Wednesday, November 30, 2016

Altice to Become Frist Major U.S. Cable TV Operator to Abandon HFC in Favor of FTTH

In a major break with other leading U.S cable TV providers across the United States, Altice USA, the fourth largest U.S. cable TV company, announced plans to switch to a new fiber-to-the-home
Network, appears ready to use proprietary technologies it has developed on its own, and also appears to believe that “energy cost savings” will be substantial enough to allow construction of the FTTH network “within the existing capital budget.”

Any one of those actions--abandoning the hybrid fiber coax platform; using its own proprietary platform; or building a brand new network without boosting its capital budget--would be unusual steps. Taking all three is mind-boggling.

Of the three decisions, it is the clear break with HFC that stands out most starkly. The cable TV industry has insisted for decades that HFC is an extensible platform capable of supporting all future requirements. And the industry has argued for many decades that its platform was, in fact, superior to FTTH, in terms of its business model. In other words, HFC would allow cable to deliver all services, and better services, without the capital expense of starting over with FTTH.

Altice is breaking decisively with HFC, and will be the first major cable TV operator to abandon HFC in favor of FTTH. The strategic implications are enormous. If Altice winds up being correct,
then perhaps HFC does not have the “legs” touted by its backers, even if 10 Gbps is on the cable industry industry HFC roadmap.

If Altice is correct--and DOCSIS and HFC really cannot support future bandwidth requirements--then there is at least a possibility that other cable TV operators will face unexpectedly-high capital investment requirements they are not now modeling, as they would have to build wholly-new networks, not simply upgrade edge and headend gear, as now is the case.

That would have implications for profit margins (lower), capital budgets (higher) and equity prices (probably lower).

Altice has plenty of experience with FTTH networks. Altice France is on track to reach 22 million fiber homes by the end of 2022, and Altice Portugal will reach the milestone of 5.3 million fiber homes passed by the end of 2020.

The five-year deployment schedule will begin in 2017, and the company expects to reach all of its Optimum footprint and most of its Suddenlink footprint during that timeframe, within five years.

Perhaps just as surprising, Altice expects to do so without a material change in its overall capital budget.

Some will be skeptical about one or more of the Altice claims. Some might argue Altice is right, long term, but maybe wrong near term. Comcast, for example, uses HFC for all consumer locations, but spot deploys an overlay fiber-to-home network for customers (business or consumer) who want to buy a symmetrical 2 Gbps internet access service.

In large part, that is a practical choice. Comcast does not immediately have a way to supply symmetrical 2-Gbps service over its HFC network, though it can supply asymmetrical 1-Gbps service over HFC.

The point--it will be argued--is that even if, at some point in the future, FTTH is necessary for consumer customers (no other major cable TV company has said this), HFC will continue to supply everything necessary for the foreseeable future.

The big danger of moving to FTTH, say HFC proponents, is over-investment that does not generate a reasonable financial return, for the intermediate future.

Nor are cable TV executives the only believers in many other ways of supplying bandwidth and internet access to consumer customers. AT&T, for example, seems to be a big believer in fixed wireless, and Verizon thinks fixed wireless will be the first commercial application for 5G networks in the United States.

Google and Facebook likewise are developing multiple new platforms using wireless access (balloons, unmanned aerial vehicles, fixed wireless, Wi-Fi, shared spectrum, possibly others).

For no other reason than that Altice now will become the first major U.S. cable TV firm to abandon HFC, and therefore calling into question the cable industry insistence that HFC essentially is future proof, the move to FTTH is noteworthy.

Some skeptics undoutedly will question the ability to build the new network without increasing capital budgets; the assumptions about operating cost savings; or the danger of using proprietary platforms.

Still, it is a history-making move.

India Mobile, Voice, Fixed Accounts Decline in July; Internet Access Grows

Though the trend is likely caused mostly by short-term developments, fixed network, mobile and voice accounts declined in India from July 2016 to August 2016, according to the Telecom Regulatory Authority of India. Many speculate that the currency retirement program now underway in India, retiring Rs 500 and Rs1000 notes, has many consumers focused on trading in their old currency, rather than buying new mobile phones and service, at least for the moment.  

