Satellite Industry Will Soon Experience Demise of its Key Revenue Source

Most of the time, the shift to "over the top" video entertainment is seen to be a problem for linear video subscription providers and programming networks.

But a shift from linear to OTT video also has huge implications for the satellite services industry as well.

To the extent that much of the global satellite industry relies on linear video for its revenue, the coming demise of linear TV, and its replacement by over the top video, is going to pose the same sorts of problems for satellite firms as was caused by the maturation of the voice business.

Some 78 percent of operator service revenues, in fact, are earned from delivering video entertainment, according to the Satellite Industry Association.

In any industry, it is a challenge to replace a maturing revenue source representing that much revenue. In fact, that is almost precisely the percentage of revenue (80 percent or more) once generated by voice services, by fixed and mobile service providers.

But that is the challenge relatively soon to be faced by the satellite services industry. With little doubt, the same sorts of arguments will be made. As fixed network providers detest the notion that they are a "dumb pipe," so satellite providers will protest the notion that they are simple "bent pipes."

Inevitably, we will hear arguments about how satellite providers can "move up the stack?" Increasingly, attention will turn to new revenue sources that can be discovered or created. 

Obviously, "mobile services" are going to occupy center stage. For that reason, mobile backhaul is inevitably going to be seen as fruitful.

source: Satellite Industry Association

Increasingly, Internet Access Speed Might Not Matter

There was a time when PC marketing was about processor speeds. No longer.

At some point, end user value could not be demonstrated as processors got faster.

We have not yet reached the point where Internet access will stop being about “speeds and feeds” and start being about “what can you do with it?”

But that time will come.

In fact, some of you might already not be “buying” the value proposition for ever-faster Internet access. In other words, value often now is not about speed, at all. For any single user, beyond a rather low threshold (somewhere between 10 Mbps and 20 Mbps), incremental increases in speed do not matter.

The value proposition arguably is better in multi-user households, but even there one might make the argument that a five-person household will not generally notice experience benefits beyond a connection supporting 100 Mbps (when contention is highest, each user theoretically can use 20 Mbps).

Google Fiber asks, and tries to answer the question of What can you do with a gig?  

Google suggests “streaming videos, movies, and TV shows” will happen with little to no delays or buffering.” Netflix Super HD video content is cited as an example of gigabit access connection value. But that feature also can be supported by 25 Mbps connections.

Google Fiber cites value for multi-user households, but again that is not exclusive to gigabit access speeds.

Video conferencing likewise is cited as an advantage. Again, that is not an advantage uniquely provided by a gigabit connection. Downloading and uploading of image content and game playing also are said to be advantages of a gigabit connection, but are not solely or uniquely provided by such connections.

In fact, some might argue the advantage has nothing to do with speed, but with the lack of a data cap. Some Internet service providers currently cap data downloads at 250 GB per month.

Even if most users never encounter any experience issues, that could be the advantage for very-heavy users, though.

The point is that high speed Internet access remains in much the same position as PC OEMs once were, focusing on “speed” as the marketing platform. The industry has not yet--but will--reach the point that most consumers understand “speed” is no longer a reason to switch providers.

Then the marketing platform will shift in ways more tangibly related to end user value. Latency performance might already be the most-important value for some users, not speed. The problem for most ISPs is that clearly superior latency performance is hard to prove.

Beyond a certain point, latency performance advantages are hard to achieve.  As a generalization, latency is in the 75 milliseconds to 140ms range, even for sites that use a content delivery network.

The key point is that most U.S. ISPs have latency far below 75 milliseconds. So the bottleneck is the servers on the remote end of the connection, not the access links as such.

source: Akamai

source: Ofcom

source: PC magazine  

U.S. Cable TV Companies Gain 106% of All New High Speed Access Accounts in 2015

U.S. cable TV companies now are grabbing all the high speed access net gains, data from Leichtman Research Group suggests.

