Is DirecTV Now a Breakthrough?

It is highly unusual and rare for any “telco-owned” over the top service to compare well with other application provider offers of the same type. Think about telco-owned messaging, voice or mobile app platforms and you get the point.

Unusually, then, AT&T’s “DirecTV Now” service gets top marks from analysts at UBS evaluating the value of current over the top “live” video services, which lead in “value’ rankings at numerous price points from $20 a month up to $70 a month.

The UBS analysis did not look at the full on-demand services such as Netflix, but only the services offering “live TV.” Some believe the OTT “live streaming” services eventually will develop as an important segment within the overall streaming market that includes “on demand” services such as Netflix that specialize in pre-recorded content, rather than “live” or “real-time” TV.

source: UBS, Business Insider

At the moment, the notion of “skinny bundles” captures the idea behind OTT live TV streaming. The idea is that there remains significant demand for “live TV” (linear channels). But there is less appetite for larger, more-expensive live TV bundles.

In many cases, on-demand services such as Netflix are complementary, as Netflix does not support or offer live TV. In essence, OTT live TV streaming captures demand that remains for over the air TV broadcasting, sports, news, events and other scheduled TV series consumption.

source: BCG

The point here is that a tier-one telco seems to be creating OTT live TV services that have appeal at multiple price points, and might even be deemed competitive with other similar services. If that translates into significant market share growth, it will represent a major victory for at least one telco in the effort to fashion OTT apps and services that do have mass appeal and significant market share.

That has not happened in the internet era. DirecTV Now might be among the first examples of an access provider actually creating a new mass market app that gains significant share. To be sure, some will say DirecTV Now mostly cannibalizes AT&T's own DirecTV service. Time will tell.

How Fast Will Linear Video Decline?

The conventional wisdom now is that over the top (online) video services are displacing linear video services. According to the latest forecast from The Diffusion Group, the conventional wisdom is correct.

Take rates (household penetration) of linear video services will decline from 85 percent of U.S. households in 2017 to 79 percent in 2030, according to TDG. But other TDG metrics suggest faster declines.

Some might argue the rate of change now modeled by most observers actually understates the degree of change. Up to this point, forecasters have (correctly) called for modest but steady declines in linear video take rates.

But some might note that market changes caused by new technology tend to follow a rather predictable “S” curve, where initial changes are quite modest, followed by fast changes when an inflection point is reached.

That means linear projections are proven wrong, as the rate of change actually becomes non-linear, usually after about 10 percent adoption of the new technology. That actually already has happened, in the U.S. market, in terms of adoption of OTT video services.

There are at least 187 million OTT video accounts in service, compared to roughly 93 percent household penetration of linear video.  So, counting by accounts, OTT video adoption is far beyond 10 percent, well over 100 percent adoption of households, as there are perhaps 126 million U.S. households.

As with mobile subscriber identity modules, some people might use more than one SIM. Some households have multiple subscriptions.

source: Learn Marketing

Up to this point, OTT has been a substitute for linear video, but not a complete substitute, as often happens early in the adoption cycle of new technology products. Over time, the new technology platform becomes more robust, eventually becoming a fully-fledged substitute for the legacy technology.

TDG predicts that, by 2030, roughly 30 million U.S. households--representing 26 percent of all U.S. households--will live without a linear service of any type.

So legacy video penetration will fall from 81 percent of U.S. households in 2017 to 60 percent in 2030, down 26 percent.

That estimate includes losses of traditional services to over the top services that stream “live content in real time,” as well as using the on-demand format favored by Netflix, Amazon Prime and others.

So, using that set of definitions, legacy linear video might drop substantially between now and 2030. That is just one reason why some find U.S. Department of Justice concerns about excessive potential market power if AT&T buys Time Warner to be somewhat odd.

The linear video market itself already is changing in ways that make "dominance" a problem that goes away as the market itself goes away. And even the new OTT market features average revenue per account perhaps seven to eight times cheaper than the linear product OTT replaces.

Product Substitution is Among Biggest Problems for Access Providers

It has been the case for a decade that access provider executives believe they compete with Google even more than with other service providers, as a 2011 survey of telco executives found.

That thesis will be tested as the U.S. Department of Justice evaluates the AT&T acquisition of
Time Warner. Not only is the acquisition a vertical merger, but the larger marketplace battle is between firms such as AT&T and application providers.

source: STL Partners

One argument AT&T makes is that the video entertainment business now operates

globally. Where Netflix has 100 million accounts globally, AT&T might have about 24.4 million U.S. subscribers and about 12.45 million video subs in Latin America.

Beyond that, the linear video business  is shrinking, replaced by growing over the top alternatives. There already are about 194 million over the top video subscriptions in service in the U.S. market.

source: eMarketer

The point is that consumer markets are changing fast, with new internet-delivered products displacing traditional linear TV.

Though most of the competition involves product substitution--over the top displacing carrier services--Google has become an actual internet service provider and mobile services provider.

source: Vision Mobile

The big change, though, is the shift in value from vertically-integrated carrier services--voice, messaging, linear video--to over the top applications that work on any access connection.

The business implications are stark: access providers increasingly become “dumb pipes” offering lowish value, where differentiation is quite difficult, unless mobile carrier access can be recrafted as an application platform. That is easy to say, hard to achieve.

That shift is illustrated by revenue composition at AT&T’s landline business, where it comes to consumer revenue. About 72 percent of that revenue now is earned supplying video entertainment (an app), just about 15 percent selling internet access (the “dumb pipe”).

source: Business Insider

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.