Some Want Faster Next Generation Network Investment, But Also Keeping Legacy Copper

source: Technology Futures

As much as most people would agree that robust supply of new next generation networks is a good thing for industry, consumers, government and education, as a practical matter many of those same constituencies oppose retiring legacy copper networks in favor of optical or other next-generation platforms.

It is not a new problem. Most consumers would say they want faster, more robust mobile networks with better coverage. But owners of real estate also frequently and normally oppose placement of the new tower sites that would bring such better coverage and performance.

Somewhat paradoxically, the same entities that can be expected to criticize too slow deployment of optical fiber and other advanced platforms also often argue against those investments, arguing that it is better to keep copper in place.

Telcos argue they need to--and just “want to”--replace high maintenance copper lines with lower-maintenance optical fiber connections (increasingly, they will argue that higher-cost fixed lines need to be replaced by lower-cost wireless access).

None of those are immaterial issues, as revenue fixed network providers can generate from those networks (whatever the access platform) are declining, as customer demand changes and as competitors on facilities-based alternative networks take half the available market share.

How Much Demand for Live TV Streaming?

source: GlobalWedIndex

Some 11 percent  of all streamers pay for live streaming television, a study by Cogent Reports has found. That might be viewed as a data point suggesting there is relatively little interest in live video streaming. That might not be the case.

Potential demand for live video streaming is getting to be a tale of multiple markets. There is the traditional TV content market, but there also is a faster-growing live video content “in the context of social media use” segment of the market. It is easier to measure “demand” in the former segment, than in the latter segment.

In the traditional video content business, there are further nuances. There arguably is less demand for live news programming; much more demand for live sports programming and high demand for live streaming of blockbuster events (sports and entertainment events).

But much of the growth in live streaming has to do with social media usage, not traditional linear TV viewing.

In 2017, most live streaming arguably is in the context of social media, not paid streaming video.

These days, live video streaming is more often something that happens in the context of a person using social media, not a paid video streaming service.

So one danger when conducting market research is self-fulfilling hypotheses. If an existing market is quite large and established, while another is quite small and new, any survey of buying behavior is going to show that there is relatively low buying of products in the small market. Conversely, studies of buying behavior will show high activity in big market  products.

Also, if most of the activity in a market is not consumed on a for-fee, subscription basis, any measurement of “for fee” subscriptions is going to miss the total amount of activity.

“With the exception of sports and news, our research shows that viewing live content is not in high demand as it is currently offered,” say researchers at Cogent Reports.

App Store Blocks Use of Templates

New rules for Apple’s App Store state that “apps created from a commercialized template or app generation service will be rejected.” That, some argue, is going to affect many small business apps that use lawful templates to create features from app assembly suites or app-creation tools.

Apple has the right to create its own rules. The point is simply that, increasingly, we see new examples of app, device or commerce providers acting as content gatekeepers. That is not a particular issue of somehow restricting “internet freedom,” but simply business decisions those firms are free to make.

Bits are not “treated equally,” anywhere in the internet supplier ecosystem. Almost nothing in the app, content, platform or device parts of the ecosystem actually treat bits or any other parts of their business practices and business models “equally.”

There are all sorts of reasons for that, including the drive to create distinctiveness and uniqueness, create new features and capabilities.

That is simply to point out that breathless warnings about the “end of the internet” because “all bits are not going to be treated equally” misses the point, badly. There are all sorts of practical ways content, apps and devices are not “treated equally.”

There are some elements of internet access policy that do make sense. Ensuring that consumers have access to all lawful apps is fundamental. But most claimed violations of network neutrality are misplaced. How Apple wants to run its app store is its own business.

Will Verizon Deploy its Deep Fiber Network Out of Region?

Sparring between various direct competitors in any business is unremarkable. Such marketing positions are perhaps even more nebulous than ever where it comes to 5G, as there are so many valid interpretations of what “5G” really means (practically and commercially).

It might also be helpful to remember that one fundamental principle, in such marketing wars, is that contestants emphasize as features what they can provide, while trying to downplay the features of what others can provide.

That should never come as a surprise. So too should we remember that what one person, firm or industry “cannot do” does not mean every person, firm or industry likewise “cannot do” something.

Still, there are some potential surprises about Verizon’s apparent decision to launch its 5G fixed wireless services outside its fixed network territory. The reason is that Verizon has talked about the advantages of its new deep fiber initiative as supporting multiple uses, and that logically would make most sense for in-region markets such as Boston, where the deep fiber network would support business customers, smaller business and small cell backhaul, but then also lay the foundation for consumer internet access.

