AT&T Defends Time Warner Acquisition Effort

AT&T defense of Time Warner acquisition. 

Verizon to Launch 5G Fixed Wireless in 2018

Verizon Communication says it will launch fixed wireless residential broadband services in three to five U.S. markets in 2018, starting with Sacramento, Calif. That move is the among the first of an expected wave of fixed wireless deployments to use 5G platforms (or, perhaps properly, pre-5G platforms).

Importantly, the commercial rollout will, Verizon hopes, demonstrate the cost advantage of using 5G fixed wireless instead of fiber to the home to provide internet access at speeds up to a gigabit per second.

By some estimates, fixed wireless access networks feature capital investment about half that of fiber to the home, and perhaps less than half the cost of a connected location.

That is crucial, if U.S. telcos are to reverse a decade-long erosion of internet access market share to cable TV companies. Not since about 2007 have telcos had more internet access market share than cable companies

A reasonable goal might be to boost market share from about 40 percent to 50 percent. Fixed wireless might be a key part of that effort.

Data Consumption Grows 100 Times, Access Revenue Doubles

One clear danger for mobile service providers is the gap between increased investment in network capacity and revenue earned when supplying that additional capacity. By some estimates, as data consumption grows 100 times, revenue merely doubles.  

Unlimited data plans do not help, either, since, by definition, such plans do not allow incremental revenue to be earned when incremental usage happens.

Consumption of video is a prime driver of increased consumption and therefore a driver of network investment. Not only does video drive overall traffic consumption, but video standards are pushing to high-definition and ultra-definition versions that consume even more bandwidth than standard-definition video.

source: Openwave Mobility

How Can an ISP Create a "Fast Lane" if the Internet Already is Dark?

With the anticipated and breathless worries about the coming of “internet fast lanes” if common carrier regulation of internet access services are removed, it might be helpful to remember that the technical ability to create quality of service tiers of service, (the dreaded internet fast lanes) extending all the way to end users, might not actually exist.

The reason is encryption. To do anything on a selective basis to a packet, an ISP essentially needs the ability to identify the owner of a packet and the media type of a packet.

With so much traffic already encrypted, that is impossible at least 70 percent of the time, already. According to Openwave Mobility, about 75 percent of traffic already is encrypted.  

By perhaps 2018, 90 percent or more of all packets will be encrypted, Openwave predicts.

Google QUIC and Facebook Zero Protocol (0-RTT), for example,  represent 27 percent of the traffic in mobile data networks already.

source: Openwave Mobility

Additionally, new protocols such as Quick UDP Internet Connections (QUIC) intrinsically include security protection equivalent to TLS/SSL, along with reduced connection, transport latency and bandwidth estimation in each direction to avoid congestion.

QUIC also provides mechanisms for congestion avoidance algorithms, putting control into application space at both endpoints. In other words, the app provider can supply its own congestion control, and does not need to rely on a transport or access provider to do so, to obtain the benefits of congestion control.

source: Openwave Mobility

The ability to create “internet fast lanes” requires visibility at the packet level, a condition that largely does not exist. So when the consumer internet already has “gone dark,” ISP fiddling with packets is not possible.

Therefore, no ability to create a new consumer quality of service tier actually exists, no matter what many argue is the new danger if common carrier regulation of internet access is dropped.

Fixed Networks Becoming Unsustainable

It is becoming clearer that the fixed network telecom business is losing its ability to sustain itself, as it becomes harder to generate core revenue.   

In other words, one might argue, the core business model is failing. That is why firms such as Frontier Communications now are in danger of bankruptcy, and why the Indian mobile business is rapidly consolidating.

A difficult business model is why Verizon and AT&T (and other telcos and internet service providers) are looking to fixed wireless as an alternative to fiber to the home.

Observers now speculate on whether Windstream and its facilities unit Uniti might also face bankruptcy.

The task for regulators therefore is what to do: encouraging investment at a time when that investment is growing difficult, while not placing new and unnecessary barriers on the industry, even while, by traditional antitrust metrics, industry concentration is high.

