Is FCC violating process again with Net Neutrality action? Or just being Shortsighted and Stupid?

The first two FCC attempts to impose some "network neutrality" rules were vacated by the Federal Courts because the rulemaking was based, in large part, on imputed authority that the FCC did not statutorily have (see earlier post here), further supported by evidence that the FCC had violated its own procedures for rulemaking.  At the time of the second Court decision, many policy folks (myself included), commented that if the FCC wanted to move forward with Net governance and regulation, the best approach was to base a claim for regulatory authority under Title II of the Communication Act - which does cover telecommunication networks.
With the FCC deciding that it will issue a rulemaking addressing Network Neutrality this Thursday, without publicly releasing the actual rules being considered, the FCC would again be clearly violating the spirit, if not the letter of its own (statutory) rules on due process.
The FCC, when considering new rules and regulations, is supposed to undertake a multistage process that starts with a public Notice of Inquiry, a period to allow public (and industry comment), then a Notice of Proposed Rulemaking that outlines the proposals, followed by more opportunity for public comment.  Normally, if the FCC wants to consider substantive changes to proposed rules and regulations, it posts a Further Notice outlining the changes, and offers an additional period for public comment.
Tom Wheeler, the current head of the FCC, argues that the FCC has already gone through several NOIs, NPMs, and public comment periods.  However, the proposed regulatory framework for those appears to be totally different from what is to be acted on this week.  While the FCC doesn't have to refile Further Notices for every little change in the rules, because the proposals that had been discussed are substantially different from those to be voted on, this case clearly violates the both the spirit of the rulemaking process in that it hasn't allowed any time for public review and comment on what seems to be a wholly different set of rules and arguments than what had been previously proposed and discussed.  In addition to tossing claims of being "transparent" onto the growing dustheap of broken promises of transparency by this administration.  (In fact, as a Senator in 2007, Obama called the FCC's attempt to pass rules without full public disclosure and opportunity for public comment "irresponsible.")  Furthermore, the FCC is supposed to be an independent regulatory authority, not one that would toss aside several years of proposed rulemaking and public discussion to (allegedly) adopt - in full and without review, discussion, or amendment - a plan written by political operatives in the White House.

Regardless of the ethics of the current Chairman's behavior, and the potential authority Title II provides for regulating telecommunication networks, bringing the Internet under Title II is not necessarily reasonable or appropriate - in large part because of the statutory language in the 1934 Communication Act and the 1996 Telecommunication Act.
The 1934 Communication Act gave the FCC regulatory authority in two areas: Title I dealt with radio transmissions (including broadcasting), and Title II dealt with, basically, telephone networks.  More specifically, it was designed to deal with the existing local monopoly wired, switched, telephone system.  (The FCC was granted oversight of cable systems - redefined as multichannel video delivery services - by the 1984 Cable Act).
With the rise of the first use of wired telecommunications for computer communications in the late 1950s and 1960s, the FCC examined the question of whether computer networks should be regulated under Title II.  They reached a conclusion that it would not fall under Title II for several reasons: the computer network (later expanded to information) services typically did not own and run the actual wired networks they employed, but rather leased lines from telephone companies (the separation of service from network is explicit in FCC definitions of those terms.

There is a hard and fast statutory line separating the information services that utilize telecomm networks, and the telecomm-based distribution networks that deliver those services.  The current language would seem to explicitly exclude Information Services from falling under Title II. Also, on the technological side, the developing computer networks and information services used quite different technologies than telephony, and so the part of Title II that deals with technical standards would be largely irrelevant (if not applied) and inappropriate (if applied).  But most importantly, the FCC felt that trying to set standards and apply Title II regulation to computer networks and information services would restrict developments and innovations by imposing a governance structure that favored certain uses over others.

The main philosophy of Title II's network regulatory approach is that networks should act as common carriers (a regulatory philosophy borrowed from railroads and freight services). The essence of common carrier status is that the network should not discriminate among its users - that they shouldn't give favored treatment to one user over another. 

 One of the widespread fallacies in Network Neutrality discussions is that common carriers can't treat users differentially (thus everyone should have the same rate for internet connectivity). Actually, there's a long history of permissible differential treatment, as well as a long history pointing out the social benefits that can be acheived through appropriate cross-subsidies. Telecomms can treat users in different localities differently, and more critically, can differentiate on the basis of level of service. All they need to do is show that the costs of providing a particular type of network connection are different (a content-neutral rationale). The FCC has even allowed differential treatment for certain general classes of services (911, toll-free numbers, added-charge numbers). Furthermore, the 1996 Telecommunications Act removed many aspects of telecomm regulation from FCC oversight.

 In addressing the Title II approach, policymakers and pundits need to recognize that i) Title II is largely limited to telecommunication network operators, and the existing statutory language is not readily, or easily, extendable to Information Services and most ISP operations; ii) many of the aspects of the 1934 Act that regulators want to rely on for the new Internet rules have been superseded by the 1996 Act; and some issues are addressed by other laws and statutes (for example, copyright and privacy laws that expressly address ISPs, Information Services, and digital network operators). Many of the areas and concerns that Network Neutrality proponents are primarily concerned with may not be covered by a simple extension of Title II regulatory authority to the Internet.

