FCC Chairman Pai Discusses Net Neutrality

FCC Chairman Ajit Pai has outlined his vision for the future of Internet regulation, including a plan to undo "Title II." 

In 2015, Pai's predecessor, Tom Wheeler, reclassified broadband Internet as a "common carrier" service under Title II of the 1934 Communications Act. Net neutrality activists say that public utility regulations are necessary to have a free and open Internet. 

Critics of Title II, including Pai, argue that the rules are outdated and depress investment and innovation. 

Does the answer lie somewhere in between? What role might Congress and the Supreme Court play? Listen to Chairman Pai discuss those issues.

5G Business Models Will be Disparate in Early Rollouts

Ironically, in a business where capacity always has been expensive and scarce, internet access capacity is becoming less an issue than business models that take advantage of that abundance. 

Those changes are coming at a time when revenue earned from selling access connections to humans, for devices they want to use, is reaching saturation. That is why internet of things is so important: services used by sensors and machines represent the major area for growth of connections and revenue. 

So different business models are likely to emerge early in the 5G rollout. In some markets, millimeter wave spectrum will not be a factor, so use cases based on use of small cells might not emerge, either.

In a few markets, 5G in fixed mode might be quite significant; in other markets it will not be a factor.

Internet of things opportunities likewise will vary between regions; large companies versus small companies; urban areas versus rural areas; mobile and fixed use cases and between connectivity supported by 5G or specialized networks.

In some markets, 5G initially might be a way to supply "lots more bandwidth" for human users. Longer term, success is likely to depend on new services created to support sensor-based IoT apps and services.

That noted, longer term, the International Telecommunications Union has identified some frequency bands that can be globally harmonized, in the millimeter wave regions.

■ 24.25–27.5 GHz

■ 31.8–33.4 GHz

■ 37–40.5 GHz

■ 40.5–42.5 GHz

■ 45.5–50.2 GHz

■ 50.4–52.6 GHz

■ 66–76 GHz

■ 81–86 GHz

The U.S Federal Communications Commission already is moving to commercialize 28 GHz, 37 GHz, 39 GHz, and 64 GHz to 71 GHz bands for 5G and other uses. Of particular note, spectrum in the 64 GHz to 71 GHz band will be available on a license-exempt basis.

That seven gigaHertz of new unlicensed spectrum will create potential for possible new business models. What is important is the 11 GHz of new spectrum (including seven gigaHertz of unlicensed spectrum), plus another potential 18 gigaHertz of additional spectrum that might be made available in the U.S. market, dwarfing all existing spectrum previously allocated for public communications purposes.

source: National Instruments

All other things being equal, a service provider likely would prefer to use frequencies at 40 GHz or lower, as signal propagation is better within those regions, compared to all other millimeter wave frequencies. The next “window” of interest, in terms of coverage apps and use cases, is around 80 GHz. The 60-GHz band, by way of contrast, will have much worse propagation characteristics and therefore will make more sense for point-to-point apps where the signal can be highly focused, or for indoor and other settings where capacity--not coverage--is the biggest objective.

source: National Instruments

Mobile Does Not Yet Represent Most Bandwidth Consumption, But Does Drive Most Digital App Time of Use

Not that the finding is going to surprise anybody, comScore reports that in most markets, mobile devices represent the way most people use “digital” applications, from 64 percent to 91 percent of time spent with digital applications.

source: comScore

Some Overbuilders Reconsider Triple Play

It has never been easy to be an overbuilder (a firm that competes on a facilities basis) with both cable TV and telcos in the same territory) in the U.S. market.

Since local access is a scale business, any overbuilder has to attack a niche (such as multiple dwellings units) or overbuild an entire metro area, risking a huge amount of capital for hope for a 10-percent to 15-percent take rate.

To boost prospects, most overbuilders offer triple-play services (voice, video entertainment, internet access), which helps increase average revenue per account. But the economics of the triple play are changing. Voice take rates keep falling, and the video business case for a smaller provider always has been challenging, as programming contract discounts are based on volume, which, by definition, a small provider cannot attain.

Recently, there are possible signs of a strategy shift, in some instances. Google Fiber did not offer voice services, sticking with internet access and video. Sonic only offers gigabit internet access and voice. Ting Internet seems to be aiming at internet access only in its new builds.

The business case matters, for overbuilders or incumbents.

Incumbent provider CenturyLink is reconsidering whether linear video should be offered, as the economics of over the top video are better. Small telcos always have difficulty justifying offering video service as well.

Grande Communications, the Texas-based broadband communications company offering internet, TV and phone services, initially offered gigabit access to high-density living units, another form of picking a niche. Now Grande is providing gigabit internet service home and business subscribers in its Texas markets of Austin, San Marcos, Dallas, Midland and Odessa.

That move is made possible by introduction of DOCSIS 3.1 protocols that support gigabit access over a standard hybrid fiber coax network.

Even if the tier one cable and telco incumbents continue to focus on triple play, niche providers and new attackers might well choose not to do so.

FCC Wants to Return Internet Access Regulation to Title I Model

Though it will be controversial in some quarters, Federal Communications Commission Chairman Ajit Pai suggests network neutrality should return to the light touch policies “in place for decades before 2015, we had a free and open Internet,” dating back to the Clinton administration.

