Monthly Archives: October 2014

The Total Sports Programming Bill

footballThe average cable bill in the US is now somewhere between $75 and $80 per month (depends on who measures it). Nobody can say for sure how much of that average cable bill that is needed to pay for sports programming, but we know it’s huge. There are a number of reasons why it’s hard to get at the true cost of sports programming. First the deals with sports teams are often private since the sports teams and the companies buying rights to the content are often closely-help corporations. Further, cable companies sign a mountain of non-disclosure statements that prohibit them from talking about what they pay for a given network.

Anybody who buys a big channel lineup has a tremendous amount of sports programming available today. I currently count 35 national sports networks in the US. This includes the ESPN family of networks as well as the Fox Sports networks. But there are also networks that carry tennis, golf, horse racing, skiing and fishing. There are the national networks that carry college football such as the Big 10 network, the SEC Network and the PAC-12 network. The major professional sports of baseball, basketball and football each have their own channels. In addition to these 35 channels, there are 50 regional sports networks that carry mostly local professional sports and college sports not represented on other networks.

In addition to all of this there are sports costs buried within the cost of many non-sports network. Certainly when you pay for CBS you are paying for some of the deals they have made for the NFL, college football and basketball, tennis, golf and auto racing. With NBC you are also paying for the Olympics, which alone have a monthly cost of over 80 cents per cable customer in the US. When you buy TBS you’re paying for the Atlanta Braves. And local stations everywhere carry local college sports.

There were some hearings earlier this year in Congress that looked at the high cost of cable TV. There were a variety of estimates put forth for the cost of sports programming that ranged from a low of $21 per household per month up to an estimate that sports represents nearly half of programming costs. I think the answer is somewhere in between.

One of the problems with sports programming is not just the proliferation of networks, it’s the fact that sports programming costs are increasing much faster than the cost of other programming. It’s a vicious circle where companies bid for the rights to get sports content with the assumption that they’ll be able to pass it all on to the public. And for the most part they have been able to do this.

But consider the deal made for the Los Angeles Dodgers. The Dodgers were able to negotiate a new 25-year programming deal that increased the team’s TV revenue from $39 million to $335 million per year. That’s an 860% increase. It’s a great deal for the Dodgers certainly. Some of the smaller market baseball clubs don’t have total revenues greater than $300 million per year. But this turns out to have not been a good deal for the newly formed SportsNetLA. This company is owned partially by Time Warner Cable. The network wants cable companies in the area to pay them between $4 and $5 per customer per month to air the Dodgers, and all except Time Warner have declined to do so.

It’s obvious this is driven largely by greed. Every time the existing carriage rights end for a given sport there are generally multiple parties bidding up the price for the new rights to content. There is a lot of incestuous behavior in this part of the industry since cable companies like Time Warner and Comcast own significant rights to sports that they pass on to their own subscribers without negotiations.

It’s been estimated that about 30% of households actively watch sports of some kind. But even that number is aggressively high because the majority of that 30% favor one or two sports and not the wide range of programming we are all paying for. It’s been estimated that maybe 4% to 5% of households are the total sports fanatics who watch it all. Doing a little math shows that if the 30% were asked to pay for all of the sports programming the cost would be $85 per household per month. And if the 5% had to pay for it all the cost would be $500 per sports fanatic household per month. It’s obvious that households who care nothing for sports are subsiding this lucrative industry.

At some point in the near future this model is going to break, because the cost of programming is rising far faster than inflation, driven in large part by sports programming. Nobody knows what the magic number is, but there is going to come a point where the average home is just going to say no to the monthly cable bill. One doesn’t have to look very far in the future and the average cable bill in ten years is going to be $150 and within fifteen years it will be $200. I am guessing that long before those numbers that a whole lot of households are going to opt out of paying for sports and other programming that they don’t even watch.

ESPN and a la Carte Programming

Maryland TerrapinsEarlier this month ESPN announced that it would be providing some professional basketball and other programming available by a subscription basis on the web. This got the sports world buzzing. I follow several sports bulletin boards and sports fans have been looking for a glimmer of hope that sports programming will be sold a la carte. A large percentage of football fans (at least the vocal ones on line) say that they hate paying for the big programming packages to just get sports. They all say they would gladly pay for ESPN and a few other networks (depending upon the part of the country they live in).

Unless these guys all live in bachelor pads that only watch football and basketball channels they probably are ignoring the fact that their families probably prefer to watch something other than sports. But let’s just suppose that a genie came along and gave these guys their wish. What might an a la carte sports programming world look like?

ESPN is clearly the king of the sports programmers. In 2013 they had revenues of $11 billion, about $7 billion of which came from programming fees mostly from ESPN, but also from the other sports channels they operate. The remaining revenues came from advertising. It was reported in 2013 that ESPN was in almost 100 million homes and that their average fee to cable companies was about $5.50 per month per subscriber. And that number is growing rapidly and I have already seen fees of $6.00 in 2014.