While Title II can be a better foundation for asserting regulatory authority, just claiming that "We've changed our minds, information services and ISPs fall under Title II" is not likely to pass judicial review - because what they do doesn't fit the existing statutory language. Doing a sweeping assertion of authority is what got the FCC in trouble in previous attempts, and going the Title II route without serious review - if the action isn't quickly overturned - is going to create a virtual minefield of implementation problems and legal challenges - with the FCC and the Courts having to then decide which of the 100+ pages of telephone regulations should apply to the Internet, its backbone network providers (who already effectively act as common carriers anyway), ISPs (many of which are a mix of network operators and information services), and the Information Services that provide the content and services to users.  Should Universal Service apply to ISPs? Should ISPs be subject to the specific taxes applied to telephony (including one designed to help retire the Spanish-American War debt - which was paid off about 100 years ago - but still shows up on your telephone bill). Should the FCC's authority over pricing in the Internet apply only to interstate and international connections (the only price authority the FCC has over telephone rates under Title II in the 1934 Act, and which was sunseted out in the 1996  Act - leaving the FCC without statutory authority to regulate telecomm (ISP) rates and services)?

In other words - going the Title II route really needs extensive discussion of the proposed rules and policies to work out the problems and kinks that would be associated with that approach.  But the current FCC Chair and Democratic Commissioners seems determined to take the easy and quick approach of simple proclamation and promulgation of a massive set of new regulations, rather than doing the smart thing of working out the details and gaining some consensus from the various stakeholders that would be impacted by the new rules.  Or even considering if there is really any need for a massive overhaul and imposition of governmental (possibly politicized) oversight and control of a significant, and efficient major sector of the economy, and an increasingly vital source of information by both private and public sectors.

As I said with the last two FCC attempts at grabbing Internet oversight - this is too important, and too critical, to take short cuts.  If the FCC is going to do this, they need to do it the right way - with true transparency and plenty of opportunity for the public to point out the problems and pitfalls that always comes with trying to set uniform rules for very complex systems.  And first asking the most important question - do we really need to impose any kind of regulatory structure on the an efficient, innovative, and highly flexible Internet and Information Services sectors?

Infographic: Modern Mobile Workforce

From GigaOm, The modern workforce part I: supporting productivity with mobile, BYOD, and cloud.

Old techs DO Die - Farewell, Telegraph

Large scale telegraph systems will end next month, as India terminates its state-run telegraph system. The actual use of the telegraph as a technology has been minimal for decades, replaced by more efficient telecommunications technologies, but the provision of "telegraph service" lingered for cultural/legal reasons; but at a large cost.  As nations privatized telecommunication providers, cost began to trump tradition.  Telegraph service ended in 2006 in the US, and only lasted 2 years after British Telecom was privatized in 1980.

Source -  Telegram system ends. Stop. Replaced by text messages.  Stop.,  the Telegraph

Goin' Mobile - Speeds and Content

Some quick notes on the expanding mobile broadband/online video front -

The last leg in mobile broadband for most people will be their home, office, or public WiFi loop.  Telecomm research from the Dell'Oro Group note that the wireless LAN market (i.e. WiFi) grew 17% in 2012.  But even more significantly, the new 802.11ac standard, which offers speeds up to 1 Gigabit/second data rates will be increasingly available on hardware devices this year - contributing to a convergence of wired and wireless data speeds.

There's a massive data speed war in Japan, with multiple operators offering 1 Gbps services over fiber-to-the-home (FTTH) networks, and one operator announcing the rollout of the Nuro 2Gbps FTTH residential service.  So-Net's initial pricing for 2Gbps runs around $50 a month, significantly lower than competing 1 Gpbs services. Meanwhile, Japan telco NTT is said to be working on a 10Gbps residential network, to be available in a few years. 1 Gbps networks are popping up sporadically in the U.S. and Western Europe - Google's test markets offer 1 Gbps data plus multichannel video at around $100-150, and independent 1 Gbps network operators are pricing their services at $200-250 per month.  For most potential residential subscribers, there is little noticeable difference between 2 Gbps and 1 Gbps top data speeds, or for that matter 100 Mbps (corrected  from Gbps) speeds, so there is minimal incentive to switch to ultra-broadband services - aside from bragging rights, and price.  So many analysts are cautious about the rush to ultra-fast broadband, wondering if the cost of upgrading network speeds is recoverable from residential subscription fees.

On the content front, research from ABI is predicting substantial growth in use of the movie industry's UltraViolet "content locker" initiative.  Ultraviolet offers those with accounts online access to selected movies they've purchased on home media and registered with the service.  Ultraviolet currently has 6-8 million accounts; ABI estimates that the global market is likely to reach 65 million users (100 million if several major movie distributors join the program).  What's holding up growth at the moment, the report concludes, are consumer attitudes about trust and usability.

Consumers don’t yet trust the concept, with most still opting for subscription and digital content rental services such as Netflix and Hulu. “The ease of accessing and storing digital video libraries must approach that of digital music,” noted ABI practice director Sam Rosen.

