What’s up with Cord Cutters?

Fatty_watching_himself_on_TVMorgan Stanley just released their fourth annual survey on the media, cable and satellite business. In thus survey they talked to 2,501 adults nationwide. In this survey they looked in detail about how people use media – what they watch and how they watch it.

The most interesting statistic to come out of the survey is that for the fourth straight year a significant percentage of people said they are going to cut the cord in the coming year. 10% of respondents said that they were definitely going to cut the cord and another 11% said that they would probably be cutting the cord. If these percentages were true, and 21% of the country was going to be cutting the cord, the cable industry would be in a major tailspin. This survey ought to be major headlines on every business page, right?

But it’s not, and that’s because there have been similar responses to this survey the last few years. In last year’s survey those same two percentages added to 17%. The prior year they added to 15%. But the cable companies did not experience cord cutting to anywhere even remotely close to those percentages in the last two years. Certainly there is cord cutting going on and the industry has certainly lost at least several million people due to this new trend.

But what this survey tells us is that people want to cut the cord. One full fifth of households with cable are clearly unhappy with the big bundles of channels, and eventually that is going to come home to roost with the cable industry. The other statistic that bears this out is that only 50% of the respondents in the survey actually like the big package bundles, a number that is dropping every year.

We’ve seen the same thing before with home telephones. For years people talked about getting rid of their home phone and yet it took a number of years for many people to do so. But eventually people will act on how they feel and the cable industry has a big problem brewing.

As you might expect, there is an age component to potential cord cutters. 30% of the people who said they would or might cut the cord are in the 18 – 29 year-old age bracket. And that percentage decreases as the age increases.

I find these results interesting because almost everybody I talk to is unhappy with what they pay for cable TV. Maybe that’s because most of those people I talk to are in the industry. But I know many cord cutters and I know that this is really happening. I would be a cord cutter myself, but Comcast made me take basic TV (20 or so channels) if I wanted to buy a cable modem faster than 12 Mbps. So I am officially a TV subscriber, even though I don’t own a TV and the cable box they gave me is gathering dust in the closet. There can’t be a lot of people with my same story and who are being coerced into buying cable and who then don’t even watch it. But this does show that perhaps the reported subscribers of the big cable companies are a bit inflated due to these kinds of policies.

The survey also showed that the OTT programmers are doing quite well. 30% of the households in the survey watch NetFlix, up over 5% from the last survey. 18% watch AmazonPrime, up 10% from the last survey. And while the free Hulu service lost about a percentage of viewers, its for-pay service Hulu Plus is up almost 5%.

I titled this blog ‘What’s up with Cord Cutters’, but perhaps a better title would be ‘What’s up with the Almost-Cord Cutters’? There are apparently a whole lot of people who are thinking of cutting the cord. Perhaps one year soon a large percentage of the number of people who say they are going to cut the cord will actually do it. And then the wheels start coming off the cable model.

A Little Bit Closer to OTT

TabletWe keep inching closer and closer to the day when customers will have a viable access to real time over-the-top programming. The first company to make any progress in this area was Aereo who is sending the network channels to people’s cellphones and tablets in major markets. But Aereo has an upcoming day in court and the US Supreme Court could put them out of business.

It’s not like there isn’t any programming available on the web, because there are mountains of old TV shows and movies available on NetFlix and AmazonPrime and the many other companies that have deals to put content on the web. And many customers of the major cable providers have TV anywhere where the cable company lets them watch some of the channels they subscribe to on remote devices.

But what is still missing, and what will finally give a lot of people the impetus to cut the cord is when they can get the programming they most want in real-time on devices other than televisions. I have largely cut the cord and watch the programming available on NetFlix and AmazonPrime. But I would be very happy if I could buy ESPN and the Big10 Network a la carte. And maybe some news network like CNN.

There were two announcements this past week that inch us closer to an OTT alternative. The CEO of Verizon Wireless, Lowell McAdam announced that he has had discussions with content providers about launching an OTT service for customers using the Verizon LTE network and also possibly for those using other broadband providers.

The second announcement came from Dish Networks who announced a major deal with Disney that would allow them to distribute Disney and ESPN wirelessly. The agreement was complex and also resolved a number of issued between Disney and Dish for satellite carriage. Last week I reported on the spectrum that Dish has been buying, and this announcement demonstrates that they have plans to use some of that spectrum to offer an OTT product.