That could change over the next several reporting periods, however, as Reliance Jio entered the mobile market in early September 2016, gaining 50 million new accounts. So the issue is what percentage of those net new accounts were taken from other suppliers (which would not affect overall net subscriber growth) and what percentage represents net new mobile accounts (people buying mobile service and not switching from another provider).

Internet access accounts (broadband) grew from 166.96 Million at the end of July to 171.71 million at the end of August, a monthly growth rate of 2.84 percent.

Total mobile accounts in service declined from 1,034.23 million at the end of July to 1,028.88 million at the end of August, a monthly decline rate of 0.52 percent.

The fixed network subscriber base declined from 24.62 million at the end of July to 24.51 million at the end of August, a net decline of 0.44 percent.



source: Trak

Did AT&T Divestiture and Telecom Act of 1996 Both Fail?

“Unintended consequences” might represent the more-significant of outcomes from the last two major transformations of U.S. telecom law. One might argue that happened because, despite best efforts, U.S. telecommunications law was backward-looking, something analogous to generals planning to “fight the last war.”

In retrospect, the biggest issue was the framing of problems. The breakup of the AT&T system--a historical anomaly, as it turned out--was designed to “solve” the problem of high long distance prices. The Telecommunications Act of 1996 was intended to “solve” the problem of high prices for local telecommunications services.

The 1983 divestiture completely missed the coming role of mobile services. In fact, mobile arguably had more to do with falling long distance prices than did competition among fixed network service providers.

A good argument can be made that the last two big revamps of U.S. telecommunications law were similar in one striking way: they were based on false or incorrect assumptions, and “failed.”

The 1982 “consent decree” that broke up the AT&T system, for example, attempted to create a competitive new telecom market by splitting long distance service from local telephone service, the theory being that competition for long distance voice services would be enhanced by creating seven new firms controlling local service, plus a deregulated AT&T restricted to long distance services.

The U.S. Department of Justice concluded in 2007 that divestiture did not work as expected, and that similar outcomes (much lower prices and much higher usage) would have been produced by less-complicated measures.

In other words, the big “missed” assumption was the rise of mobility as the primary way consumers would choose to use voice services. Nor, in retrospect, did the consent decree anticipate that mobile service providers would adopt pricing policies that eliminated the difference between a “local” and a “long distance” call. That “death of distance” pricing essentially killed the long distance business as a distinct industry segment, revenue and profit source.


The 1996 Telecommunications Act, likewise, was supposed to introduce local telecom competition, in the same way the the 1983 breakup of the Bell system was intended to spur competition in long distance voice.

The Act opened competition in the “local” telecom business, initially driven by mandatory wholesale policies that allowed new competitors wholesale access to existing facilities.

When those policies failed to produce investment in new facilities, was replaced by a reliance on “facilities-based competition. That policy, in turn, lead to the rise of cable TV providers as the ubiquitous telco alternatives in most markets.

A bigger “failure” was the belief that policy to promote competition essentially meant measures to support more competition for “local voice” services. That meant allowing new contestants to deploy voice switches and gain wholesale use of local access facilities owned by the dominant local telco.

What was missed? The internet. Ironically, to the extent the Telecommunications Act of 19996 has succeeded, it is because of value created by the internet and its apps and services, not new competition for local voice services.

The point is that, however well intentioned, major efforts to revamp communications policy have succeeded (in a generous interpretation)  “despite the new policies,” as much as “because of the new policies.”

It is the two major unintended developments--mobility and internet--that have lead to higher value and lower prices for consumers, not the intended changes (breaking up AT&T, opening local telecom to competition). In the case of the divestiture, policymakers missed mobility; in the case of the Telecom Act, they missed the internet.

The point is a huge dose of humility should be brought to the whole process of shaping policy to promote investment and competition in communications facilities and services. Our track record is not very good.

Tuesday, November 29, 2016

Will 2017 be the Year the Fixed Network Business Model Crashes?

