher chance of being noticed than if a fixed phone line drops. People do not actively use fixed line phones that many minutes per day, and an outage can occur without user awareness that has happened.

Others might suggest the “problem” is the recurring bill, a monthly reminder that a customer is paying for a product where there is some unhappiness with the value proposition.

Poor customer service can be an issue in any business where billing errors are likely to be common, as is any communications service with usage charges. Mobile service providers a decade or two ago had somewhat more common failures in that regard, though most of us would agree that customer service has gotten quite a lot better.

Internet access provider might suffer from the instability of IP connections generally, as well as the somewhat disparate experiences across the day. Wi-Fi channel performance also tends to vary significantly, all of which can lead to a user experience that seems--and is--unstable or disparate.

That does not help.

Base- line	2012	2013	2014	2015	2016	2017
Verizon Fios	72	74	73	68	71	70
AT&T U-verse	68	68	71	69	69	69
DIRECTV (AT&T)	69	68	72	69	68	68
DISH Network	67	69	70	67	67	67
Bright House Networks	NM	NM	NM	NM	65	66
Cablevision Systems	NM	NM	NM	NM	67	66
Subscription Television Service	66	66	68	65	63	65
All Others	69	68	69	66	66	64
Comcast	59	61	63	60	54	62
Suddenlink	NM	NM	NM	NM	57	62
Charter Communications	59	59	64	60	63	60
Cox Communications	67	63	65	63	62	59
Time Warner Cable	59	63	60	56	51	59
Mediacom	NM	NM	NM	NM	51	54
AT&T Corp.

source: ACSI

How Soon Will Use Cases Beyond "Capacity" Emerge for 5G?

Coverage is not likely going to be the primary reason for deployment either of Release 15 or Release 16 5G networks, according to GSMA. The early 5G networks based on LTE Release 15 will be deployed in dense urban areas to boost capacity for human users of mobile networks and will use macrocell architectures, GSMA predicts.  The emphasis there is capacity and smartphones.

Those early deployments, in all likelihood, will allow operators of 5G networks to experiment with other potential new revenue sources and use cases. Still, the early deployments will not primarily support new revenue sources to a major extent.

It is possible that specialized low power, wide area platforms separate from 5G will be early to emerge as enablers of many new applications.

With a few exceptions, 5G is the first mobile platform developed with new categories of lead apps in mind. Most significantly, it is the first mobile next generation platform intended to support sensors and other machine applications.

But the traditional uses of next generation platforms (additional capacity for human users) likely will drive the initial deployments, as the business case is clearest.

If and when that happens, it is likely to happen with 5G Phase 2 (LTE Release 16, based on small cell deployments). But that also is where the uncertainty about business drivers is most unclear. If the assumption is that “adding capacity” is the primary application, in dense urban areas where standard macrocell architectures will work, then the question arises: what drives the demand for an overlay network of small cells?

Cost is the principal concern, GSMA says. The basic rule of thumb has been that shrinking the cell radius 50 percent quadruples the number of cells.

So dense small cell networks in urban areas will require considerable capital investment. A small cell network will require shrinking cell radii far more than 50 percent.

Access to, and ideally ownership of, dense urban fiber networks will be a “prerequisite,” GSMA says.

Mobile operators’ need for a new business model is most stark here. If new use cases do not emerge that support investment, then under the current operator business model rollout is likely to be patchy and slow, GSMA says.

That search for new services, use cases and revenue drivers already is mirrored in access provider response to the disaggregated application market, where the way most apps get created is by third parties, not app providers directly.

That is one reason why access providers who can do so invest directly in third party app, content, advertising or transaction firms. That replaces the older “vertically integrated” model for creating applications such as voice or mobile text messaging. In colloquial terms, the strategy is pretty simple: “you need to own at least some of the apps that flow over your network.”

On the other hand, one might argue, there is no need for a small cell overlay, if standard macrocells work for dense urban areas. Others might well argue that using new millimeter wave spectrum, in any setting (urban, rural or suburban) will require use of small cells, for signal propagation reasons. In that view, most 5G deployments will be of the small cell type.

Operators are expected to roll out 5G at a similar rate to the deployment of 4G, attaining coverage of 34 percent of the global population, 2.6 billion people, by 2025.

70% Market Share in Internet Access is Too Tempting a Target to Ignore

In a new research note, New Street Research analyst Jonathan Chaplin says cable providers controlled 65 percent of the overall consumer internet access market at the end of 2016, possibly growing to as much as 72 percent by 2020.

It might not be unreasonable to predict a problem of high prices, were that situation to develop, all other things being equal. But all other things are highly unlikely to remain “equal.”

Sure, telco digital subscriber line has proven an inept competitor to cable TV internet access using the DOCSIS platform and the hybrid fiber coax physical platform. And, as Google Fiber and Verizon both have discovered, ubiquitous fiber-to-the-home, in a competitive market with two or three facilities-based providers, is difficult at best.

For the most part, successful fiber-to-home deployments with scale have happened in markets with significant government support, small compact markets and histories of close collaboration between government and private industry.