When the Verizon CEO was asked about the Dish Networks announcement his response was that he thought Verizon has a huge head start and that it would take Dish at least a year to construct a wireless network. So I think we can expect Verizon to roll something out soon to take advantage of the existing network.

Both announcements make it sound like customers will be able to buy the OTT programming without having to subscribe elsewhere to a landline version of the same channels. This would be the first time that such live content like sports has been made available this way. I wrote last year that there are only a handful of channels with enough market power to pull off OTT programming, and that very short list includes ESPN. I know that I would gladly pay $20 for ESPN a la carte rather than have to buy a $60 package to get it. And I don’t think I am that unusual. Just in the last week I have had conversations with several other sports fans who say the same thing.

I had cable service several years ago with all of the channels and all of the movies. And I found that I would go weeks, and sometimes even months without turning on the TV (especially outside of football season). I am really hoping that these announcements are the first little crack in the programming monopoly and that the first pieces of OTT are here. But I won’t believe it until I can buy it. It’s possible that Dish and Verizon Wireless will be forced to also sell bundles of programming including a lot of things I won’t want. But I can’t see them getting into the OTT business if they aren’t going to let customers buy the smaller packages they really want. I will be watching.

The Young and the Old

Old TVI’ve just seen some recent statistics that talk about TV viewing in different demographics. On the young side, Verizon just released a study it did of the TV viewing habits of Millennials, which it defined as those between the ages of 16 and 34. On the older side, there have been some interesting statistics released talking about who watches network TV.

Verizon’s study quantifies what we have already all suspected – that the viewing habits of young people are a lot different than the rest of us. This is not to say that everybody’s viewing habits aren’t changing, but the young have changed to a greater degree. For example, all age groups watch over-the-top video online, but Millennials spend three times as much of their viewing time on line as everybody else.

Millennials have not yet abandoned cable services and 75% of them still watch cable TV. Only 13% of Millennials have cut the cord compared to 9% of the rest of us. But unlike the rest of us, they are also huge subscribers other services like AmazonPrime, NetFlix and Hulu. They simply have a lower tolerance for linear TV programming and want to watch things on their terms when they are ready to watch it. Millenials also like to browse more than watch specific TV shows at set times. Millennials are more likely (64%) to be using some other viewing device like a tablet, laptop or cell phone than everybody else (49%).

Millennials seem to be very brand-loyal and the brands they like are not the same as everybody else. For example, when naming their top entertainment brands, Millennials don’t put any of the broadcast networks (ABC, NBC, CBS and FOX) into their top ten brands while all four make it into the top brands for non-Millennials. Interestingly the company that makes it as the top name brand for everybody is Amazon.

Contrary to what other surveys have found, Millennials are willing to pay for multiple kinds of TV services and they are more likely to subscribe to both cable and online entertainment sources. But in looking at their viewing habits, they are more likely to engage in binge watching and more attuned to when entire series of shows are released on line.

Millennials also get more of their entertainment from non-traditional sources like YouTube and social sites. Millennials are more likely to game and to play fantasy sports than others. They also frequent a number of social sites like Reddit, Imjur, 4chan and 9gag that nobody else uses.

Very much as a compliment to the Verizon survey, I was looking through statistics about who watches network TV. The demographics of the major networks is aging even faster than the population. The median age of viewer for network TV is now 54 while twenty years ago it was 41. In 1993 the number one show was ‘Home Improvement’ with the age of the median watcher at 34. Today the most popular show is ‘NCIS’ with a median age of viewers of 61.

Interestingly, the networks still get the majority of the advertising dollars, but the increasing age of their viewers is probably going to change this a lot. Back in the Verizon survey, only 32% of Millennials said they would even miss the major networks if they went away. Advertisers want to find better ways to get to Millennial and other younger viewers, but the way they watch programming makes it hard to get to them in the same was as they can get to viewers with network TV.

The Verizon survey should give pause to anybody in the cable TV business. The Millennials and the following generations will be the majority of viewers in a few decades and once has to ask if it is possible to have a set of products that they are willing to pay for. They are not afraid to spend money for entertainment, but a lot of that money goes to online sources instead of to the local cable TV.