Will 2017 be the year the global fixed network telecom business goes negative, or upside down, on a cash basis?

Yes, say researchers at the Economist Intelligence Unit. Their 2017 telecom forecast predicts that, by the end of 2017, the global fixed networks business will go negative. In other words, annual revenues will be less than investment required to operate the business.

That necessarily will start--or accelerate--a huge process of rethinking the role, scale and scope of fixed networks. Over the long term, fixed networks cannot be operated at a permanent loss, much less justify continual investment in higher speeds and capabilities, as revenue drops.

That calls into question not only the future role of a fixed network, its role and customers, but also the platform, marketing and operating costs required to sustain the business.

In simple terms, revenue no longer will cover fixed or variable costs in the business. That is a big big deal.



Telecom Infra Project Adds Operations Focus

Bell Canada, du (EITC), NBN, Orange, Telia, Telstra, Accenture, Amdocs, Canonical, Hewlett Packard Enterprise, and Toyota InfoTechnology Center have joined the open-source Telecom Infra Project that aims to create global, open source network platforms from access to core networks.

TIP also now is expanding its work on operating processes. The “People and Process” project will collect and codify best practices that can improve operating metrics. The group will be co-chaired by Bell Canada and Facebook. Members of this new group include: Accenture, Agilitrix, Bell Canada, Deloitte, Hewlett Packard Enterprise, NBN, SK Telecom, Tata Communications, Telefonica, and Telstra.

Reliance Jio--After 3 Months--Already is Largest Mobile Data Supplier in India

Have you ever seen market structure in any telecom market transformed in three months? That appears to have happened in India, where Reliance Jio Infocomm, the latest and biggest new entrant in India’s mobile business, has acquired more than 50 million new mobile data subscribers since commercial services were launched early in September 2016.

For those of you keeping count, that is about 1,000 new customers a minute over a three-month period.

Looking only at mobile data accounts--not total accounts--Reliance Jio already has become India‘s top carrier by mobile broadband user base, surpassing Bharti Airtel. That rapid rate of account growth already has altered the Indian mobile market structure, as Reliance Jio now is the biggest provider in the market.

Top Five Wireless Broadband Service providers, January 2016:
1.   Bharti Airtel (31.02 million)
2.   Vodafone (26.23 million)
3.   Idea Cellular (22.04 million)
4.   Reliance Communications (15.37 million)
5.   BSNL (10.26 million)

Top Five Wired Broadband Service providers, January 2016:
1.   BSNL (9.9 million)
2.   Bharti Airtel (1.68 million)
3.   MTNL (1.12 million)
4.   Atria Convergence Technologies (0.89 million)
5.   YOU Broadband (0.51 million)

Former market leader Bharti Airtel had 41 million mobile broadband accounts in service at the end of September 2016. Reliance Jio still has some ways to go to reach the top ranks of the mobile market, measured in total accounts. But it soon will pass Telenor, the eighth-largest provider.

Rank
Operator
Subscribers (Feb 2016)
1
Bharti Airtel
248,690,245
2
Vodafone
196,746,283
3
Idea Cellular
174,627,491
4
Reliance Communication
101,905,475
5
Aircel
86,677,778
6
BSNL
84,826,568
7
Tata
60,278,625
8
Telewings / Telenor
51,677,533
source: TRAI

Ofcom Decides Against Openreach Structural Separation

If Openreach becomes a wholly-owned affiliate of BT, but with its own board of directors, will that increase competition in the U.K. internet access business?

Ofcom, the U.K. communications regulator, apparently believes that is the preferable alternative to complete structural separation of Openreach. All other policy concerns aside, Ofcom arguably wants to avoid years of legal wrangling and substantial costs that would be triggered by what would be a divesting of BT instructure from its retail role.

Many will disagree. For many observers and industry participants, the structural separation of Openreach from BT has been deemed necessary. Ofcom, the U.K. communications regulator, has been looking at the broader question of broadband policy, as well as the specific question of the structure of Openreach and its ownership by BT.

