Convergence of Licensed, Unlicensed Spectrum Will Stress "Net Neutrality" Rules

As communication platforms blending licensed and unlicensed spectrum continue to develop, it seems obvious that new thinking might--or must--emerge related to network neutrality and quality of service mechanisms. To use just one example, bonding of mobile licensed spectrum with unlicensed assets to support voice services arguably results in some QoS mechanisms being employed for Wi-Fi networks, to make them operate “carrier grade.”

For consumer internet access regulation, that is an indirect development, as Wi-Fi typically operates as a local distribution mechanism, separate from the actual “access.” In that sense, what is done within any specific Wi-Fi session, by any specific device, does not actually entail a direct use of the access link, and so network neutrality rules are not involved.

In a functional sense, that might not be the case, as in a growing number of cases, Wi-Fi actually does function as an “access” connection. The easiest example is when a third party device registers to use a Wi-Fi hotspot in a public setting, or when a user logs on to a “homespot” operated by a cable TV company.

That is not to say “best effort access” will disappear. There will remain a large number of use cases where best effort access is what the business model will support. That is true for venue amenity access, for example. But many of the other use cases might well involve quality of service mechanisms and prioritized access. That is likely to be the case where mobile bandwidth--used to support carrier voice services--is bonded with Wi-Fi.

Carrier-grade access (already possible for commercial accounts) might also appear to support consumer video entertainment services, as such QoS is a staple for linear video services, where consumers pay for access to content, and then the use of the network (also including mechanisms to assure quality of service) is simply a feature of the service.

The point: strict adherence to the notion that consumer internet access must, by law, be limited to “best effort” is going to be bypassed in a growing number of settings where licensed or unlicensed spectrum assets are used.

Source: Wireless Broadband Alliance

Average Global Data Speeds Grow 21% Year over Year

Global average connection speed increased 2.3 percent to 6.3 Mbps in the third quarter of 2016, a 21 percent increase year over year, according to Akamai.

Global average peak connection speed increased 3.4 percent to 37.2 Mbps in the third quarter, rising 16 percent,  year over year.

Global 10-Mbps broadband adoption rate rose 5.4 percent quarter over quarter, while 15 Mbps adoption grew 6.5 percent. Use of 25 Mbps services grew 5.3 percent.

In the third quarter of 2016, of 61 surveyed countries or regions with mobile data, 24 had an average mobile connection speed at or exceeding the 10 Mbps broadband threshold, while 52 achieved average speeds at or above the 4 Mbps broadband level.

On average, users in Australia averaged 12.8 Mbps. In the United Kingdom, average mobile data speeds were 23.7 Mbps. In the United Arab Emirates, 13.3 Mbps was the average speed.

As you would guess, network demand now hinges almost exclusively on mobile and fixed network data demand.

source: Akamai

"Core" Telecom Market Now Includes Video Entertainment, Boosting Addressable Market at Least 29%

Not so long ago, the U.S. telecommunications market generated total revenue of $200 to $300 billion. These days, depending on what is included in the count, U.S. telecommunications revenue is closer to $500 billion, according to Wiley Rein. The higher figures normally include video entertainment revenues and advertising.

The “traditional telecom” revenues (fixed and mobile service revenues) tend to range in the $350 million range annually. The caveat is that those figures also include video entertainment revenues earned by telcos, not just voice and data in the consumer and business segments.

According to the FCC’s annual wireless competition report, total wireless service revenue in 2014 was $187.8 billion. By some estimates, as much as 80 percent of consumer revenue is generated by the mobile segment.

Another $100 billion or so worth of revenue is added to the “telecom market” total, including cable TV and satellite operator revenue. In that sense, the “core telecom” market might already be in the $450 billion range.

In 2014, cable video revenue was $62.3 billion, and satellite video revenue was $40.6 billion.

"Free" is a Compelling Price Point, But Subscription Models Gain Some Traction

Advertising always has been a primary method of defraying the “cost to consumers” of content, ranging from “free over the air TV and radio” to newspapers and magazines, linear video to web sites. Up to a point, consumers “prefer” lower-cost ad-supported content access. That now also applies to key applications ranging from messaging and email to search, social media and other consumer applications.

On the other hand, there has for several decades been an “advertising-free, subscription-based” access model of some importance for content and apps. “Freemium” models in the apps business and ad-free video channels provide examples.

The search for less-intrusive advertising models always is a concern, but some amount of advertising is key to defraying end user access costs. Use of ad blockers is one trend that undermines the model. Intrusive ads are another source of irritation.

But unless consumers are willing to pay the full cost of using media apps and services, some amount of advertising remains crucial. The business model is most clear for video entertainment and music, least clear for news content.

Though "nothing really is free," the prevalence of "no incremental cost" content and app access remains an unsettled issue.

More Freedom, Or Less, in Next Phase of Communications Regulation?

source: W.H. Dutton

Among key issues Berin Szóka, TechFreedom president believes U.S. communications policy makers should take up to “break a logjam” are some issues widely acknowledged to be top issues (network neutrality), some that are enduring issues (promoting broadband) and some that arguably do not register.

The enduring issues for broadband deployment include the key issues of how to simultaneously promote deployment, adoption and competition. That is a key balancing act, as incentives for investment and competition tend to be rival goods.