The New Satellite Internet

Communications_satellite_(PSF)A new satellite Internet service launched earlier this year. I’ve been meaning to write about this and was prompted by seeing them in a booth at a rodeo I went to on Saturday. The service is provided by ViaSat under the brand name of Exede. They launched a new satellite, the ViaSat-1, last October for the sole purpose of selling rural broadband.

The broadband they are selling is a big step up over other previous satellite broadband, including earlier products offered by ViaSat. The basic broadband product offers up to 12 Mbps download and 3 Mbps upload. I went to the web and read reviews and people are saying that they are actually getting those speeds and in some cases even a little more. I would caution that like any broadband system, as they get more customers the satellite will get contention and the speeds will slow down.

The base product is priced at $50 per month and is a huge improvement over other satellite products. Exede’s older base product was also $50 but offered 512 kbps download and 128 kbps upload. For $79 you could get 1.5 Mbps download and 256k kbps upload.

But like everything there is a catch and that catch is data caps. The speeds are a great improvement because even web browsing at 512 kbps is nearly impossible. But the caps are a killer. For the $50 product the cap is 7 Gigabits of total download for the month. To put that into perspective, that is around 4 HD movies per month.

You can buy larger caps. For $80 per month you can get a 15 GB cap and for $130 per month you can get a 25 GB cap. If you hit the cap Exede doesn’t shut you down, but instead sets you to a very slow crawl for the rest of the month.

So obviously the satellite program is not going to be useful for anybody who wants to use the Internet for watching video or doing those kinds of things that most families use the Internet for. There can be no real gaming over a satellite connection, both due to the cap but also to the latency, since the signal bounces high above the earth and back. The latency also plays hell with voice over the Internet. You can do a mountain of emails and web surfing within that cap, but you have to always be cautious about downloading too much. Imagine if you worked from home and one of your kids watched too many videos and for the rest of the month you just crawled along at dial-up speeds.

For now this is only available on the east and west coasts and won’t be available in the middle of the country until they launch another satellite. Exede has a product in the Midwest that is $50 for up to 5 Mbps download and 1 Mbps upload, but reports are that most people there are not getting those speeds.

I am the first to say that this is a big step up in the rural areas. If I was on dial-up this would feel wonderful. But any home that gets this is not getting the same Internet that the rest of us get. One of my employees has four kids and they watch 4 – 5 hours per day of Internet video. We estimated that some months he is probably using a terabit of total download. His speeds are only half of this satellite service, but the unlimited download makes a huge difference in the way his family can use the Internet.

The scariest thing about this product is that I know that one of these days that some policy-head at the FCC is going to announce that the whole country has broadband and then they can wash their hands of the rural broadband gap. This is the fastest download speeds that anybody has brought to much of rural America. But anybody on this service is going to be so throttled by the data caps that they are not going to be able to use the Internet like the rest of us. So this is a good service, but it’s not broadband – it’s something else.

Are They Really Digital Trials?

A800px-OSU_Bucket_TruckT&T is now doing two ‘digital trials’ in West Del Ray Beach, FL and Carbon Hill, AL. The supposed purpose of these ‘trials’ is see if there is any way to bring all customers onto an all-IP network. But that is bosh. The only purpose of these ‘trials’ is for AT&T to prove to the FCC that it’s okay to kick people off copper networks.

This is all being done as part of the IP transition where we move away from a legacy TDM-based phone network into an Ethernet world. But that transition is supposed to be about the network that is used to move calls from one town to another, and somehow AT&T twisted this to become about moving people off of copper. And it ignores the fact that anybody served by DSL or cable modem is already on an IP and digital network.

AT&T doesn’t want to kick everybody off the copper network. They have their U-Verse products into millions of homes, which requires two pairs of copper. But U-Verse has been sold in large cities and suburbs and not in the small towns like the ones in these tests. It’s apparent in these smaller places that AT&T would rather find a way to force people off the copper than upgrade it.

