Good News, Bad News for Telco FTTH

There is good and bad news in Cincinnati Bell’s latest report on its fiber to home adoption. In the first year of marketing, Cincinnati Bell gets about 30 percent of customers to buy. After about four years of marketing, the company seems to get about 50 percent adoption.

So the good news is that fiber to home internet access seems to compete well with cable modem services, after a few years, in terms of market share. In a two-provider market, the company roughly splits the internet access market with cable operators.

The bad news is that no telco yet has been able to demonstrate that its fiber to home efforts, or fiber plus other access platforms, are able to take market share leadership from cable companies.

source: Cincinnati Bell

In rough terms, the upgrade to fiber to home networks allows a telco to battle back to splitting the market with cable, instead of losing share to cable.

There appears to be additional upside in linear video revenue, though some might question the magnitude of those contributions, long term.

So though there are other ways to monetize such investments, the cautionary note is that even with high-performance FTTH networks in place, about the best any telco has been able to show so far is an ability to split the internet access market with cable.

No telco has shown an ability to dominate that market, after upgrading to FTTH. In the future, the business case could be challenged to a greater extent if new rivals emerge. Independent ISPs and  mobile substitution are the prime examples.

If a new provider is able to gain 20 percent market share, that would limit telco and cable share to a theoretical maximum of 40 percent each. Some ISPs believe they will routinely do better than that, gaining perhaps 30 percent market share. Ting believes it can get as much as 50 percent share.  

Calculating share can be difficult, as these days, “revenue generating units” often are the metric used to derive market share. And RGUs are different from “homes” or “locations.” EPB, the poster child for municipal networks, offers voice, video and internet, and claims 45 percent market share.

But it does so by counting RGUs and comparing that to homes in the service territory. Internet access share is likely closer to 27 percent.

Still, the point is that, in a growing number of consumer markets, there might be three sustainable suppliers, not just two. That will have important ramifications for potential market share.

The larger point is that, in a two-supplier market, FTTH seems capable of allowing a local telco to get as much as half the market for internet access services. That drops in a three-provider market.

FTTH really does help. But how much it can help depends in part on the number of contestants in the market.  

Telecom has Price Trends You Would Expect if Moore's Law Operated

For buyers, the last two decades have produced tremendous gains in utility, while prices essentially have remained flat. That might remind you of Moore’s Law, and the insight is largely correct.

By way of comparison, look at prices for other “utility-like” services, including water, wastewater, electricity, natural gas or postal service, since 1984.

From a buyer or consumer perspective, telecommunications has been a great bargain: prices have barely budged since 1997. Prices for all the other products have climbed. Water and sewer service prices nearly doubled since 1997.

Prices for most of the other products have grown, but less substantially. Telecommunications service, despite the many improvements in quality and features (mobility, internet access, distance-insensitive voice and messaging), prices per unit have been flat.

That reflects huge productivity improvements, and lots more competition than arguably has happened in the other businesses.

source: Chordant

Dialpad Offers Small Businesses Free Business Communications in Bay Area

Dialpad and other suppliers of hosted business communications has been driving down prices for business communications for some time.



Now Dialpad Free offers small businesses in the San Francisco Bay Area a phone service including one business number, five extensions, plus a set of features including: Auto-Attendant and IVR Unlimited Voicemail Transfer, Add, Hold, Mute Video Calling Conference Calling Screen Sharing Dialpad Free will always be free to companies of five or fewer employees, the company says. Dialpad hopes to make money from other paid VoIP services, especially as companies grow. “We make money by helping small businesses become large businesses,” said Craig Walker, Dialpad CEO.

Maybe OTT Video Will Prove a Much-Better Business Model than Linear Was

The million accounts AT&T has gotten in just about a year’s time suggest that AT&T might--in this case--have found a way to compete in a mass market over-the-top market that has eluded it and most other tier-one telcos in the voice, messaging and other markets.

That is a not-insignificant achievement.

Some might say that is the second of two big achievements AT&T has pulled off recently. The first was the DirecTV purchase itself, which radically transformed AT&T’s revenue sources. The entertainment group, which includes consumer video and internet access revenues, now is a key reporting segment for AT&T, along with business solutions and consumer mobility.

Revenue from DirecTV more than doubled AT&T’s consumer revenue.

“If you look at what we're getting in our DTV Now customer base now, about 50 percent comes from cord shavers and cord-nevers and 50 percent come from our competitors,” said John Stephenson, AT&T CFO.

Cord shavers are customers who reduce their levels of service; cord-nevers are people who never have purchased a linear TV service (generally younger people). Presumably the “cord shavers” include former DirecTV customers have switched to DirecTV Now.

Presumably, “competitors” refers to other OTT linear services (Hulu, for example).

The other interesting angle is that the OTT business model might turn out to be better than the linear model it replaces, even with the possible disparities in revenue per account. Stephenson notes that activating a DirecTV Now account “requires virtually no capex, because we don't have to send a truck, pull up the ladder climbing the ladder and put on a satellite dish on the side of your house.”

One other advantage is the elimination of the need for decoders and any inside wiring (jumper cables, for example).

Also, since linear accounts are postpaid, there is some bad debt exposure. DirecTV Now is prepaid, which eliminates the bad debt exposure.