In most mid-sized or big markets (countries with large geographies), especially in markets with significant facilities-based competition, the financial return from such networks has been stubbornly difficult. That explains the past and current search for wireless platforms of various types, ranging from fixed wireless to mobile substitution, with some “exotic” platforms ranging from balloons to large fleets of low earth orbit satellites to unmanned aerial vehicles.

It is too early to know how important mobile and wireless substitution will be in a decade or more.

For starters, supplying “gigabit per second access” is better way to look at the problem, not physical media. Coming 5G mobile networks (using either mobile or fixed access) are likely going to change the competitiveness of telco platforms.

AT&T, for example, has suggested it can become a major competitor for consumer internet access in about five years.

Beyond that, it is unlikely that a big consumer market, with strategic implications for any provider of connectivity services, will remain unchallenged if a single provider in each market has market share of 70 percent.

On one hand, new competitors will be funded to enter such markets, using different platforms than either fiber to home or hybrid fiber coax. On the other hand, political pressure to encourage those entrants also will develop.

The point is that if cable operators are able to grab as much as 70 percent market share by 2020, new competition will arise. Entrepreneurs, investors and the government are going to find that opportunity too tempting and the risk of inaction too damaging to ignore.

If one assumes, to use just one example, that high speed internet access becomes the foundation for all access services (fixed or mobile), then telcos cannot afford to cede such leadership to cable companies.

The historic problem of matching revenu e with investment already is being worked on, with wireless alternatives of all sorts being a key part of the eventual solution.

The business model also will be changed as mobile services with gigabit bandwidth become ubiquitous, and as fixed network backhaul and transport become a bigger part of the fixed network revenue mix. That is precisely what Verizon believes will make “One Fiber” work, for example.

The value of fixed network assets will shift significantly to supplying backhaul for small cells that deliver high-bandwidth access to business and consumer accounts. At the same time, such backhaul facilities ownership should deliver meaningful advantage for owners of fixed network assets who also supply retail mobile access.

Up this point, cable operators have had a clear and substantial advantage over telco DSL platforms in providing access speed. So long as the only option for the big telcos was fiber to the home, that has seemed unlikely to change much.

What will be new, in the coming few years, is telco ability to mass deploy a couple of new platforms to compete with cable speed for the first time since the very early days of broadband access.

What comes over the next decade are other potential options that will further increase competitor ability to negate the historic cable advantage in internet access performance.

All that means it is unlikely the consumer internet access can for long remain a business with 70 percent market share by one of the platforms.

The cure for potential high prices is, in part, the threat or actuality of high prices. The high margin and high market share likewise will prove an irresistible lure for new competitors, and a strategic imperative for the leading mobile providers.

Vertical Mergers Likely to Lead Next Round of Industry Consolidation

Virtually everyone expects a serious round of U.S. industry consolidation, in 2017, in the mobile, content and content distribution markets. Sprint, T-Mobile US and Dish Network are among firms usually mentioned as potential actors (either as buyers or sellers). Comcast, Altice and Charter Communications also often as seen as potential players.

Up to this point, most industry mergers have been of the “horizontal” variety, intended to provide additional scale. But that strategy has nearly run its course. At some point, antitrust concerns prevent further scale of that sort.

There is an equally-important consideration.

Some would argue the more-important mergers are of the vertical variety that move access providers up the value stack into content, applications, transactions or advertising. Scale helps with costs and gross revenue.

But scale does not help a participant escape a lower-value role in the ecosystem.

Other than Comcast, only AT&T has made major moves in that regard. So the next round might well be focused on vertical combinations, the salient possible exception being a horizontal merger between Sprint and T-Mobile US.

Even a move by cable TV operators into mobile facilities ownership is more a vertical diversification move (expanding business operations into different steps of a single ecosystem) than a scale move designed to increase mass in an existing business category.

There are many reasons for that likely outcome. First, there normally are limits to the amount of market share allowable in any horizontal combination that makes any provider a bigger market share presence in a specific industry segment (mobile, fixed access, cable TV). The broad rule of thumb has been that no single provider in the fixed segment is allowed to serve more than about a third of total U.S. homes.

The other angle is that virtually all would-be market leaders coming out of the access or content distribution business know they have to acquire bigger profiles in the higher-value, more-sustainable content production, applications and services portions of the ecosystems.

In that regard, a move by a fixed network provider into the mobile segment is not a scale move (more of the same), but a vertical move into a new part of the ecosystem.

source: Financial Times

In Special Access Markets, Competition Exists, and Has Worked

Competition works. Over the last decade, cable  operators and independent business access specialists have dramatically changed market share in the special access (business data services) business, even if new services sold by cable operators are not, in some ways, identical substitute products.

To be sure, in the monopoly era, incumbent telcos were dominant providers of special access services, holding 92 percent of the market for special access services in 1980, for example. All that has changed.

The total market for special access services, roughly $40 billion annually, according to the Federal Communications Commission, now has non-telco providers holding about 61 percent market share (a bit less after CenturyLink’s acquisition of Level 3 Communications).