And this is a bit ironic because for years AT&T has been heavily subsidized to help them pay for the copper wires. They were a rate-of-return carrier, meaning that they were guaranteed for decades to make a profit in each state they operated in. One would have thought that they would have rolled some of those profits back into taking care of the copper wires, and in the metropolitan areas they did. But AT&T walked out of the rural towns many years ago. They closed offices and cut back rural staff and have slowly let those copper networks deteriorate.

So now they want a ‘trial’ to figure out how they can best walk away from rural America. They want to go to all of the small towns on America and force people to move to wireless or move to the cable company. The problem with this idea is that there are a whole lot of rural places where the wireless coverage is awful and where the cable companies have not made any investments also.

A few years ago the FCC had estimated that there was 19 million US households with no broadband. People who work in rural America know that this was a bogus estimate based upon facts fed to them by AT&T and Verizon, and that there are a lot more houses with no broadband. But there has been a lot of effort to get broadband to some of these areas, so one would think that there are fewer households without broadband today, regardless of the actual number.

But if AT&T is allowed to progress past this test and start knocking people off copper there is going to be a whole lot of new homes without broadband. A whole lot more.

I am sure that the FCC has no comprehension of what ‘broadband’ is like in the typical small rural town. The phone company will have first generation DSL that they market at 3 Mbps download (to qualify with the FCC as broadband), but which probably gets half of that. The little town might or might not have a cable company, and even if they do they either don’t offer cable modem or it is also first generation technology and very slow. And you don’t need to go very far outside town until there is no broadband. The cable companies generally stop around the town borders. DSL carries a little further, but since DSL quality decreases with distance, you don’t have to go far until DSL is no better than dial-up.

I have no doubt that AT&T is going to play very nice in these trials. They will find a solution for everybody in these two small towns, even though for many that solution is going to be inferior to what they have today. But then, if the FCC is dumb enough to give them the permission, they are going to mail out notices to millions of homes in small towns and tell them to go find broadband elsewhere.

What’s Up With Dish?

Satellite_dish_(Television)The FCC just held an auction for the 1900 MHz spectrum and the only bidder and the winner of it all was Dish Networks. For some reason they did this under a different corporate name, but everybody knew from the beginning that it was them bidding.

This is not the first spectrum purchased by Dish. In the 2008 auction for 700 MHz Dish bought a nationwide footprint in the E Block. Dish also bought a nationwide 40 MHz-wide band of S-band spectrum at 2 GHz from TerreStar Networks and DBSD North America. Adding this all together Dish now has a sizable pile of spectrum.

So what do they plan to do with it? Nobody is entirely sure, but we know a bit about what they have been experimenting with. The E Block of the 700 MHz spectrum isn’t really usable for two-way communications. Last year Dish told the FCC that it was experimenting with using the frequency for various mobile television technologies. This included Mobile to Handheld (ATSC M/H), Digital Video Broadcasting Handheld (DVB-H), Satellite Services to Handhelds (DVB-SH), and China Mobile Multimedia Broadcasting (CMMB). They also could use the spectrum in an LTE network to broadcast some of their satellite service directly to handsets.

If they can get happy with one of these technologies, then they could then offer a mobile TV service. You might remember that Qualcomm tried this a few years back and offered a dozen or so TV channels for $10. That venture was a failure. But since then the world has changed rapidly. There are now a lot of smart phones and tablets and there are a lot of people looking for ways to bypass their expensive cable packages. One only has to look at the success Aereo has had in major cities to see that the time might be ripe for such an offering. And Dish already has the programming and would avoid Aereo’s legal woes.

Dish is currently testing wireless broadband in Virginia and will be testing it later this year in Corpus Christie. They have made a deal with Sprint to use the spectrum from Sprint cell sites and they could use this spectrum to bring broadband to some parts of rural America. The amount of bandwidth they can deliver would not be competitive in metropolitan areas, but it might be welcomed in those parts of America where there is still no real broadband.

Like all wireless data technologies, the speeds anybody gets is going to depend largely on how far away they are from a transmitter. But one would think that this technology could deliver up to 20 Mbps download close to a transmitter and maybe 3 Mbps download four or five miles from the transmitter. In places that still have dial-up that could be a good new option.