Sources -  Wireless LAN Market on Fire,  CableFAX Tech
Broadband operators must beware the dangers of FTTH 'speed race',  telecoms.com
ABI: UltraViolet Could Radiate 65 Million Accounts… or More,  CableFAX Tech

Edited to correct typo in broadband speeds in middle story.

Dish Makes Bid for Sprint

Dish Network has put forward a bid to acquire Sprint Nextel for $25.5 billion, providing them entry into telecommunications markets - and mobile broadband in particular.  It also provides the potential to offer the combination of multichannel TV, broadband data, and mobile services that competitors AT&T and Verizon provides. 

  Dish, and fellow DBS operator DirecTV, have largely been limited to providing TV service in an increasingly converged digital marketplace.  They've made deals with other telecomm operators to offer bundled service packages in competition with cable and cable telco operators, but these efforts have become problematic as partners have increasingly turned into competitors.  Analysts suggest that the acquisition of Sprint would provide Dish with their own telecomm service, significantly grow their ability to provide digital bandwidth in package deals, and provide new business opportunities to create systems that could give consumers access to media, content, and communication services across a number of devices.  And placing them in a better competitive position with rivals AT&T, Verizon, and Comcast.

Consumers would be happy with the Sprint purchase, says Dish. "Someone who gives you more than 2 [gigabytes] for the same money, that's attractive," said Thomas Cullen, Dish executive vp of corporate development of Dish. "Nobody is going to have a bigger pipe than Dish-Sprint." The proposed deal could give customers 50 gigabytes.

The deal would also provide Dish with additional leverage over TV content providers, and position it for future growth.

Specifically Dish would gain in the one area many media executives -- traditional, digital, and otherwise -- know is coming: an aggressive rise of all media on mobile platforms.

In addition, rumors are starting to spread about a possible deal between Dish, with its Hopper service, and broadcast redistributor Aereo (as if the traditional TV networks and content producers weren't already fretting about those technologies and services).  It'll be interesting to see how this all plays out.

Source -  Dish Looks To Give More To Consumers - And Perhaps Rankle TV Nets, Too,  TVWatch

Google Targets Austin; AT&T too

With plenty of fanfare, Google announced that Austin, TX will be the next test market for its Gigabit data/video network.  Google indicated that it hoped that it will be providing its Gigabit network to consumers starting in 2014.  Google's already built a Gigabit network in Kansas City, offering data speeds three times faster than its nearest major competitor (Verizon) offers in a few markets, and thirteen times faster than AT&T's current fastest standard offering.

   AT&T, who currently provides its U-Verse data/video service in Austin, responded by committing to upgrading their network to Gigabit speeds, as part of their Project VIP broadband expansion efforts - if it can get the same terms and conditions from local authorities that they will offer Google. 

"AT&T is making the point that they could make a lot more investments in many of their communities, absent the regulatory burdens which every community puts on providers," said Raymond James analyst Frank Louthan.

City officials indicated that Google wasn't getting the kinds of special deals in Austin that they had negotiated in Kansas City.  The only Austin "deals" that have been made public call for Google to connect some 100 public facilities to the Gigabit network, as well as offer free low bandwidth (5 Mbs) Internet service (for at least seven years) to anyone paying a one-time construction/connection fee (the amount for Austin residents was yet to be determined, but was $300 in Kansas City).
  There are two other Gigabit speed networks currently providing residential service in the US - one in Chattanooga, TN, the other in the San Francisco Bay area - but those are significantly more expensive (around $250-300 a month, without digital video) than Google's KC rates ($120 a month).  And if AT&T and Verizon start building competitive Gigabit networks, the competition should help keep prices low.

Source -  Google, AT&T target Austin for high-speed internet,  TelecommEngine.com

Milestone: UK 4G coverage hits 50%

More than half of UK's population is now within the coverage area of 4G wireless broadband service.

EE (stands for Everything Everywhere) is currently the sole provider of 4G mobile service in the UK.  They got a jump on other mobile service providers by repurposing their existing spectrum for 4G service, rather than bidding in the new 4G spectrum auctions.

“With these major milestones of 50 towns and cities and 50 per cent of the population, we’re remaining ahead of our schedule to equip UK consumers and businesses with 4G," (EE) chief executive Olaf Swantree said.

The company is hoping to get 70% coverage of the UK by the end of 2013, and 98% coverage by the end of 2014.

The expansion of 4G is doubly significant, as it's data speeds qualify as mobile broadband, making its fast roll-out and widespread coverage also impacting on broadband digital divide issues.

Source -  4G mobile broadband coverage extends to 50pc of UK, The Telegraph

France goes after Skype

French telecomm regulators are repeating their demand that Skype register as a "communications operator" under French law.  Registration would impose a range of legal obligations on the network, including developing mechanisms to allow "emergency calls" from non-subscribers, and to provide means of intercepting and recording calls "when legally required." 

   Skype, now owned by Microsoft, has continually responded that its services do not constitute "electronic communications services" as defined under French law, and thus it is not required to register as a provider of such services.  The French regulator, ARCEP, seems to be arguing that providing voice services "implies" it is a public telephone service, and thus it must register and comply with French law.  Including, according to an ARCEP spokesman, compelling it to declare its revenues to local and national tax authorities, and subjecting Skype to paying local taxes.