AT&T Might Soon Start Taking More Internet Access Market Share

Cable TV has been winning the U.S. internet access “net new subscribers” battle for so long that one might be tempted to argue that telcos have permanently lost the battle.

At least some observers might argue that telcos have permanently lost the internet access market share battle. But one always must be alert for changes. And changes are coming that might allow AT&T and Verizon to start taking more share in internet access, despite a decade of losing share to cable operators.  

Others might argue that a rather historic market share reversal now is possible, at least for AT&T.

At a high level, it might appear that Verizon and AT&T still are losing huge chunks of share to cable operators. That is incorrect. CenturyLink, Windstream and Frontier Communications clearly are in that position. But AT&T and Verizon have either begun to gain share, or are stable, and holding share.

Verizon, for example, has been getting some 40 percent share of internet access in its fiber-to-home service areas, and seems to be adding share, incrementally. AT&T actually has been gaining share.

So it is at least conceivable that Verizon and AT&T could begin a long process of retaking market share as their access line inventory moves to gigabit speed ranges, as new platforms are deployed and marketing initiatives add value in the mobility and video areas.

That would represent a huge break from trends over the past decade. Updated platforms are part of the reason for the potential change.

“If you look at our numbers a few years ago we had 15 million DSL and one million high speed broadband,” said John Stephens, AT&T CFO. “Today we've got about 15 million high speed broadband and one million DSL.”

And where ATT is installing fiber to the home (AT&T has about six million FTTH lines in service}, Stephens says AT&T now is getting 30 percent adoption.

Where AT&T has been marketing fiber to the home for two years, it is seeing take rates greater than 50 percent, Stephens said.

AT&T now expects to reach seven million homes passed by its fiber-to-home network by the end of 2017, reaching perhaps 12.5 million locations by the middle of 2019. “By the time we get finished building we will have 14 million” homes passed by FTTH, Stephens says.

New fixed wireless capabilities coming with 5G, plus mobile substitution, are also likely to be new factors able to reshape consumer internet access market shares. All together, the new platforms might reach as many as 50 million U.S. homes.

One always has to be alert for signs that long-established trends are able to change. The consumer internet market share trend might be among those key changes to watch for.

Google Blocks YouTube Access on Amazon Devices: The Irony is Astounding

Google now is blocking YouTube access on Amazon Amazon Echo Show or Amazon Fire TV devices. Blocking: as in, Google denies Amazon Echo Show or Fire TV users access to a lawful app.

Ironic is it not? That is the sort of “not neutral” practice Google has argued internet service providers must be prohibited from attempting, under “network neutrality” rules.

To be fair, it is one matter when a government blocks access to an otherwise  lawful app such as Google search. That bothers supporters of internet freedom, and should bother them.

It is quite another matter if an internet access provider were to try and block a lawful app. Despite all the heated rhetoric, in the U.S. market that has happened--briefly--twice to three times, with rapid reaction by the Federal Communications Commission and equally rapid retraction of those efforts by ISPs.

And, as a matter of policy principle, all U.S. ISPs understand that the FCC will not allow blocking of lawful apps.

Many have argued that internet freedom applies to all in the ecosystem: consumers, app providers and ISPs. Many also have argued that many practices said to be violations of network neutrality (quality of service mechanisms,  free and subsidized app access, zero rating of apps) are in fact, not violations of network neutrality, but only business practices that ecosystem participants are free to experiment with.

So Google’s blocking of its lawful YouTube app from Amazon devices is not, strictly speaking, a network neutrality violation. It might be a dumb business practice that conflicts with the company’s “don’t be evil” ethos, but actual app blocking does not violate existing network neutrality rules.

Nor, some of us would argue, should network neutrality rules be extended to Google and other app providers. But some also would argue that freedom in the internet ecosystem belongs to all, not some.

In actually blocking YouTube access--something no ISP would anymore attempt--Google is acting as a gatekeeper. That is its business right, one might argue.

But neither is Google acting in a way it demands others behave: “not blocking any lawful app.”

It must be said. There are businesses that enjoy the best of all worlds: they are monopolies in practice, but not regulated, as others might be. Cable TV industry executives used to say that, entirely in private.

I am not saying Google or others need to be regulated. They should be free. So should consumers, other app providers, device suppliers and access providers.

Verizon Will Launch Attacks Outside its Fixed Network Footprint with 5G Fixed Wireless

Verizon’s plans to launch fixed wireless using its pre-5G network in 2018 have been positioned by some as a new challenge to cable TV operators. While that certainly is true, the equally-notable development is that Verizon seems to be building its fixed wireless networks in three to five markets outside its existing fixed network footprint.

That means Verizon also will compete head to head with AT&T and possibly other fixed network operators as well.

Recall that, since about the mid-1980s, when the AT&T monopoly was broken up, the new fixed network businesses did not compete with each other, but had exclusive territories. While mobile operators mostly have competed directly, head to head, for most of the industry’s existence, direct head to head competition between AT&T and Verizon has been marginal to non-existent.

Now, for the first time, it appears that Verizon is about to launch a relatively significant assault “out of territory” with its 5G-based fixed wireless network.

It is not yet clear whose market share Verizon will take. But Verizon’s market entry is sure to rearrange and disrupt existing market share in those markets, with AT&T (or other incumbents) and the local cable operator likely to lose share.

As we have seen so many times, “high prices” in any competitive market are a magnet for new competitors.