When competition wrings too much of the profit out of the business, there is reduced incentive to invest, and heavy barriers to robust investment in new facilities. On the other hand, without effective competition, consumer welfare is harmed.

Net neutrality has been a hugely-contentious issue. The present “strong form” of network neutrality, which not only restricts consumer access to “best effort only” also is viewed by some as a mandate to outlaw other practices such as zero rating or quality of service mechanisms.

That might be difficult, long term, as internet access moves increasingly to support bandwidth-intensive entertainment video, while many new services require latency control.

The least talked about issue is outdated regulation by silo. Traditionally, different media types and industry segments were regulated in highly-disparate ways. Print content was unregulated. Broadcast TV and radio were somewhat regulated, as was cable TV and other linear video platforms.

Voice and messaging were viewed through the lens of common carrier regulation, and highly regulated. Internet access once was unregulated; now has been regulated as a common carrier service.

As appropriate as that might have been in the legacy era, it increasingly makes no sense in the internet era, where all media types are accessible over the internet and IP networks. The mess is that the same apps, services and industry segments (equivalent functionality is probably the better phrase) wind up regulated in different ways. That violates our sense of “fairness,” equal treatment and distorts competition.

Looking only at internet access, fixed network telcos no longer are anywhere the “dominant providers.” That role is held by cable TV operators. In the linear video business, AT&T now is the largest supplier by market share.

In the voice business, “leadership” counts almost for nothing, as voice increasingly is a feature, not the industry revenue driver. The same holds for messaging.

In the mobile business, telco leadership soon will be tested as cable operators become major suppliers in that market.

The issue now is how to harmonize, update and modernize the rules relating to regulation of like services, despite “industry legacy.” As always, the choices are to lighten or tighten regulation, either relying on the rules that presently apply to the most-free segments, or impose the more-stringent existing rules on the lesser-regulated industry segments.

More freedom, or less. That always is the fundamental question.

Where is the "Next Big Thing" for Telecom Service Providers?

Sometimes the “next big thing” does not prove to be as big as expected. It might not be too early to say that consumer wearables--though someday that might change--are a product category to rival smartphones or TVs. So far, expectations are lagging forecasts. That is not unusual.

Tablets once were thought to be the next big thing in personal computing. Significant, yes, but not a new category big enough to replicate the market opportunity of PCs, phones or TVs. In fact, consumer interest in wearables has been in decline since 2015. Demand for smart watches, perhaps the biggest category within the wearables market, has plummeted.

That does not mean wearables will not, in the future, make a comeback. But it can take decades for that to happen. What we now call “cloud computing” was a hopeful “next big thing” in the mid-1990s, when application service providers made a big splash. It was not to be. The point is that even big innovations often take a while--a decade or more--to reach commercial success.

Some will not that the search for the next big thing in consumer electronics continues, with huge implications for that industry.  So far, nothing has reached the magnitude of the smartphone.

For suppliers, including consumer electronics firms and internet access providers, that search is vital. Big new markets are needed to replace a smartphone market that is fast maturing, as well as declining voice, messaging and other “access network” products.

Internet of Things is widely expected to provide some serious chance of creating one or more "next big thing" markets. But history suggests we might be further from that happening than many hope.

source: Argus Insights

70% of TV Channels Lost Share in 2016

Cord cutting and cord avoidance are part of the reason most TV channels now see audience losses. What else would you expect in a market where choices keep growing, but discretionary time does not? The point is, even if one "solves" the problem of fewer people subscribing to video services, that does not mean the "market share" problem (smaller audiences) gets solved.

Most economic or industrial “problems” are difficult to solve. There typically are opposed stakeholders, often multiple drivers of industry dynamics and underlying performance trend.

The problem of “jobs moving from high-wage to low-wage areas;” coal industry dynamics or viewership of linear TV channels provide examples. One can try and stop the movement of jobs, but then it becomes logical to eliminate the jobs altogether, by automating or changing business practices.

One might blame coal industry declines on government policy (true enough, in many cases), but also note that the better economics of natural gas (it is cheaper than coal for electrical generation) would cause distress in the coal industry in any case.

So too in the television network area, one might argue that changing consumer demand (cord cutting) is leading to less viewership of ESPN and other channels. But it also is true that in a market with vastly more choices, and a fixed number of buyers and discretionary time, that viewing time on any legacy channel likely has to fall.

In other words, people have a relatively-fixed amount of time for leisure, and less time than that for watching TV. If choices grow from dozens to hundreds, it stands to reason that some time has to shift from the dozens of legacy channels to the new channels. Such audience fragmentation has been going on since cable TV channels first appeared, taking audience share from the “big three” broadcast TV networks.

When there are hundreds of channels, plus new services (Netflix, Amazon Prime, DirecTV Now, Sling) that shift additional video viewing time away from “channels,” audience fragmentation seems an inevitable consequence. Dividing market share in any market is different when there are just three providers, dozens of providers, hundreds of providers or virtually thousands of choices (each on-demand title represents a chance to “spend time” that competes with watching a TV channel for the equivalent amount of time).

That is why most--if not all--legacy channels will continue to be under pressure. It is not just a “sports” or “ESPN” problem.

source: CNBC