The 17 largest cable and telephone Internet service providers acquired more than 3.1 million net subscribers in 2015. But cable TV firms gained 3.3 million accounts in 2015, some 106 percent of all additions.

The reason is that the largest telephone companies lost about 185,00 accounts in the year. For those of you interested in inflection points, that loss markets the first year that the telcos ever have lost high speed access accounts.

There is a caveat. AT&T and Verizon are gaining fiber-access accounts, adding 1,481,000 U-verse and FiOS subscribers in 2015.

But telcos have another problem: they are losing all-copper digital subscriber line accounts. In 2015, AT&T and Verizon lost 1,708,000 DSL subscribers.

That performance, one might note, points out a problem for telcos upgrading their networks. Quite often, next generation services and products essentially cannibalize existing products, with no significant net gain in revenue.

The top cable companies had gained 89 percent of all new accounts in 2014, and 82 percent of all new accounts in 2013.

ISPs	Subscribers at End of 2015	Net Adds in 2015
Cable Companies
Comcast	23,329,000	1,367,000
Time Warner Cable	13,313,000	1,060,000
Charter	5,572,000	497,000
Cablevision	2,809,000	49,000
Mediacom	1,085,000	72,000
WOW (WideOpenWest)	712,500	(15,300)
Cable ONE	501,241	12,787
Other Major Private Cable Companies*	7,945,000	260,900
Total Top Cable	55,266,741	3,303,387
Telephone Companies
AT&T	15,778,000	(250,000)
Verizon	9,228,000	23,000
CenturyLink	6,048,000	(34,000)
Frontier^	2,444,000	101,500
Windstream	1,095,100	(36,500)
FairPoint	311,130	(8,785)
Cincinnati Bell	287,400	17,500
Total Top Telephone Companies	35,191,630	(187,285)
Total Broadband	90,458,371	3,116,102

Verizon Go90 "Off to a Slow Start," But it Doesn't Matter

The Verizon Wireless Go90 mobile video service is “off to a slow start,” says a UBS report, based on a study of app downloads at the Apple iOS store.

“Go90 appears to be off to a slow start, with its best showing around number 300 when ranked against all apps in the iTunes store and number 20 when ranked against other entertainment apps,” the UBS report says.

“We believe Go90 will be hard-pressed to mount a meaningful challenge to mobile video and social networking leaders YouTube, Facebook, Instagram, Snapchat, Netflix and Hulu,” says analyst John Hodulik.

Many observers would agree with all the initial assertions. Few telco applications or services ever get off to a fast start. Name one!

It likely also is the case that Go90 will not challenge Facebook, YouTube, Netflix, Snapchat, Instagram or Hulu. Few observers would disagree with that assessment, either.

To be fair to Verizon, even Verizon likely would agree that Go90 is not going to be bigger than those other consumer names. But Go90 still could be important for Verizon’s business and revenue model.

If Verizon Go90 only grabs a reasonable share of the developing mobile entertainment market, it is a big win.

It always is possible that Go90 in fact will drive more revenue, and more profit for Verizon, than linear video presently does.

But Go90 does not fundamentally have to represent a market as big as linear video is today. It does have to glue customers to Verizon, and drive a reasonable share of users to Verizon, instead of other providers.

The Go90 mobile video service currently is ad-supported and free to users. If you have tried it, you will clearly see that it is true to its mission, targeting millennials (adults ages 18 to 34) and gen Zers (teens).

Indian Mobile Operator Data Revenue Growth Forecast Gets Lowered

Analysts at Morgan Stanley have dropped estimates of Indian mobile market revenue for 2016 through 2018 by three percent, as the analysts expect competition and profit margin pressure to escalate as Reliance Jio enters the mobile market, and focuses on mobile data pricing and services.

Between 2015 and 2020, mobile industry revenue will grow at a seven percent compound annual growth rate, down from the eight percent previously forecast.

The report by Morgan Stanley said despite double-digit data volume growth, data revenues are now growing in the higher single-digits.