The problem is that if industry revenue and profitability continues to drop, more concentration is among the necessary steps to reshape the industry for survival.

That will require balancing the principle of maintaining competition with the need to manage industry decline (encouraging investment where that is possible).

To be sure, market share concentration is far from unusual in the U.S. market.

Also, concentration levels seen in the internet industry are far higher than what is seen in the access provider business. Internet search, for example, has an Heffindahl-Hirshman Index (HHI) score in the 7400 range.

The mobile industry, for example, has an HHI score in the neighborhood of 2500.

The HHI is a standard measure of industry concentration used by antitrust officials.

Revenues in nearly all markets are declining and profit margins are going negative. Mobile is faring better, but big risks still lie ahead as the 5G era arrives.

At the same time, revenue per bit is dropping as well, as transport and access providers earn less revenue despite higher capital investment. In some markets, facilities-based competition dramatically raises business risk, as well.  

To the extent that executives question the financial return from robust investment in access facilities, at least part of the challenge is that potential returns are paltry, especially in the fixed networks segment of the business.

That business model challenge can be seen in revenue trends. In 2018, global telecom revenue is expected to fall, especially in the fixed networks business, which will decline nearly 12 percent.  

The point is that in addition to the steps industry executives might take, regulators will have to adjust to creating policies appropriate for an industry about to consolidate, and is growth challenged at best. At worst, the global industry is going to massively consolidate over the next decade or so.  

That poses different challenges than would be the case for an industry that is rapidly growing. “Regulating for decline” perhaps is too strong, but “regulating to allow restructuring” is probably more apt.  

Global Telecom Revenue to Shrink 2% in 2018

Global  telecom revenue in the 60 biggest markets will fall by two percent  in US dollar terms, to US$1.2 trillion, in 2018, despite account growth, according to the Economist Intelligence Unit.

Average revenue per user (ARPU) will fall by 2.3 percent for mobile operators, and by 11.5 percent for fixed line providers.

At the same time, operator investment will grow three percent.

Regional variations will mask the global trend.

In Latin America, total revenue in U.S. dollar terms for both fixed and mobile telecom will fall, despite mobile subscription and penetration rate growth. In other words, subscription growth no longer automatically grows revenue.

The clear exceptions will be Asia and Africa where subscription growth will be robust enough to compensate for lower ARPU. Across the Middle East and Africa, the mobile penetration rate will increase from 111 per 100 in 2017 to 115 in 2018, while in Asia it will rise from 101 to 104, the Economist predicts.

Net Neutrality is About Freedom

One big problem with “network neutrality” discussions is that the concept often is stretched so far it makes no sense. Recall that the original idea was “freedom.” The notion of “permissionless innovation” is key to internet creativity. But that freedom was intended to apply to all parts of the value chain.

Freedom was for users: people were to be free to use all lawful applications. Freedom was for app providers, who would be free to innovate and create new value, functions and capabilities.

But freedom also was for access providers. That was why internet access services were not regulated as common carrier services. As with other parts of the ecosystem, the idea was to allow permissionless innovation for data services and apps of all types.

In recent years, advocates have acted as though the only part of the ecosystem allowed freedom were app providers, not consumers or access providers.

Along the way, the concept has been stretched beyond recognition. When the Federal Communications Commission developed its internet freedoms principles, it spoke directly only about application and end user freedom, the notion being that internet service providers were not to act as gatekeepers. Fair enough.

The problem is that many other practices--including those which impinge on or limit the freedom of other participants in the value chain--have come to be seen as network neutrality issues.

Are usage caps, overage fees or zero rating (giving consumers apps and services at no charge) “network neutrality issues at all? Or are all those examples of terms and conditions of service?

Are those pricing and packaging issues not also issues of “freedom?” It is an old problem. Consider freedom of speech itself. Whose rights are protected, those of the speaker, or those of the listener? And how do we resolve conflicts between the rights of speakers and listeners?

Even if the term “network neutrality” was not coined until about 2003, and no matter the partisan position, network neutrality basic principles have been fairly clear at one level.