French telecom and mobile operators have raised concerns that they are losing revenues as consumers switch to various VoIP services (including Skype, Viber, and What's App).  Part of their complaint is that they must bear regulatory burdens and costs (particularly taxes) that other operators have not had to face.  France was also one of the countries pushing for new international Internet governance agreements in last years ITU meetings, as a means of allowing nations a legal foundation for regulating and taxing major global internet firms.  France also recently challenged Google, claiming Google News was anti-competitive by not paying for linking to content from French news sites.  Google allegedly offered to block all French news sites before the issue was quietly resolved.

Source -  French authorities launch Skype probe,  Computer Business Review
France Wants Skype To Pay Tax: Microsoft Says "Screw You,"  Silicon Angle

edit - fixed what had been a run on sentence about France & Google.

FCC Approves T-Mobile/MetroPCS Deal

After the AT&T/T-mobile deal fell through, the U.S.'s fourth largest mobile operator went shopping for a new partner.  T-Mobile's corporate owner, Deutsche Telekom, had felt that the network was not well-positioned to be competitive into the next generation of mobile and sought either a buyout from a larger operator, or merger/acquisition of another midsize mobile operator whose strengths were in complementary markets.  The found a potential new partner in the country's fifth-largest mobile operator, MetroPCS.
  The FCC has now approved the merger, finding that the merger would not have a significant anti-competitive impact on consumers, and could even lead to "the development of a more robust, nationwide network,” according to FCC Commissioner Mignon L. Clyburn.  The deal now awaits approval by MetroPCS stockholders before its finalized.

Source - FCC approves T-Mobile/MetroPCS merger, Telecoms.com

Cable MSOs grow Business sector

Cable MSOs are shifting their focus to providing broadband access, as well as TV.  Between licensing costs, growing competition, and the prospect of cord-cutting, most of the big MSOs are losing subscribers and seeing shrinking profit margins on the TV side - while margins and subscribers for broadband services continue to do well.  The big MSOs are also entering the business services markets.
  They've had some hard lessons to learn along the way, from the higher expected standards for reliability and quality of service, to the different needs and focus of business customers.  In the business world, having a big data pipe wasn't enough.  So MSOs upgraded and refocused business lines, and established separate sales and service staff dedicated to business services.  Now, the big 5 MSOs offer various flavors of Gigabit Ethernet services, along with a range of other business services.  Other wholesale services for business include wireless backhaul, voice and video traffic, and leased private networking across locales.

• Cox provides Ethernet and other wholesale services to 200,000 business customers in 38 markets, and reported earnings of $1.48 billion in 2012
• Time Warner has announced a $25 million expansion of its fiber network in New York business districts, and offers business services in 29 states.  Q4 2012 business operations brought in $515 million
• Charter is the only one of these five providing Layer 3 VPN services at this point, and reported business revenues of $168 million in 2012.  Its active in 11 markets
• Cablevision's Lightpath business operations has focused on public and health sectors as well as business in the New York metro area.  It's developed distinctive service bundles for the education, healthcare, and government sectors, and reported $81.8 million in Q4 2012 revenues.
• Comcast only launched its business services division in 2010, making a splash by purchasing two local business networking firms (Cimco & NGT Telecom). The investment's paying off, with business services being Comcast's fastest growing segment, with operations in 20 markets and a reported $660 million in Q4 2012 revenue.

Source -  Cable MSOs: A phoenix rising in the Ethernet industry,  FierceTelecom

Goin' Mobile: News from the Mobile World Congress

There's some interesting reports coming out in connection with this week's Mobile World Congress (WMC) in Barcelona.

Cisco's been downgrading earlier estimates of the rate of growth of mobile data traffic (from over 70% annual rate of growth, to 66% - details in this post).  Cisco's report mentioned a number of factors, from the spread of tiered pricing in mobile data plans, to declines in sales of mobile-connected laptops.  But underlying these is an interceding behavioral change - users and operators are managing data traffic better, shifting high-usage traffic to WiFi and off-loading it to wired networks (about a third of mobile data traffic was shifted and offloaded to wired nets in 2012).  This is helping to flatten demand and peak load demands.  Between business, home, and free hotspots, WiFi usage is changing the mobile data value chain - offering users a low-cost but somewhat location-limited alternative for low-value and/or high-content apps and data streams.  What's a bit amazing is how quickly and widely users have recognized the value differential and adapted to tiered data plans - 98% of iPhone users also use WiFi, as do 89% of Android smartphone users. Consumer usage patterns are beginning to shift, with mobile data usage increasingly focused on high-value, high-immediacy, and highly-localized apps and uses.
  The shift is actually good news for mobile operators.  The ability to offload via WiFi as a low-cost alternative is helping to improve data traffic flows and reduce peak demand levels; this will slow demand for in-network capacity upgrades.  The low-cost WiFi option, in the meantime, provides a place where users can explore new apps and uses, allowing them to establish values for new apps, as well as exploit relatively low-utility markets like entertainment content, gaming, and social media.  Now, mobile operators can focus on identifying, marketing, and siphoning off the high-value apps.  Doing so will help operators better monetize their mobile bandwidth.
  And doing so may well become critical. It's becoming more and more apparent that data is on its way to becoming the dominant revenue stream for mobile operators.  The problem is particularly acute in Europe.  There, major mobile operators are seeing their voice and SMS revenues falter.  Growing competition within mobile, as well as low-cost alternatives (IP telephony, online conferencing, social media) in an increasingly connected world, are shrinking margins.  While average revenues per user has risen 25% over the last five years in the U.S., it's actually fallen by 15% in Europe.
  Swisscom's CEO, for example, has publicly predicted that their voice and SMS revenues will just about disappear within three years.  The European mobile market is seriously overcrowded (100 operators, compared to 6 in the U.S.), and heavily regulated.  That, and the poor economic conditions have resulted in four years of declining revenues have hit margins, and company valuations, hard.  European telco stocks are trading at half the earnings multiple of U.S. mobile operators.  And this has hurt their ability to raise the $800 billion the GSMA trade group has estimated is needed to upgrade to 4G by 2016.