The idea is that a single optical fiber trunking network will use separate wavelengths to support different use cases.

In the announced Sacramento fixed wireless market, it is not immediately clear that Verizon actually will deploy its deep fiber network.

It might make more sense to add incremental optical trunking on a more selective basis to support tower locations that have to be created or beefed up to support the fixed wireless initiative, as that might require less incremental optical trunking investment.

On the other hand, were Verizon to undertake a massive deep fiber network outside its fixed network footprint, that could lay the groundwork for an expanded assault on business markets out of region, using the mobile network assets.

In other words, if it invests in its own new optical fiber trunking network in Sacramento and other fixed wireless areas outside its core fixed network footprint, Verizon would have the ability to essentially become a full-fledged local access alternative for the first time, out of region.

It is not yet clear which of those deployment scenarios actually will happen. On the other hand, it is understandable that competitors might try to disparage the effort. Some other major competitors are not in position to do anything similar (either because capital is not available or there is no synergy with an existing fixed network).

Netflix, Comcast, Verizon All Show Changed Roles Within Video Business

Network slicing--the ability to create customized virtual private networks--is a key underpinning of the core networks that will support 5G, and potentially creates new revenue opportunities for service provides able to provide such customized network features.

Perhaps inevitably, network slicing will create yet another opportunity to raise “network neutrality” concerns where many would argue they do not properly exist.

The whole point of network slicing is to allow creation of services with different class or quality of service (Cos/QoS) attributes. And, of course, that is the core of the consumer “best effort only” restriction, where CoS and QoS are prohibited, even if such features are allowable for business services and managed services (linear video, voice and messaging being the prime examples of managed services supplied by a service provider).

For entirely practical reasons, it seems likely that most network slicing deployments will support enterprise networks. That is because enterprises are the most likely to have an immediate business case, as enterprises have been the buyers of content delivery services, which likewise supply QoS advantages for enterprises in the application and content businesses.

For service providers and enterprises, network slicing should help optimize traffic and provide load management advantages. Because network slices are supposed to be highly dynamic, that feature also should simply chores related to creating and modifying wholesale capacity operations, such as supplying bandwidth to mobile virtual network operators.

For enterprises and service providers, the goal of fast and easy changes to network resources also should be supported, allowing “on the fly” adjustments to latency or capacity.

In the area of machine or connected car communications, network slicing should help create guaranteed low latency communications for those use cases where very-low and assured latency is fundamental.

Network slicing also should help in instances where quality of experience (latency and bandwidth) is important for end users.  

With regard to perceived “network neutrality” concerns, network slicing will provide additional evidence of how truly hard it is to separate “unhindered access to lawful internet apps” from legitimate network management practices. Network neutrality rules always have been murky on that division of prohibited and permissible traffic shaping practices.

The phrase “treat every bit equally” is unhelpful, in the context of network neutrality discussions, as most major suppliers of consumer internet apps already employ measures to treat their own bits differentially. That is the whole point of CDNs: unequal treatment.

The whole point of a CDN is to provide better quality of experience by minimizing latency, for the firms that choose to use CDNs.

Beyond that, the whole effort to case every business practice as covered by network neutrality (consumer access to all lawful apps; best-effort-only access) is further stressed by network slicing, to the extent that content or app providers decide to take advantage of such network features to improve quality of experience for their internet-accessed apps.

So is the effort to portray the only-important business practices covered by the “lawful access” and “no blocking” principles solely to access providers, and not to app providers. Amazon will not allow Google to sell its voice-activated home appliances on Amazon; Google blocks Amazon appliances from using YouTube.

That is more than “prioritizing packets,” that is actual blocking of lawful commerce and content. And yet, so far, there is little serious consideration of those business practices from the standpoint of maintaining end user or customer access to all lawful apps, content or products.

That, perhaps, is the main point. Business practices are not necessarily “violations” of internet freedom, though some believe zero rating, a business practice, also should be covered by such rules. Some would argue that the effort to cast only some business practices as violating internet freedom is wrong. Freedom is the better approach.

Consumers should have the freedom to use lawful apps. App, content and commerce providers should have freedom to choose their own business practices. Access providers should be free to create additional mechanisms, features and services for access that enhance quality of experience.

That makes even more sense as the roles blur and fuse. Increasingly, content ownership, content development, delivery and use are functions integrated across the value chain. Freedom for all is the better approach than “freedom only for some.”

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.

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.