The fundamental principle, in the United States, is that consumers are allowed to use any lawful application, and that use of lawful apps cannot be blocked by an access provider.

Also, one might well argue that such consumer freedom also extends to app providers and access providers, who similarly are free to pursue lawful ways of creating new services, features, apps and value, and are likewise free to create any lawful business models to support those efforts.

Still, looking narrowly at end user freedom, nothing about ending common carrier regulation of internet access undermines the fundamental principle of access to all lawful internet-accessed applications. But not all services or apps using internet protocol are actually “internet” apps.

All networks might use internet protocol. But not all IP networks are part of the “internet” whose applications consumers have a right to use. Private networks (business networks of all types, cable TV services, carrier voice and messaging networks) might use IP, but are not necessarily part of the “internet” used by consumers.

In principle, that is why managed networks and business internet access is not covered by consumer “network neutrality” rules.

So network neutrality is complicated because there are several other principles and freedoms involved, and as always is the case, rights and freedoms can conflict.

And one right a network operator has is to manage network resources under conditions when network load is very high, since no network actually is built to support any conceivable amount of potential use.

Instead, networks are built to support “typical” or “typical peak” demand. And that means any network can become congested, on occasion.

So even if all agree that U.S. consumers have the right to use any lawful app, there are other rights held by others. The way those rights might be exercised is the issue.

Do app providers or access providers have the right to maintain quality of service for their apps? Yes. That is why content delivery networks exist, and why “managed services” are regulated differently than “internet” apps.

Beyond all that, other arguably distinct issues have fallen under the “neutrality” concept, even if, logically, they are distinct issues. Whether it is lawful to offer “no extra cost” features and access to some apps (zero rating) provides a clear example.

Some oppose zero rating of features, services and apps that have value for consumers, and are offered at no incremental cost. In some cases that has been applied to “Free Basics,” a program supplying no charge access to Facebook and other apps, even when a user has not paid-for internet access connection.

In other cases, some have objected to ISPs subsidizing use of features or apps as well. A few have objected to mobile ISPs offering free HBO, free Netflix or free music apps to their customers. Some have opposed any policies that allow mobile users to consume streaming video or music without incurring any usage on their data plans.

The point is that, beyond a basic set of expectations related to use of all lawful applications by consumers (with exceptions for network management and business services), a number of other issues have been seen as within the scope of network neutrality, even if such prohibitions tend to compromise “internet freedom” of other app or access providers.

So strong forms of network neutrality always involve the issue of “whose freedom is taken away.”

Even actual “blocking of apps” (something network neutrality prohibits) has been a standard tool for managing voice network congestion. That speaks to the issue of end user application freedom, which is broader than existed for voice.

Though most people who now use voice networks have never encountered it, use of voice networks was managed, under conditions of very-high load, by denying callers access. The recording “I’m sorry, all circuits are busy now, please try your call again later” used to be the signal that the network was under high load, and some incremental users were literally blocked from using the network.

That is a clear example of network management, and did involve literally blocking of a lawful app (talking on the telephone).

And every network operator arguably has the duty, not only the right, to manage the network under conditions of congestion, in order to preserve quality of service.

And it matters whose freedom is limited. Historically, there have been a few (literally two or three instances) where an internet service provider tried to block a lawful app, and those instances were immediately prohibited by the FCC.

In one instance, a  small internet service provider tried to block use of Skype, a lawful application in the United States, was promptly notified by the Federal Communications Commission that this practice was impermissible, and was promptly ended.

Comcast is the only large ISP to have engaged in efforts to block or manage lawful apps in the U.S. market (Bitcoin).

Fundamentally, it is the consumer right to use lawful applications which is the heart of the “freedom” policy. But app and access providers are not, for that reason, denied their own freedom to create.

If an app provider wants to create a separate, for-fee feature or service, it may. If an access provider wants to create faster tiers of service, it may. If an app or access provider wishes to subsidize use of some for-fee features, they may. None of those impinge consumer freedom to use all lawful apps.