For Bernstein analyst Robin Bienenstock the problem is European telcos have no confidence that investing in networks to offer superior service than rivals will pay off.
"So they don't invest, they just cut costs and tweak pricing, locking themselves in a vicious cycle of selling an increasingly commoditized service," she said.
"If you are an American consumer, especially in a big city, there has been a tangible improvement in what you're being offered on mobile speeds, whereas for Europeans, there has been a deterioration in quality."

  Successfully negotiating the shift to data, and building out 4G's mobile broadband services, looks to be critical for mobile markets.  Where data-focused and 4G systems are well on the way (U.S., several Asia-Pacific markets), operators are establishing that the demand (and monetizable values) for data-based mobile apps is there, and showing the potential for rapid growth.  With their early success, and the dismal forecast for older cellular services (voice, SMS) in Europe, it's expected that European mobile operators will use the WMC to push EU regulators to get out of the way and give them a viable shot to grow the mobile broadband market.  Good luck with that.

Sources -  Improved traffic distribution indicates that operators are managing assets more effectively, Telecoms.com
Divide between European and US telcos widens, TelecomEngine
Cisco Visual Networking Index: Global Mobile Data Traffic Update, 2012-2017, Cisco white paper
Understanding today's smartphone user: Demystifying data usage trends on cellular and Wi-Fi networks, Informa white paper.

Rich Media Milepost: Million for Joyn.T SK

South Korean telecom operator SK Telecom, launched a new "rich media" service Joyn.T late last December.  The service allows users to share video, send images, or location and contact information during calls.  SK Telecom announced it had signed up 1 million subscribers to Joyn.T in the first 50 days of operation.

SK Telecom has already introduced unlimited, free-for-life joyn.T SMS and IMS services to its smartphone subscribers on flat-rate plans. In addition, data fees incurred from sending or receiving messages will not be deducted from subscribers’ data allowance, the firm said.

  The operating basis for Joyn was developed by GSMA, a global trade group for wireless telecom operators.   Spain's three largest telecom operators were the first to introduce Joyn, last November.

Source -  SK Telecom's Joyn service hits 1 million mark,  telecoms.com

EU Telecomms Continue Slide; The World, Better

  It's neither the best of times nor the worst of times for the telecomms sector in Europe - just continued disappointment.

  ETNO, the trade group for European telecomm firms, has released its third Annual Economic Report. And for the third straight year, total telecomm revenues have fallen.  Revenues in 2011 were 274,7 billion euros, down 1.5% from 2010 levels.  Fixed telephony (land lines) revenue fell 8%; mobile revenues dropped 0.6%; while revenues from broadband service gained 4% (although remaining a very small proportion of total revenues.  On top of that, the report indicated that investments in fixed and mobile sectors (infrastructure costs) increased 4.6 percent.  Europe also saw a significant drop in its share of global markets, from accounting for 31% of global revenues in 2010 to 25% in 2011.
  Much of the global shift is the result of gains posted in developing areas.  Telecomm firms in Africa are making inroads with mobile data, mobile gaming, and mobile-based money transfer services.  

Source - The way we were, telecoms.com

What future for cable MSOs?

Today I want to look at the future of cable, considering that cable MSOs are facing a lot of the same changes and issues as the TV networks. 

  The future of cable depends on your definition.  A while ago, I coauthored a chapter on the economics of cable that found that the cable industry in the U.S. had gone through three distinct phases - cable as CATV (Community Antenna TV), cable as TV of Abundance (massively multichannel TV), and transitioning to cable as broadband over the last couple of days.  The future for cable as CATV ended officially with the 1984 Cable Act, although cable as multichannel TV had been transforming the industry since the late 1970s.  Similarly, you could argue that the future for cable as multichannel was dismal after the 1996 Telecomm Act, as the Act opened the way for multichannel competition.  (Actually, DBS started a few years earlier, but the Act removed cable's local monopoly status).  Luckily for cable, there was broadband, and Internet access has been the profitable service for cable systems for the last decade.
  Now, even the cable industry is recognizing that it is broadband digital services, not multichannel TV delivery, that is the future of the industry.