Time division multiplex (T1 and DS3) services accounted for roughly $25 billion of the total market in 2013, of which incumbent telcos accounted for about $16 billion.

In other words, telcos held about 39 percent of the total special access market in 2013.

source: FCC

As of the end of 2014, four of the five largest cable operators alone accounted for about $8.8 billion of the total special access market, including more than half of special access services based on Ethernet technology, even without counting Cox’s business revenue.

Some will argue, or note, that Ethernet (the next-generation service) is not the same as legacy T1 or DS3. Customers do not seem to care.

The two largest cable companies have small business special access market share in the 35 percent to 40 percent range, according to the FCC.

Price and performance tell the story. Cable services frequently offer scores of megabits per second service for as little as $70 a month. T1 service at 1.5 Mbps often costs around $200 a month.

Higher-speed services (150 Mbp) cost less than that. DS3s (45 Mbps) might cost

$1,000 to $12,000 a month.

Since about 2014, Comcast Business grew revenues by 39 percent, Charter Business by 30 percent and Mediacom Business by 22 percent.  

Comcast Business grew revenues by 70 percent since 2013 and 182 percent over five years, according to researcher Anna-Maria Kovacs of the Georgetown Center for Business and Public Policy, who authored a study for the Federal Communications Commission.

source: FCC

Cable operator Mediacom grew revenues by 38 percent in the last three years. Since 2014, Cogent grew 18 percent and Level 3’s North American operations grew eight percent.

In contrast, during those two years, the business revenues of AT&T and CenturyLink each shrank by six percent  and those of Verizon shrank by nine percent.

Windstream, which combines incumbent and competitive business operations, shrank revenues by seven percent.

Comcast Cable’s share of the small-business market within its footprint is 40 percent, in the medium-business it is 20 percent  and it is five percent in enterprise, a customer segment Comcast entered in late 2015.

In other words, business data services competition has exploded. In 2013 there were 491 facilities-based companies providing special access  in the enterprise market.

Competitive providers--not including cable providers--earned $23 billion of the $45 billion in BDS revenues in 2013.  

Verizon "Very Confident" in Spectrum Position

Most informed observers outside of Verizon believe it will have to boost its spectrum assets. But Verizon continues to insist it is “very confident” with its present and potential spectrum assets, according to Matt Ellis, Verizon CFO. “We have significant opportunities to continue to grow within the spectrum holdings that we currently have; we’re refarming spectrum as we've talked about for a while; we still have the AWS-3 spectrum; and then unlicensed,” said Ellis.

It is not an unrealistic position. Even if, historically, gaining new spectrum has been the main way mobile operators have added new capacity, using smaller cells is the other typical way additional gains have been achieved. With the fiber deep architectures Verizon is pioneering in Boston, it is creating the backhaul infrastructure to do just that: add small cells to reuse existing capacity.

So, in terms of the physical options, Verizon does not absolutely need more spectrum to add more capacity. On the other hand, there is no advantage to Verizon to claim otherwise, even if it believes it might, or will, add more spectrum in the future.

Verizon maintains bargaining advantage over potential sellers if it continues to insist it does not need to buy additional spectrum assets from would-be sellers, especially to support 4G operations.

Keep in mind that the usable capacity the smaller providers (T-Mobile US and Sprint) can wring out of any amount of raw spectrum is greater than can be deployed (all other things being equal) by AT&T and Verizon, which have many more customers to support.

source: Allnet Insights

AT&T Adds Gigabit Service in Eight More Metro Areas

AT&T plans to add eight more metro areas to its AT&T Fiber service, reaching at least 75 major metros with the fiber-to-home, gigabit per second service.

AT&T now markets gigabit connections to 4.6 million locations across 52 major metros. AT&T expects to add two million locations in 2017, and plans to reach at least 12.5 million locations by mid-2019.

Some critics will point out that the deployment is neighborhood by neighborhood, and not a “ubiquitous” deployment. That is a simple case of selling gigabit connections where there is enough demand to warrant the investment. Even Google Fiber, which did build in the same way, found insufficient demand to continue. AT&T expects its deployments to be sustainable.

Some observers characterize AT&T fixed network investment plans as “running away” from that business. Some of us would disagree. AT&T, it is undoubtedly true, will not drive most of its future revenue growth from its U.S. fixed network. That will tend to come from international expansion, mobile services related to new 5G services and internet of things (connected car and other verticals) and consumer video delivered using wireless networks (satellite and mobile).

The issue is how to target capital investment to drive financial returns, obviously. In that regard, using DirecTV to deliver linear video nationwide has worked far better than ubiquitous fiber to home or fiber-to-the-neighborhood in making AT&T the market leader in linear video, nationwide.

Some would say AT&T is targeting its capex to use a range of platforms--fiber, mobile, fixed wireless, satellite--to produce the best mix of financial returns, without abandoning its traditional access business, in region, but also without stranding capital in assets that do not product revenue.