This would also bring broadband to those same areas where Dish sells a lot of satellite TV. This would allow them for the first time to offer a bundle of services, something they have always wanted to do. They already have some of the cheapest television prices in the country, since it is cheaper to operate satellites than it is to operate wireline cable networks. They could become quite profitable with the bundle – and one would suppose this would also bundle in Sprint cellular service.

Rural America needs broadband badly. What Dish is looking at is really not a great solution, but it is a lot better than what is there today. The only problem I see with this idea is that once Dish delivers slow broadband to a rural area that other providers are going to be even less likely to invest to build landline networks to bring real broadband. While 5 Mbps sounds like heaven to somebody on dial-up, it doesn’t give the rural customer the same speeds and benefits gotten in urban markets. The data speeds in Cities is getting faster all of the time and there is a growing list of places that now have an option for Gigabit fiber. As much as I appreciate what Dish is contemplating, I also fear that their bandwidth could relegate rural markets to a permanent slow Internet hell. The FCC would no longer worry about such areas because they would consider that they have broadband. Which is a shame, because this is not broadband that can help rural America thrive, but rather will just keep them limping by.

Where Will We Draw the Privacy Line?

Monitor_padlockThe efficiencies, convenience and societal cost savings that will be realized from the IoT are so enormous that it is inevitable that the future will eventually become just what the IoT developers imagine – a seamlessly networked world that brings a lot of Star Trek into our lives. But we are not just going to magically pop to that great future and my gut tells me that there is going to be some gigantic growing pains for the technology and some major setbacks on the way to the inevitable future.

One only has to peek behind the curtain at some of the early attempts at developing IoT devices to understand where some of the snafus and problems are going to come from. One area where I foresee the possibility for a lot of backlash is privacy. In order for the IoT to work people are going to have to sacrifice some privacy. The question that I don’t see being asked is how much privacy the average person is going to be willing to give up to gain the convenience of using numerous IoT devices.

Already today we can see a little of the how social sharing interfaces with privacy. For example, when running monitors first hit the market my Facebook got filled with maps showing how far and how fast my various runner friends had run each day. But over a few months these all disappeared and I haven’t seen one in a while. This is not because they have ditched the monitors, but rather that after the novelty wore off people realized they didn’t want to share. They didn’t want their friends to notice that they took a day off from running or that they ran slowly or only did a short route on a given day. It turns out that people don’t want to automatically share things that might reflect negatively on them.

And if people quickly edited their sharing over something like a jogging monitor I can’t help but wonder how people are going to react when they realize that one of the biggest aspects of the IoT is that we will be constantly watched and monitored.

I heard this concern when it was announced that Google was buying Nest, the maker of smoke detectors and other security devices. The promise is being made that IoT devices are going to be smart (or at least that the network that controls them will be smart). And this means that our every movement will be tracked. It doesn’t sound particularly threatening if Google finds out what time of day we turn various lights on and off or when we enter certain rooms. But the technology is at the bare beginning and the fact is that eventually our devices will let companies like Google know more about us that we often know about ourselves.

The whole point of big data analytics is to look for patterns. Knowing how and when a certain person moves around the house is data that can be used to see a pattern. Google can compare the way you move to the way other people move and can see that there are 10,000 other people just like you in the US and that you also have a lot of other traits in common.

I know this sounds simplistic and that would be a big stretch to understand you from just being monitored by a few devices in your home. But it’s not going to eventually going to be just a few devices. It’s likely that there will be enough monitors in the average home where an outside company like Google could understand your sleep patterns, your eating habits, what you watch and read, who you talk to, how you exercise – basically everything about you.

And I just wonder if at some point if there will not be a big rebellion against that kind of invasion of privacy. I foresee a huge pushback coming against IoT until they can solve the privacy issue and give control to each person over how their own data is shared with the world. This is contrary to the goals of Google and others and it will be very interesting to see where society draws the line.

The Changing Nature of Being a Service Provider

Black phoneIn the last four months I have talked to few companies about helping them look into the future and develop a strategic plan for getting ready for that future. And each of these companies said the same thing to me. They are each triple play providers and they all know that they are losing and will continue to lose telephone and cable customers. And each one said, “I will hire you if you can tell me what the next big killer product is that will replace what I am losing”.