"Clearly the relative importance of the video business has declined over time. I think broadband clearly is becoming the anchor service."  Glenn Brit, CEO Time Warner Cable

You can also see it in Comcast's move with Xfinity, which is essentially a broadband service featuring lots of TV channels - a service that is more like Verizon's FiOS and AT&T's U-verse services than old-style cable over coax.
  Still, that would leave cable MSOs with expensive hybrid systems on the ground, competing with fiber-based telco broadband services on the broadband front, and with those services, DBS satellite services, and IPTV (video streaming over the Internet) for access to TV programs.  The real problem for cable as broadband, though, are two emerging services - LTE and 4G wireless broadband and Google's Giganet overbuild.  Both have the potential to provide faster broadband data service than existing services.
  Most cable as broadband providers set aside around 30 Mbs of bandwidth for data/Internet services, which is split among all online users linked to the neighborhood hub.  They've been pushing the hubs further downline, so fewer customers are sharing, but would need some significant upgrading to offer higher speeds.  Some of the big MSOs have upgraded some systems to 30-50 Mbs (Charter-30Mbs, Time Warner-35Mbs, Cablevision-50Mbs), but still split that bandwidth among active users.  And if you want to get the highest speeds you pay significantly more.
  In contrast, the telco-based services tend to use DSL-based approach, which provides each user with dedicated bandwidth.  The advertised speeds of these tend to be lower than what cable offers, but remember that cable splits that bandwidth among a number of users.  Thus, the actual speeds that telco-based services provide often can end up being faster, and the service more reliable.  Depending on what kind of DSL service is offered, between 10-30 Mbs of dedicated bandwidth is available.  Telco-based systems also charge more for higher bandwidth availability/speeds.
  The latest report from the FCC shows that the current network/ISPs are doing a good job at actually reaching advertised speeds.  Also that users are moving to higher bandwidth offerings, past the point where you have the speed to stream HD video programming in real time (that's about 10 Mbs to be safe).
  While those speeds seem high, 4G and Google's fiber networks promise significantly more. There's currently a wide variety of 4G mobile broadband systems under development. As they're emerging, here's what the technical standards call for in terms of broadband bandwidth: HSPA+ provides 20-672 Mbs download speeds; Mobile WiMax can provide 37-365 Mbs; LTE provides 100-300 Mbs (LTE-Advanced can handle up to 1 Gbs (1000 Mbs)); and even weak sister MBWA provides for 80 Mbs.  All of these are similar to cable's offerings in that these numbers reflect total bandwidth available to be shared among users.
  If you've got LTE service available, you've got twice the bandwidth/speed of the best that cable and telco-TV land-based services currently offer - at least until the local node gets clogged with users.  And most of the upgrades to 4G are building to the high end of data bandwidth standards, so 4G mobile broadband users will see access speeds 2-30 times faster than current land-based network offerings.  And then there's Google's Giganet fiber network.  Google's pilot fiber network in Kansas City promises dedicated Gigabit access speeds (1000Mbs), a Terabyte of Cloud storage, and provides a free Google Nexus 7 tablet as a remote control (in addition to a rapidly expanding range of TV networks).  That's 20 times the bandwidth / speed currently available from traditional cable and telco based ISPs, for about the same price. It's also 2-10 times the capacity that 4G mobile broadband offers.
  What 4G and Giganet services provide are the speeds that allow multiple users of the ISP account to watch separate HD-quality video streams. If 4G services can offer viable flat rate pricing, this is likely to speed up the move to Internet video streaming as a significant source of TV viewing.  Amazon's already offering flat rate pricing for LTE service on its top Kindle Fire HD model ($50/yr for 250 Mb per month) - which will encourage others to follow.
   TV watching is already shifting to Internet video delivery (as shown by most media use research, and the booming Netflix, Hulu+, and Amazon Prime subscriber base), but bandwidth and pricing become limiting concerns.  If viewers can get bandwidth capable of handling one or more HD video streams, at a price that doesn't make them pause and wonder if the program they want to watch is worth the added data fees, the transition to online delivery will speed up.  Critical to that perspective is flat rate pricing, like what cable offers - access to the programming you want for a flat monthly fee.  Viewers are less likely to shift to online delivery if they have to wait too long to start watching, or if they're worried about exceeding caps and/or the added cost of the program.

In sum, cable MSOs face increased competition, and may soon be relegated to the less valuable and attractive alternative for broadband services - the aspect they're embracing as the future of cable MSOs. A combination of technology and pricing strategies are at play. Within the next year or so, cable broadband speeds will be surpassed by mobile 4G and pure fiber networks.  Without yet another significant and costly rebuild of their systems, they're increasingly likely keep losing subscribers to alternative broadband services.  In addition, the trend among cable MSOs has been to shift from flat rate pricing (without caps) to pricing with caps and usage-based pricing.  That's not what users prefer, especially those considering shifting their viewing to online sources.
  Another key concern driving cord-cutters is the rising cost of multichannel video and pay TV.  Here, all MVPDS are hostage to rising carriage fees from cable networks and local stations.  With full bundling, these services are quickly reaching the point where subscribers are wondering if the cost of the whole bundle is worthwhile for the 6-10 channels that they actually watch.  If cable, in particular, unbundles channels, that can have a significant impact on their local advertising rates and revenues, as well as reduce subscriber revenues.  In addition, unbundling could accelerate the move online, with users finding that they can get much of what they want from a few fairly low-cost services.
  The FCC's not helping with their current investigation into Cable MSO's data caps and pricing strategies, and the push of some public interest groups for "Network Neutrality".  Analysts fear that fear of FCC action in both areas may accelerate the shift to usage-based pricing to avoid antitrust concerns, which could push broadband subscribers, particularly online video watchers, to shift to other options.