Rivals of BT were chief among those believing structural separation was necessary to protect and promote healthy competition in the internet access market. Virgin Media was rare among BT competitors who advocated. That, some might conclude, was an additional reason to allowing Openreach ownership by BT.

The reason? As the primary facilities-based provider of fixed network internet access services, Virgin Media can be presumed to be a good judge of how policy changes affect its business. If Virgin Media opposes structural separation, it has to be deemed a reflection of Virgin Media’s own belief that Openreach would be a more-formidable platform when structurally separated.

Now it appears Ofcom has concluded that structural separation is not required. Instead, Ofcom is said to be moving to what it calls “legal separation,” recasting Openreach as an owned subsidiary of BT.

“Our current view is still that an effective and robust form of legal separation, with Openreach as a wholly owned subsidiary of BT, is likely to achieve the greatest improvements for everyone in the shortest amount of time,” Ofcom said.

In Singapore, Australia and New Zealand, full structural separation between a wholesale infrastructure services supplier and the former owner was chosen.

Monday, November 28, 2016

AT&T Announces Pricing for New Streaming Services

In addition to DirecTV Now, AT&T’s new streaming video service, AT&T also has announced price points for two other services, FreeVIEW and Fullscreen, both of which can be used with no data plan usage for AT&T mobile service customers.

Fullscreen offers more than 1,500 hours of ad-free premium scripted and unscripted original series, TV shows and films licensed from studio partners.

Fullscreen can be used at no charge for one year, for all AT&T mobile plans including a messaging service, and without incurring data usage charges. Regular pricing after the introductory year is $5.99 a month.

Fullscreen can be used anytime, anywhere in the United States, at www.fullscreen.com, on iPhone, iPad, select Android Phones, Chromecast and Apple TV devices.

FreeVIEW also provides unique and exclusive content free of charge, including a sampling of on-demand content from AUDIENCE Network, Otter Media properties and other channels on DirecTV Now, using either the DirecTV Now app or at the web site, www.directvnow.com. Streaming of FreeVIEW does not incur data charges.

AT&T also announced pricing for DirecTV Now, including
  • Live a Little – $35 / month (60+ channels)
  • Just Right – $50 / month (80+ channels)
  • Go Big – $60 / month (100+ channels)
  • Gotta Have it – $70 / month (120+ channels)

Fans of HBO and Cinemax can add these channels for just $5 each per month in addition to your base programming package.

DirecTV Now will be available at launch through the following:
  • Amazon Fire TV and Fire TV Stick
  • Android mobile devices and tablets
  • iPhone, iPad and Apple TV
  • Chromecast (Android at launch; iOS in 2017)
  • Google Cast-enabled LeEco ecotvs and VIZIO SmartCast Displays
  • Internet Explorer, Chrome and Safari web browsers.

Support for Roku streaming players and Roku TV models, Amazon Fire tablets, and Smart TVs from Samsung and other leading brands will be added in 2017.

AT&T continues to argue that the primary audience for these services are about 20 million households that use the internet but do not buy linear TV services. That includes people who used to subscribe as well as those who never have subscribed to a linear TV service.

But that also means AT&T now competes with other services such as Sling and PlayStation Vue, for example. Some might argue the new services also will compete with Netflix, Amazon Prime and Hulu, to some extent.

The other issue is how much impact, if any, might eventually be felt by the linear video business, affecting both AT&T’s own DirecTV service and those offered by others such as Comcast and Charter Communications, even if the immediate expected customer base is “non-buyers of linear video service.”

Demand for Fixed Network Voice Lines is Lower than Many Think

Consumer demand for fixed network voice connections arguably is substantially lower than one might conclude from units sold to households. In some markets, purchase of a voice line is required if a customer wants internet access (United Kingdom buyers of retail landline service from BT or any BT wholesale customers, for example).

In other markets, such as the United States, voice typically is sold in a bundle that offers substantial discounts for buying three bundled services, making purchase of a voice line a feature of service often primarily purchased for internet access and video entertainment.