Most significantly, Pai proposes to return the framework to regulation of internet access as a Title I information service, not a Title II “common carrier” service.”

Some will see greater freedom as a result, while detractors will see less. Since every public policy has corresponding private interests, some might characterize the “freedoms” as accruing to app providers (some call them edge providers) while others would say the new freedoms will accrue to access providers.

Since the “consumer” or “public” interest can be argued in any number of ways, agreement is unlikely. It is fair to note that, under common carrier regulation, U.S. residents had low cost services, but little benefit from innovation. The fear often is that Title I inevitably means higher prices.

Nothing about the development of the internet or computing suggests that is the most likely outcome. Application providers always have been free of such regulation, and it is hard to argue with the observation that quality, variety and price all have improved.

At the same time, in all years, consumer internet access prices, in real terms, have dropped, both in absolute terms, and relative terms, as speeds have been increased at the same time that retail prices have dropped.

Some fear there will be reduced competition in a Title I framework. Some may try to exercise market power. We will see. Of course, higher prices create more incentive for competitors to enter the market. Higher market share provides the same sort of incentives. The more share any market leader has, the more chances to build a business taking share from that leader.

Gigabit to Every Customer, Everywhere, is AT&T's Goal

There are continuing signs that concern about the pace of U.S. internet access upgrades and investment are likely unfounded. Nor is the pace of mobile bandwidth expansion slowing, either.

Comcast has pledged to upgrade its whole network to gigabit access, as have other bigger cable operators other than Charter Communications.

Verizon recently announced symmetrical gigabit service for eight million FiOS passings, while AT&T continues to add more metro areas for its own gigabit services.

Google Fiber, meanwhile, seems to be preparing for a big new test of its fixed wireless strategy.

If fixed wireless assaults mount, and as fiber-based gigabit offerings expand, the pace of investment pace of investment is going to remain high, for competitive reasons.

Mobile bandwidth also has grown substantially, with T-Mobile US and Dish Network gains in the 600-MHz auction, new activity to add millimeter wave spectrum on the part of AT&T and Verizon, and more coming as shared spectrum in the 3.5-GHz band becomes available, and the Federal Communications Commission moving to release huge amounts of new millimeter wave spectrum as well.

“What the return of unlimited really highlights, and that is the industry's position in terms of network capacity, because if the industry is going to stay with unlimited, we're prepared and can probably sustain it better than anyone else because of our spectrum position,” said AT&T CEO Randall Stephenson.

“We now have more than 60 megahertz of fallow spectrum that we're ready to light up, and we'll be deploying all the bands simultaneously starting this fall,” said Stephenson. “Our goal is to put one gig speeds in our customers' hands no matter where they are on our network.”

Ironically, prospects for better market share gains in fixed network internet access might be more important, not less important, for the likes of Verizon and AT&T, now feeling the pressure of mobile segment losses.

“Broadband had a very strong quarter, with 115,000 subscribers added,” said AT&T CFO John Stephens. Also, “our fiber deployment is making inroads.”

That is important for a few reasons. Account gains might be easier to get in the fixed realm than the mobile segment of the business. Also, to the extent that fixed internet access is the foundation service in the consumer fixed networks business, more scale, and more market share, helps.

Lots of bandwidth also helps support video operations, the new lead application on the fixed and mobile networks.

AT&T fiber is now in 52 metro areas and marketed to 4.6 million customer locations, Stephens said. “ We expect to add two million fiber locations this year, to reach six million by the end of the year, and to meet our 12.5 million merger commitment goal by 2019.”

AT&T executives now speak of a “new world, where capacity, networks, and entertainment intersect.”

“A year from now, we may look back on the return to unlimited plans as the moment when the battle for network reach and capacity began,” said AT&T CFO John Stephens.

If Using Roads is Free, Then Your Business has to Use Roads, Not "Be the Road"

Mobile video has been a problem for operators because competitive pressure prevents them from usage pricing in a way that would realize much incremental revenue from the shift, Tom Nolle, Cimi Corp. principal, notes.  “They’re stuck with another reason for revenue per bit  to decline, sinking into the realm of dumb, cheap, plumbing,” Nolle says.

“And, of course, if the road is becoming free, then you have to make money on what’s traveling the road, which is video content,” Nolle adds. That is a fundamental insight into present and future business models for many access providers who once earned most of their revenue from voice or messaging.

Across the full range of applications and services, “telcos” (including even cable TV companies, which are a segment of the telecom industry using a different access platform), the value and revenue from traditional apps has fallen. That is starting to be true even for the “newer” legacy services, such as internet access or entertainment video.

There are clear analogies in the internet era, when virtually any app or service can be created and delivered over any public IP network, with no participation by the access provider. With the rise of substitute products, that often means severely disrupted legacy revenue streams.

Voice services on U.S. fixed networks pose a huge stranded asset problem, as fewer than half of locations reached actually generate revenue.

Also, voice is a severely-limited revenue generator. A recent survey of mobile industry executives found that half now view voice as a low value service useful mostly in a multi-product bundle.

source: CDC

The key strategic insight is that since access has become a function that is largely commoditized, with value having shifted higher in the stack, or elsewhere in the ecosystem, at least some service providers must recreate application roles with higher value, higher profit margins and higher revenue, as application or service providers.

In other words, “you have to own at least some of the content and apps that flow across your access network.”