  Historically, cable's been fairly slow to innovate.  Expansion of channel capacity has often been held up due to the need to amortize existing network investment, and the cost of upgrades.  And while cable system operators were quick to offer Internet-access once the upgraded system permitted, they've been slow to add other digital Internet based services (IP telephony, home monitoring, videogaming platforms, etc.), even when projections suggested they'd be highly profitable.  Yes, a large part of the delay in offering telephone services was a section of the 1996 Telecomm Act that let local phone companies offer video services only after local cable offered telephone services (encouraging local systems to delay offering telephone services in order to keep telcos out of their market).  But that's just one case.  Most of the delay is likely due to the same line of thinking that created problems for newspapers and broadcasters as their industries evolved and changed - they saw themselves as in the "cable" business - as a multichannel TV carriage system - not as a broadband digital networking service.
  Well, as the statement from one cable MSO executive said - they recognize that broadband's the business they're in now.  Too bad they didn't realize it before they were on the way to become the more limited, more costly, and less valuable, option in that rapidly changing market.

Sources  -  I've Always Thought Cable Companies Would be Fine When TV Collapsed, But They May Actually Be Screwed..., Business Insider blog
Cable Needs to Fear Less, Innovate More, MediaPost blogs
Time Warner Cable Head Says Company Future Is Broadband, Not TV,  ReelSE
Google Fiber Goes Live, Google Enters TV (MVPD) Biz, Media Business & Future of Journalism blog
A Report on Consumer Wireline Broadband Performance in the U.S., FCC Report, July 2012

2012's Top Wireless Nightmares

In honor of Halloween, the folks at FierceMobileContent asked top wireless industry executives what nightmare scenarios might happen next year.  Here's some highlights -

• iPad mini cuts into iPad sales
• Google and Android get into a patent spat like the one between Samsung and Apple
• RIM's new OS (Blackberry 10) is supplanted by Windows Phone 8, then abandoned
• FCC and DOJ object to T-Mobile/MetroPCS deal (like they did with last year's AT&T/T-Mobile deal)
• FCC imposes caps that limit spectrum acquisition in support of new high-bandwidth mobile broadband services
• Nobody wants Leap Wireless (provider of Cricket wireless service)
• Mobile handset makers fail to support global TD-LTE standard

Source - 2012 Wireless industry nightmares,  FierceWireless

Eircom to downsize

It's the scale of the downsizing that prompts this post -

Irish land and mobile telecomm operator Eircom has announced plans to lay off more than a third of its workforce over the next year and a half - in an attempt to bring its operating costs in line with other major European telecomm operators.  Eventually, more than 2000 of Eircom's 5700 employees as it also attempts to consolidate office locations (i.e. close many small offices), revise traditional work practices (if the union permits), and tries to build a new, cutting edge, broadband fiber network.

“The challenges facing Eircom are significant. They require a fundamental transformation in the way we are organised, the business activities we prioritise and the work practices we have adopted in order to substantially reduce our costs and become more efficient,” said Herb Hribar, Eircom Group CEO.

Good luck with that.  Competition means you can't operate the same way you did as a monopoly telecom, and the speed with which telecom firms can bring costs and practices in line, the greater the odds for long-term survival.

Source -  Eircom to slash 2000 jobs,  Telecoms.com

AT&T Pulls Bid for T-Mobile

When AT&T reached a deal to acquire T-Mobile about a year ago, it seemed like a reasonable deal.  AT&T gained some needed spectrum and improved its signal coverage areas.  In particular, the added spectrum and ability to repurpose some overlapping coverage areas would speed up its ability to roll out broadband 4G and broadband WiFi service.  T-Mobile subscribers would see their coverage areas expand significantly.  On the other hand, whenever you have merger and acquisition activity among the 4-6 largest firms in an industry, you have monopoly concerns.  With evil old AT&T (or at least its corporate name) involved, it also attracted a host of negativity from activists.
  This should have been of less concern in this case, as cell and wireless services are not monopoly services.  These firms face direct competition from multiple wireless and wired direct competitors in almost all markets.  Even with AT&T also a major landline telecom operator in some parts of the U.S., it's unlikely that the proposed acquisition would create any large monopoly markets, or even increase AT&T's "monopoly power" in major markets in the U. S.
  While it was anticipated that both the Justice Dept. and the FCC would look at the merger closely and investigate it's potential anti-competitive impact, it was highly unusual for both the Chairman of the FCC to publicly announce his opposition to the acquisition, and the Justice Dept. to launch an anti-trust suit against AT&T, before the results of those studies were in.  It was more like the administration opposed the purchase for political reasons and pressure from activist groups linked to the administration, rather than concern over the potential impact on public welfare.  So AT&T, reading the tea leaves, bowed to the pressure and pulled out of the deal.
  By the way, T-Mobile is still being shopped around by its current owner, Deutsche Telekom, with current rumors pointing to a deal with Sprint, which is a rung or two below AT&T in market size.  And for you non-economists, that deal is actually more likely to impact market concentration and result in increased monopoly power.  So much for the concern being driven by anti-trust concerns rather than being a result of anti-AT&T hysteria and political motivations.