And that is exactly the wrong question to ask, because there is no killer new product. We have been spoiled in the industry because we have had benefitted by having three products that have such a wide appeal that most of customers bought them, often in bundles. But there is nothing on the horizon that is going to have that same wide-spread appeal to customers.

It is time to acknowledge that customers have changed. One of the major lessons people have learned from using the Internet is that they have choices. If you don’t want to pay $80 – $120 for a traditional cable TV package of channels there is an alternative. If you don’t want to have a landline telephone there are a ton of options. Ten years ago nobody would ever have believed that people could be happy watching television on a tiny hand-held screen, and yet millions of people are happy doing that.

There are no killer products on the horizon because there is just not any product that over half of your customer base is going to want any more. Because the second big lesson the Internet has taught people is that they can get exactly what they want and don’t have to settle for something generic that only fits part of their need. They are being taught that somewhere there is an app for everything. So customers are far pickier than they used to be and will not sign up for a product that doesn’t satisfy a need in their life.

So what is a service provider to do? If there is no new killer product on the horizon, then the only alternative I see is to have a suite of products that satisfy niches in the market. If you are not going to find that one new product that gets a 60% market penetration, then you are going to need six products that each can get a 10% market penetration.

And frankly, many service providers don’t want to hear this message because it scares the hell out of them. They know how hard it is for their organization to develop even one new product and so they panic when they hear that the future is probably going to require them to constantly be rolling out new products.

And this is not even the end game. Some of my clients have been in the telephone business for over a century. And so they have done very well selling telephone lines to successive generations of households in the community. But many new products are going to have a much shorter shelf life. You may roll out a home automation product that is obsolete five years later and will have to be replaced with something else. Service providers are never again going to be able to rest easy that they have the perfect product mix going into the future. Instead they are going to have to continuously reinvent themselves.

The companies that survive and thrive in this new market are going to have to be nimble. They are going to have to keep their eyes out for things that some of their customers will be willing to pay for. And more importantly they are going to have to get way better at sales. They are going to have to hit the market hard every time they get a new product in order to make a profit.

To many this is a daunting future. If this scares you it might be time to think about selling your business. The status quo is quickly dying and the ways we have survived by selling the triple-play networks will no longer suffice. But the need to be constantly innovative is not foreign to much of the rest of the business world. There are many businesses that have to reinvent themselves over and over to stay relevant in the marketplace. It’s going to take a different kind of ownership to thrive in this new world, a more entrepreneurial mindset, and those that have that should do fine. But anybody who thinks they can just keep happily selling the same old thing had better prepare for the day when their company becomes irrelevant and insolvent.

Comcast and Time Warner

NYC-NBC_StudiosI have read many articles on the issue of Comcast buying Time Warner, but I hadn’t written a blog yet about it because I wasn’t entirely sure how I feel about this. After all, Comcast is already huge and so does it really matter if they get even bigger?

After reading the announcement I went to the web to remind myself of all of the things that Comcast owns. In addition to being a cable provider, they also own a lot of TV networks. They own NBC, one of the major broadcast networks. They also own a number of NBC affiliate stations. They own a lot of cable networks including CNBC, MSNBC, Syfy, Chiller, Cloo, E!, USA Networks, Bravo, Oxygen, Universal HD, Sprout, Telemundo and Mun2. They also own a smaller share of other networks like the Weather Channel, TVOne and Esquire TV. They own a number of regional sports networks throughout the northeast, Chicago, the northwest and the Bay Area. They own the Philadelphia Flyers outright. They create programming through Universal Studios and other production affiliates. They own the rights to broadcast the Olympics in the US. They own a piece of Tivo. They even own Fandango, the movie ticket company.

I find myself not so bothered that Comcast is going to get bigger as a cable company. Let’s face it, they have pretty crappy customer service, but so does Time Warner. Cable companies don’t overlap footprints and from the complaints I read all over the web about monopoly cable providers, it doesn’t seem to make a ton of difference which one of them you end up with.

And it’s not like Comcast does everything bad. They provide decent Internet speeds in many markets and are moving to increase speeds in other markets. They have largely upgraded their major markets to a fully digital network allowing them to take advantage of DOCSIS 3.0. In my part of Florida they have speeds up to 107 Mbps. I have their 50 Mbps product and it seems to really be this fast most of the time. They are not going to get into the gigabit race with Google, but over the next decade they probably will offer speeds up to 500 mbps like a few other cable companies are now doing.