Also, global development experts believe mobile and internet are, in any event, the key services to monitor, not fixed line voice.

The key observation is that many consumers must buy a fixed network voice service in order to buy internet. The question is how demand would be affected if that requirement were not in place.

One survey found that between 25 percent and 40 percent of U.K. consumers “do not know their own phone number.” Also, more than 50 percent of U.K. survey respondents report they ‘rarely’ or ‘never’ use their landline phone to make personal calls, Relish, a wireless internet access provider, says.  

Perhaps 36 percent of respondents only use their landline voice line once a month or less, Relish has found.

If only half of those respondents--if given a chance--would abandon voice lines, then take rates for landline voice might drop between 12.5 percent and 25 percent. But it might also be the case that up to half of present buyers seen very little utility in their landline voice connections, suggesting that as much as half of all present demand is artificially inflated.

There are analogous trends even in the mobile business. Many leading U.S. mobile plans, for example, offer unlimited domestic calling and text messaging for a lowish flat fee, with revenue driven primarily by purchases of mobile data. One might infer from those practices that the “value” of a mobile voice or messaging capability is relatively low, compared to access to mobile data.


That is not to say the voice and messaging features are unimportant; only that they are commodity features. Few consumers likely would buy a mobile service that did not include voice and messaging capabilities, but equally few are likely to prize those capabilities. The analogy is an automobile without tires. Tires are necessary, but few consumers think about them when buying a car.

Sunday, November 27, 2016

Linear Dollars for On-Demand Pennies?


One enduring observation made by content business executives about the gross revenue or profit margin impact of digital content is that companies exchange analog dollars for digital pennies. That might also be true of the switch from linear to on-demand video entertainment.

Gross revenue for AT&T’s new DirecTV Now streaming service, for example, might generate an average of $118 a month. DirecTV Now will generate just $35 a month in subscription fees. So DirecTV Now represents gross revenue per account just 25 percent the size of a linear subscription, on average.

Profit margins suffer even more. Gross margin for the linear product might be as high as 45 percent, while gross margin for DirecTV Now might be as low as four percent, some predict.

Others think the profit margin will be even slimmer, as the “cost of goods”represents as much as 97 percent of revenue. Craig Moffett, MoffettNathanson equity analyst, estimates the  the cost of the channels expected to be included in DirecTV Now is likely around $34, which would leave just $1 a month before other expenses including overhead and marketing.

A reasonable observer might wonder why AT&T would offer such a service. There are several answers. AT&T is not alone in believing that the biggest opportunity to capture leadership in the on-demand video entertainment business is to focus on mobile video rather than the “direct to TV” model. So DirecTV Now, even if a “loss leader” at the moment, offers a chance to grab leadership of the business most expect will displace linear TV over time.

Also, subscription TV (linear or on-demand) is a clear “app,” offering a chance to escape the “commodity dumb pipe internet access” role. Simple internet access does not intrinsically drive incremental revenue for the access provider. Voice, messaging, video and other services, in contrast, boost revenue. And that will be a primary objective and necessity for all tier-one service providers, as legacy services approach “near-zero” pricing levels.

In that sense, entertainment video is among the likeliest candidates to drive significant application revenues, in addition to the internet access function. Also, content services--at least in principle--are more “sticky” than other services such as messaging and voice, allowing more chance for differentiation and loyalty.

To be sure, AT&T maintains the service will be aimed at households and customers who buy internet access, but not a subscription video service. Apparently, current DirecTV linear subscription customers will not be able to buy the DirecTV Now service. But at least some additional consumers are going to view the new offer as a viable choice.

That will be most true for consumers who might otherwise consider SlingTV or Hulu, less so for consumers of Netflix or Amazon Prime, both of which arguably compete more directly with HBO. DirecTV Now (as is SlingTV) is a better choice for consumers who want a broad selection of major network linear content.

"Tokens" are the New "FLOPS," "MIPS" or "Gbps"

Modern computing has some virtually-universal reference metrics. For Gemini 1.5 and other large language models, tokens are a basic measure...