Sources - AT&T Pulls $39 Billion T-Mobile Bid After Regulator Opposition, Bloomberg BusinessWeek
Activist Groups: Ding-Dong the AT&T-T-Mobile Deal is Dead, Broadcasting & Cable

FCC Publishes new Network Neutrality rules

After its first set of Net Neutrality rules were voided by Federal Courts, the FCC announced its intent to try again.  It's effort to revive the rules continued even after majorities in both the U.S. House and Senate sent a letter advising the FCC not to pursue its stated intent to reinstate the Network Neutrality rules without addressing the concerns that led to the court's previous finding that the FCC had no legal basis to regulate key areas addressed in the earlier rules.  The FCC has finally published the new rules in the Federal Register, and the rules, for now, are set to be in effect after November 20, 2011.

The new rules do not appear to substantially differ from those originally posted last December.  As such, it incorporates an assertion of authority that Federal Courts have consistently ruled (since 2005) that the FCC does not have.  Several telecommunication firms have already challenged the new proposed rules, but were told that they would have to wait for the new rules to be formally published before the Courts would consider challenges.  Expect challenges to be quickly filed, and enforcement of the new rules to be stayed.  And I wouldn't be surprised that these new rules will eventually also be voided by the Courts.

Sources - Net Neutrality Rules to Take Effect Nov. 20,  Broadcasting & Cable

SMS (Text Messaging) Evolves

Text messaging (SMS) has been a major success for cellular networks - last year more than 6.1 trillion messages sent, worldwide.  Locally, the U.S. took over as the king of text, with SMS subscribers sending an average of 660 messages a month.  And with the extremely low cost of sending SMS, texting has historically been a huge profit center.

Revenue growth from SMS has started to slow, however.  Analysts attribute this to several factors.  First, as texting became popular, people switched from per-unit pricing (typically 10 cents per text in the U.S.) to larger and larger bundling plans with lower per-unit costs. More recently, wireless carriers are dropping these bundles in favor of unlimited messaging plans.  Wireless carriers are seeing higher SMS use, but generating less revenue on a per-message basis.

Second, the rise of smartphones have opened a second channel for text services through the Internet.  A number of IP-based text services have emerged in the last few years, some tied to social media like Facebook and Twitter.  These run through a wireless provider's data plan, rather than through their SMS channels.  However, wireless providers are starting to phase out unlimited data plans, which could mean more revenues from IP-based texting, or a shift back to using SMS.  In addition, many of the IP-based texting systems require both users to have the same applications open at the same time, while SMS works on any cell phone and any service anywhere in the world - a valuable feature as yet unmatched by IP-based services.  Thus, most analysts don't see IP-based texting replacing SMS as much as carving out some niche uses.

Chetan Sharma (Chetan Sharm Consulting) predicts a larger shift -

"...within 5-10 years a good portion [of users] will have shifted to Internet messaging as opposed to traditional SMS messaging... (Still) messaging is in trillions so even if somebody has millions of messages [being sent via his app] going on a daily basis, it is still a tiny fraction [of the market],"

The ability to message has enough value to users that the concept of mobile messaging isn't likely to disappear anytime soon.  There may well be shifts from one form to another along the way, but as networks and services become more intelligent, its likely that the various forms of messaging will integrate into a universal messaging system;

The article (link below) also identifies and discusses a number of the alternatives to wireless carrier SMS and MMS (Multimedia Message Service) channels.  If you're interested, click through.

Source: "SMS: The dying cash cow for wireless carriers?" FierceMobileContent

Broadband news

Two quick reports coming out that are signs of the continued expansion of broadband in the U.S. 

First, the FCC reports that its latest findings are that service providers are largely delivering on advertised top broadband speeds (an earlier report suggested that many providers were failing to match claimed data rates).  Specifically, the FCC looked at sustained download speeds during peak demand, and found they ranged from an average of 82% to 114% of advertised speeds.  Sustained upload speeds during peak periods averaged between 95% and 112% of advertised speeds.  Speeds are generally lowest during peak demand, so this suggests that broadband network upgrades and expansions have been helpful.

Also, there are reports that an agreement has been reached between large broadband carriers and several associations of smaller rural carriers regarding a broadband Universal Service Fund (USF).  USFs are a mechanism that helps subsidize construction and operation of telecomm networks in high-cost areas so that services can be offered at reasonably competitive rates.  Three rural carrier associations, six large carriers, and the U.S. Telecom Association sent the FCC a letter outlining a plan to transition the existing basic telephone USF to one that focuses on broadband services. If, or when, the FCC agrees, current and future funds accruing in the USF can be directed to expanding broadband services in high cost areas more rapidly.

While neither report is earth-shattering news, combined they provide support for continued expansion of broadband services in the U.S..


Sources: "FCC: Broadband providers now largely delivering advertised broadband speeds", Connected Planet
"Rural carrier associations confirm agreement with large carriers on broadband USF funding", Connected Planet