What would it take for ESPN to go a la carte and sell at a premium price only to sports fans? It’s really simple math. If ESPN was to charge $15 per month they would need 40 million customers. At $20 per month it’s 30 million, and at $25 per month it’s 24 million? Might ESPN be able to do that? It’s at least conceivable that they could get those kinds of subscriber numbers, but it looks like a tall order. It’s hard imagining a third of US households signing up for an ESPN subscription at $20 per month. I am sure the folks at ESPN are quite happy with the current regime and will only contemplate a la carte if the wheels come off the industry.

ESPN is probably the only sports network that can contemplate such a scenario. Making a change this drastic would certainly upset their comfortable business model, but if they were able to get 20 million customers they could establish a new baseline and grow again from there.

My alma mater Maryland just joined the Big 10, partly due to a promise of higher revenues from TV. The Big 10 Network, along with the SEC network are the next two highest earning sports networks after ESPN, both expecting revenues of around $350 million in 2014. Let’s look what it would take for the Big 10 network to change to a la carte. Today they charge about $1.10 per subscriber in areas where they have schools and it’s reported that outside those areas the fees are closer to $0.25 per customer. If they were to charge $10 per month they would need 2.9 million customers. At $15 they would need 1.9 million paying customers, and at $20 they would need 1.4 million.

These are certainly lower numbers than ESPN needs, but they also have a much smaller potential universe of customers. One way to see how reasonable a la carte might be is to look at recent TV ratings for Big 10 football games. Let’s look at weeks 7 and 8 of this college football season. In week 7 the Big 10 had three football games that got more than 75,000 viewers. That was Michigan State vs. Purdue, Penn State vs. Michigan and Indiana vs. Iowa. In total the Big 10 games were watched by 5.0 million people that week. Week 8 was similar and the three games with more than 75,000 viewers were Rutgers vs. Ohio State, Michigan State vs. Indiana and Maryland vs. Iowa. In total that was 4.9 million viewers for the week.

And one has to suppose that a lot of Big 10 football fans watch more than one game, so I’m thinking one might discount those numbers by 40%. That means that the Big 10 has perhaps 3 million individual viewers per week. Is it reasonable that they could talk 2/3 of those fans into paying $15 per month for the network, or half of those fans into paying $10. That seems unlikely to me.

But you might ask, “What about basketball?”. There are a lot of basketball fans, but football is king. The weekly total viewers of a league for basketball is significantly smaller than football for most schools (except those that identify as primarily basketball schools like Georgetown).

Plus, one has to ask how schools stay relevant over the long haul when only homes willing to pay a la carte pricing will watch them. That means millions of homes (and potential future fans) are not going to grow up watching their product and identifying with a given university brand. I would love the idea of a la carte being available as I have described it. I would subscribe to both ESPN and the Big 10 network at those prices. But are there enough others out there like me there to support sports a la carte? I have serious doubts.

Tomorrow: The Total Sports Programming Bill

Sports Programming is Still Ratings King

Super Bowl FootballI have been reading a lot about sports programming and its role in the cable industry. I will be writing a series of blogs that talk about different aspects of the sports programming business. For anybody that likes sports or anybody who thinks they are paying too much for cable this is pretty fascinating stuff.

The reason that sports programming is so important to the cable companies is that it is the only major source of programming that people still insist on watching live. Many cable broadcasters like ESPN and regional sports networks rebroadcast sporting events, but Nielsen reports that 96% of sports viewing is still done live. People are not interested in watching sports after everybody knows the winner.

Years ago before DVRs, TiVo and Netflix all programming was watched live. But that is no longer the case and a significant amount of TV viewing is done on a delayed basis. That matters to cable companies because the premium advertising revenues come from the live broadcast of a show with lower advertising (or often no advertising revenue) coming from subsequent airings. As an example, look at the numbers for the recent premiere episode of Fox’s top series Sleepy Hollow. A very impressive 10.1 million viewers watched it live when it was first aired. But another 5.2 million watched in on a delayed broadcast within the first 3 days. 2.8 million viewers have watched it on VOD after 4 days (a number that is still slowly growing). Finally, another 3.1 million viewers watched it on other platforms such as NetFlix. This means that the total viewers was 20.2 million, with only half of them watching it the day it was first aired. (And imbedded in that number are a significant number of millions who recorded the show on a DVR to watch later).

The percentage of delayed viewing varies widely by the type of content. Very popular shows like Sleepy Hollow actually have some of the higher percentages of same-day viewers and there is a lot of content where the majority of views are done on a delayed basis. Some shows, like the Daily Show on Comedy Central have promoted delayed viewing as a tactic to expand their appeal.

So the networks love sports programming because it’s a hook to get people watching them. And in the cable industry, eyeballs equates to advertising dollars. Advertisers like sports programming for several reasons. Perhaps primary is that it draws the younger male demographic in one of the few ways that advertisers can count on. But second is that it gets a lot of viewers. Let’s look at some of statistics.

