Some Overbuilders Reconsider Triple Play

It has never been easy to be an overbuilder (a firm that competes on a facilities basis) with both cable TV and telcos in the same territory) in the U.S. market.

Since local access is a scale business, any overbuilder has to attack a niche (such as multiple dwellings units) or overbuild an entire metro area, risking a huge amount of capital for hope for a 10-percent to 15-percent take rate.

To boost prospects, most overbuilders offer triple-play services (voice, video entertainment, internet access), which helps increase average revenue per account. But the economics of the triple play are changing. Voice take rates keep falling, and the video business case for a smaller provider always has been challenging, as programming contract discounts are based on volume, which, by definition, a small provider cannot attain.

Recently, there are possible signs of a strategy shift, in some instances. Google Fiber did not offer voice services, sticking with internet access and video. Sonic only offers gigabit internet access and voice. Ting Internet seems to be aiming at internet access only in its new builds.

The business case matters, for overbuilders or incumbents.

Incumbent provider CenturyLink is reconsidering whether linear video should be offered, as the economics of over the top video are better. Small telcos always have difficulty justifying offering video service as well.

Grande Communications, the Texas-based broadband communications company offering internet, TV and phone services, initially offered gigabit access to high-density living units, another form of picking a niche. Now Grande is providing gigabit internet service home and business subscribers in its Texas markets of Austin, San Marcos, Dallas, Midland and Odessa.

That move is made possible by introduction of DOCSIS 3.1 protocols that support gigabit access over a standard hybrid fiber coax network.

Even if the tier one cable and telco incumbents continue to focus on triple play, niche providers and new attackers might well choose not to do so.

FCC Wants to Return Internet Access Regulation to Title I Model

Though it will be controversial in some quarters, Federal Communications Commission Chairman Ajit Pai suggests network neutrality should return to the light touch policies “in place for decades before 2015, we had a free and open Internet,” dating back to the Clinton administration.

Most significantly, Pai proposes to return the framework to regulation of internet access as a Title I information service, not a Title II “common carrier” service.”

Some will see greater freedom as a result, while detractors will see less. Since every public policy has corresponding private interests, some might characterize the “freedoms” as accruing to app providers (some call them edge providers) while others would say the new freedoms will accrue to access providers.

Since the “consumer” or “public” interest can be argued in any number of ways, agreement is unlikely. It is fair to note that, under common carrier regulation, U.S. residents had low cost services, but little benefit from innovation. The fear often is that Title I inevitably means higher prices.

Nothing about the development of the internet or computing suggests that is the most likely outcome. Application providers always have been free of such regulation, and it is hard to argue with the observation that quality, variety and price all have improved.

At the same time, in all years, consumer internet access prices, in real terms, have dropped, both in absolute terms, and relative terms, as speeds have been increased at the same time that retail prices have dropped.

Some fear there will be reduced competition in a Title I framework. Some may try to exercise market power. We will see. Of course, higher prices create more incentive for competitors to enter the market. Higher market share provides the same sort of incentives. The more share any market leader has, the more chances to build a business taking share from that leader.

Gigabit to Every Customer, Everywhere, is AT&T's Goal

There are continuing signs that concern about the pace of U.S. internet access upgrades and investment are likely unfounded. Nor is the pace of mobile bandwidth expansion slowing, either.

Comcast has pledged to upgrade its whole network to gigabit access, as have other bigger cable operators other than Charter Communications.

Verizon recently announced symmetrical gigabit service for eight million FiOS passings, while AT&T continues to add more metro areas for its own gigabit services.

Google Fiber, meanwhile, seems to be preparing for a big new test of its fixed wireless strategy.

If fixed wireless assaults mount, and as fiber-based gigabit offerings expand, the pace of investment pace of investment is going to remain high, for competitive reasons.

Mobile bandwidth also has grown substantially, with T-Mobile US and Dish Network gains in the 600-MHz auction, new activity to add millimeter wave spectrum on the part of AT&T and Verizon, and more coming as shared spectrum in the 3.5-GHz band becomes available, and the Federal Communications Commission moving to release huge amounts of new millimeter wave spectrum as well.

“What the return of unlimited really highlights, and that is the industry's position in terms of network capacity, because if the industry is going to stay with unlimited, we're prepared and can probably sustain it better than anyone else because of our spectrum position,” said AT&T CEO Randall Stephenson.

“We now have more than 60 megahertz of fallow spectrum that we're ready to light up, and we'll be deploying all the bands simultaneously starting this fall,” said Stephenson. “Our goal is to put one gig speeds in our customers' hands no matter where they are on our network.”

Ironically, prospects for better market share gains in fixed network internet access might be more important, not less important, for the likes of Verizon and AT&T, now feeling the pressure of mobile segment losses.

“Broadband had a very strong quarter, with 115,000 subscribers added,” said AT&T CFO John Stephens. Also, “our fiber deployment is making inroads.”

That is important for a few reasons. Account gains might be easier to get in the fixed realm than the mobile segment of the business. Also, to the extent that fixed internet access is the foundation service in the consumer fixed networks business, more scale, and more market share, helps.

Lots of bandwidth also helps support video operations, the new lead application on the fixed and mobile networks.

AT&T fiber is now in 52 metro areas and marketed to 4.6 million customer locations, Stephens said. “ We expect to add two million fiber locations this year, to reach six million by the end of the year, and to meet our 12.5 million merger commitment goal by 2019.”