Price competition is a virtually-certain development in any market where big new firms get into the market for the first time, where the technology underpinning the market fundamentally changes, or where deregulation of a former monopoly market happens.

Margin pressure also is characteristic of mature markets as well, when new customers and accounts can only be gotten by taking them from another supplier.

Price competition occurs because it offers a simple value proposition consumers understand: “same product, same features, lower price.”

Some other characteristics often are seen, as well. Established industry ecosystems are disrupted, most often as new suppliers, with better products, better matched to the new value chains, displace legacy suppliers.

Note only what has happened to the legacy telco supplier base over the last several decades. Who are the leading suppliers? What are the lead products? What business problems do the technologies solve? How are those problems different from the legacy “problems.”

Also, industry boundaries also become porous. Market leaders find “companies from outside our industry” have entered, and often become major competitors. Those firms often offer consumers different products that satisfy older needs in a new way.

Three Decades of Telecom Disruption
From 1980	To 2015
Natural monopoly	Oligopoly
High margin	Moderate to low margin
Low to moderate adoption	High adoption
Low innovation	High innovation
Stable markets	Unstable markets
Compete on quality	Compete on price
Fixed network dominates	Mobile network dominates
Tightly integrated apps and network	Open network
Voice business model	Internet access, mobile business model
Similar business models globally	Growing diversity of business models
99.999% uptime	99.9% or “good enough” availability
Few lead apps	Many lead apps

source: IP Carrier

The point is that lower profit margins, expected in the wake of Reliance Jio’s market entry, are entirely within the realm of market impact we see in newly-competitive markets.

Big 2015 Change in U.S. Linear Video Market: Cable Gains, Telcos Lose

The 13 largest linear video providers, representing about 95 percent of the market lost a net 385,000 accounts in 2015, marginally worse than the net loss of about 150,000 subscribers in 2014 and a net loss of about 100,000 subscribers in 2013, Leichtman Research says.

Keep in mind that those 13 suppliers have a collective 94.2 million subscribers, so even a loss of 385,000 net accounts represents just four-tenths of one percent of the base of customers.   

The big net change: cable TV providers did much better, telcos did much worse.

The top nine cable companies lost about 345,000 video subscribers in 2015, compared to a loss of about 1,215,000 subscribers in 2014.

Satellite TV providers added 86,000 subscribers in 2015 (including Dish Network OTT subscriptions). In 2014 the satellite providers gained 20,000 subscribers.

Excluding the Sling TV gains, DBS providers lost about 450,000 linear subscribers in 2015.

The top telephone providers lost 125,000 video subscribers in 2015, compared to a gain of about 1,050,000 net additions in 2014.

In the fourth quarter of  2015, the top linear TV providers added about 110,000 subscribers, more than the 90,000 added in the in fourth quarter of 2014.

The largest cable companies added about 125,000 subscribers in the quarter, the first quarter for net additions since the first quarter of 2008.

DirecTV net adds of 214,000 subscribers in the quarter were higher than in any quarter since the fourth quarter of 2010.

AT&T U-verse lost 240,000 subscribers in the quarter, compared to a gain of 73,000 subscribers in the same quarter of 2014.

Providers	Subscribers at End of 2015	Net Adds in 2015
Cable Companies
Comcast	22,347,000	(36,000)
Time Warner Cable	11,035,000	43,000
Charter*	4,430,000	11,000
Cablevision	2,594,000	(87,000)
Mediacom	855,000	(35,000)
Cable ONE	364,150	(87,067)
Other major private companies**	7,435,000	(153,400)
Total Top Cable	49,060,150	(344,467)
Satellite TV Companies (DBS)
DirecTV	19,784,000	167,000
DISH^	13,897,000	(81,000)
Total DBS	33,681,000	86,000
Telephone Companies
AT&T U-verse	5,640,000	(303,000)
Verizon FiOS	5,827,000	178,000
Total Top Phone	11,467,000	(125,000)
Total Top Pay-TV Providers	94,208,150	(383,467)

source: Leichtman Research