But I find that so many people dislike them. I just have to wonder how much bigger they could become in their own markets if they did things right and people started liking them. When I moved to my new house I surveyed the neighbors and hardly any of them use Comcast. People here get satellite TV and suffer with CenturyLink DSL or wireless broadband rather than fight through the Comcast sign-up process. I documented my ordeal of becoming a Comcast customer last year and I think it took a dozen calls to finally get broadband and I was still forced to subscribe to a cable package I don’t want in order to get the broadband I want. So I am certainly not a fan, but I am not sure my experience would be much different with the other monopoly providers.

What bothers me about the merger is the tremendous market power they have as both a cable company and as a programmer. When Comcast and NBC sign a retransmission agreement, the resulting payments from Comcast to NBC are simply funny money and the cash never leaves the parent company. In practical terms this gives them a huge advantage over everybody else in the business. Comcast essentially gets to set the market rate for programming when it makes deals among its own affiliates.

It is that power to control all parts of the supply chain that I find disturbing. So I say, let Comcast buy Time Warner. But the price for doing so should be that they have to sell off a lot of their programming assets over the next few years. I think given that choice they will elect to keep the programming rather than buy a bigger pile of customers. If they really want to be a lot bigger, let them improve customer service and get all of the people in their existing footprint who won’t use them today.

Software Defined Networks

The InternetAT&T announced last week that they are going to implement software defined networking (SDN) in their network and that over a few years they will replace other kind of telecom gear. They say that over time this is going to save them billions on hardware costs. This announcement probably is a watershed moment for the telecom industry and is going to have huge implications for the way we build our networks and the vendors we use for routers and switches.

For those who are not familiar with the term, SDN is an idea that got started at UC Berkeley in 2008 and is now starting to hit the market. Its core concept is to use generic low cost routers, switches and other network hardware and to control them with specialized and centralized software. Today the routers that operate our networks come as packages of combined hardware and software, of which software is the more expensive component. Each vendor has their own way of doing things and you will find networks that are Cisco centric or Juniper centric, and network technicians become proficient with a specific brand of equipment.

But SDN is going to change all of that. With SDN a company like AT&T will be able to buy one set of centralized software and control their devices all over the network. The equipment becomes secondary in this configuration and AT&T could mix and match different brands of equipment. The biggest obvious savings will come in that they are not having to buy the software again each time they buy a router.

But there are even bigger savings promised with SDN over time. The promise of the technology is that companies can tailor their networks on the fly by making a software change rather than swapping or upgrading hardware systems. For a company that is as decentralized and huge as AT&T this could be transformational. I am sure many of you have waited before for AT&T to make facilities available because they were in the middle of a network upgrade. AT&T says that it is not unusual today for them to take 18 months to effectuate complex network changes. With SDN they could do it on the fly, and even after taking time with testing and double checks, they will be able to effectuate major changes in weeks instead of many months. And if circumstances dictate it, such as in an emergency, they could make changes on the fly.

SDN will give a whole new set of tools to network engineers. Today traffic is forwarded using industry standards such as MPLS, BGP or OSPF. With SDN a network engineer will be able to get extremely granular with traffic. For example, they might shuttle all traffic that is experiencing jitter to a specific place in the network. Since an SDN network is programmable it is going to give them flexibility they never have had.

This announcement has to be putting fear into the large telecom vendors like Cisco, Juniper and Alcatel. These companies supply the majority of the gear to the large network providers and the companies who are pioneering SDN are much smaller start-ups. Cisco and others are already climbing onto the SDN bandwagon and developing products, but there is no doubt that SDN will hurt these vendors. The billions of dollars of savings envisioned by AT&T has to come from somewhere. Carriers will be buy cheap generic switches and routers, will be able to keep them longer and are not likely to be as loyal to specific vendors as they were in the past.

This announcement should not send you out quite yet to change your own network to SDN. The industry is still in its infancy and the cost of the master SDN software is really steep today. But like every change of this magnitude the product will eventually get cheaper and work its way down into the rest of the industry. Let’s let AT&T figure out the bugs and at some point this will become the industry norm.