AT&T executives now speak of a “new world, where capacity, networks, and entertainment intersect.”

“A year from now, we may look back on the return to unlimited plans as the moment when the battle for network reach and capacity began,” said AT&T CFO John Stephens.

If Using Roads is Free, Then Your Business has to Use Roads, Not "Be the Road"

Mobile video has been a problem for operators because competitive pressure prevents them from usage pricing in a way that would realize much incremental revenue from the shift, Tom Nolle, Cimi Corp. principal, notes.  “They’re stuck with another reason for revenue per bit  to decline, sinking into the realm of dumb, cheap, plumbing,” Nolle says.

“And, of course, if the road is becoming free, then you have to make money on what’s traveling the road, which is video content,” Nolle adds. That is a fundamental insight into present and future business models for many access providers who once earned most of their revenue from voice or messaging.

Across the full range of applications and services, “telcos” (including even cable TV companies, which are a segment of the telecom industry using a different access platform), the value and revenue from traditional apps has fallen. That is starting to be true even for the “newer” legacy services, such as internet access or entertainment video.

There are clear analogies in the internet era, when virtually any app or service can be created and delivered over any public IP network, with no participation by the access provider. With the rise of substitute products, that often means severely disrupted legacy revenue streams.

Voice services on U.S. fixed networks pose a huge stranded asset problem, as fewer than half of locations reached actually generate revenue.

Also, voice is a severely-limited revenue generator. A recent survey of mobile industry executives found that half now view voice as a low value service useful mostly in a multi-product bundle.

source: CDC

The key strategic insight is that since access has become a function that is largely commoditized, with value having shifted higher in the stack, or elsewhere in the ecosystem, at least some service providers must recreate application roles with higher value, higher profit margins and higher revenue, as application or service providers.

In other words, “you have to own at least some of the content and apps that flow across your access network.”

Verizon "Goes Gig" for 8 Million Locations

Verizon has launched “Fios Gigabit Connection,” said to be “the nation’s largest deployment of gigabit Internet connection service.” to eight million U.S. homes. Comcast has pledged to upgrade all of its customers on all its networks, to gigabit levels of service in the near future, but Verizon is the only operator that now has done so across its entire footprint of fiber-to-home connections, and has done so using a symmetrical bandwidth approach.

AT&T has been adding gigabit access across its footprint of metro areas, but on a neighborhood-by-neighborhood basis.

Fios Gigabit Connection provides downloads as fast as 940 Mbps and uploads as fast as 880 Mbps.

Priced at $69.99 a month standalone and starting at $79.99 a month for a triple play bundle when ordered online, Fios Gigabit Connection for the first time in some years allows Verizon to argue that “no cable provider comes close to offering the speeds and power of Fios Gigabit connection on this kind of scale.” In addition to scale, Verizon is offering symmetrical bandwidth, something Comcast will not be able to do.

The upgrade is important as it puts FiOS in the lead, as far as fixed network internet access provided at scale, a lead Verizon had lost as cable operators such as Comcast pushed speeds to match Verizon’s FiOS service, in the downstream direction.

Verizon had upgraded speeds 750 Mbps symmetrical service for about seven million homes in early 2017.  Standalone internet access at such speeds were priced at $150 a month.

The gigabit service is priced at $70 a month on a standalone basis, showing continued improvement not only in speed but also in price, for a leading U.S. internet service provider.

The larger point is that, despite some skepticism, U.S internet access speeds are not somehow lagging world averages, though that might once have been the case. Rather, speeds are growing--at least for some major suppliers-- at rates nearly what one would expect if Moore’s Law applied.

source: Technology Futures

Threat and Reality of Common Carrier Regulation Reduced U.S. telecom investment $150 Billion to $200 Billion

Between 2011 and 2015 (the last year data are available), the threat of reclassification reduced telecommunications investment by about 20 percent to 30 percent, or about $30 to $40 billion annually, according to George Ford, Phoenix Center for Advanced Legal and Economic Public Policy Studies chief economist.

In other words, over the interval 2011 to 2015, another $150-$200 billion in additional investment would have been made “but for” Title II reclassification, he argues.

Actual investment averaged $126 billion annually. But the average investment over the five-year window would have been about $160 billion (or more) annually, in the absence of concern over the rules, Ford argues.

“Notably, I find no decline in investment following the release of the FCC’s “Four Principles” to promote an Open Internet in 2005, suggesting it is reclassification—and not neutrality principles—that is reducing investment,” says Ford.

In other words, rules that ensure that consumers have access to all lawful apps, without blocking or hinderance, did not seem to reduce investment. Common carrier regulation did, Ford argues.

Internet of Things Tops Mobile Executive LIst of "Most Important" Apps for 2017

With the caveat that we might all turn out to be very wrong, a survey of executives conducted by GSMA suggests that internet of things is, far and away, the area of greatest mobile operator interest for 2017.

Conversely, 50 percent  of respondents said that voice is a “low value, bundled service.” About  16 percent of respondents said voice “has no future and revenues will dwindle” as users turn to other communications formats.

Asked which new business areas will be the most attractive in 2017, 48 percent of respondents said internet of things would be most important, not only for access account potential, but also for additional roles in the value chain.

No other category ranks that high. The next largest opportunity, for example, was mobile payments, chosen by 14.5 percent of respondents as important in 2017.