The biggest draw on TV is always the Super Bowl. If you look back at the history of the most watched programs in TV history it is a mix of a few events like the last episode of Mash plus a big string of Super Bowls. In recent years the Super Bowl has gotten over 100 million viewers, which is off the charts for TV viewing.

And there are other sporting events that draw big audiences. If you look at TV events that draw over 30 million viewers in recent years you will find that it’s the Oscars, an occasional final episode of a popular TV series and sports events. To contrast this with only ten years ago, in 2004 less than half of the big drawing events were sports-related. So part of the story is not just that there are popular sporting events. Events like the Kentucky Derby, the Master’s golf tournament, the BCS football championship game or the NCAA basketball championship have always drawn well. But the number of big non-sporting events has dropped drastically due the number of people that now watch their entertainment on a delayed basis.

Of course, sports is not as predictable as the networks would like. There is a huge difference in ratings when the playoffs for football, baseball, basketball and even hockey involve teams from major US markets. For example, the current World Series is drawing over a 45% rating in Kansas City, as you would expect, but the series as a whole has a much lower rating than when the Yankees or some other major market team is involved.

But even with its unpredictability, sports programming is still the advertising king. It creates dozens of events each year that are will predictably have large numbers of viewers, and viewers of a demographic that is otherwise elusive. Sports is going to remain the darling of the broadcast world as long as the current broadcast model is in place.

Tomorrow: ESPN and a la carte programing.

Startups to Shake Up Healthcare?

Medical_Software_Logo,_by_Harry_GouvasI don’t know if there is any one field where technology is making more impact than medicine. The industry is being reinvented from top to bottom and barely a day goes by when I don’t see news of a company pursuing some new way of bringing technology into the field. I could write blogs all week talking about some of the latest endeavors. This is also an area where startups are getting funded at a rapid pace. Following are a few of the more interesting startups I’ve read about lately.

Miroculus has developed a small device they call ‘Miriam’ that can work with a smartphone to do pre-screening on a number of different health issues like cancer. The device divides a blood sample onto 96 sections and runs a different test on each. The device will screen for things like various microRNA markers that can show the early onset of different cancers such as breast cancer, lung cancer, ovarian cancer and pancreatic cancer. The device uses open source software and the hope is that external researchers will help to develop tests for many additional ailments.

Omicia is working on a platform that lets doctors incorporate DNA analysis into a patient’s health profile. The immediate goal is to identify genetic proclivities of a given patient for specific conditions. But the hope in the long run is to help design specific treatment regimens for various diseases that will consider the patient’s DNA. For example, it should be possible upfront to understand which drugs a given patient will be allergic or oversensitive to.

Syapse Software is working along similar lines but is looking beyond DNA to look at other types of molecular profiling to diagnose diseases and treat patients. They are working to develop tools that will let researchers and clinicians understand body and blood chemistry and apply it to regimens of diagnosis and treatment.

ZephyrLife is a startup that is concentrating on incorporating wearables into the medical process. They have developed wearables that can monitor patient vitals while in a health care facility. This will greatly speed up collecting the vitals from a new patient that checks into an emergency room, but also greatly simplify the process and save time and money. They also are exploring a set of wearables for out-patients to monitor vitals post-surgery. The hope is that over time that monitoring will greatly reduce the number of readmissions from patents by spotting problems early.

Infermedica is developing a set of artificial intelligence tools to screen patients. Having patients answer questions before seeing a doctor can let the doctor focus more directly on the specific symptoms. The company also has developed self-diagnostic tools that will work on smartphones that can help patients narrow the list of ailments they might have.

BigHealth hopes to track patient behavior to allow people to improve their health through changes in behavior. For example, their first product Sleepio tracks sleeping behavior since it is well known  that poor sleep can contribute to a wide variety of ailments. The company plans to tackle a host of other health-related issues where providing feedback can help people change their behavior to improve their health.

RxMatch is taking a very different approach and is creating a social network that lets people with similar ailments find each other. The idea is that doctors can only do so much and sometimes it’s the little things that the doctors don’t tell you that might make a difference in dealing with a given disease.

Follow the Money

Fatty_watching_himself_on_TVI saw an article in Business Insider that provided some statistics on the decline of TV advertising. The article reports that advertising is down sharply from 2013 is several categories. First, spending on ‘upfront’ deals with cable networks to grab prime spots is down from $10.2 billion to $9.6 billion. The upfront represents the prime selling season for TV because this is when advertisers grab time in the upcoming fall programming season. Advertising is also down for the broadcast networks and it’s been reported that advertising for the primetime schedule in ABC, NBC, CBS and Fox fell from $8.6 billion to $8.17 billion.

This is not to say that TV advertising is still not huge, and in 2014 it’s expected to make up 38.1% of all ad spends. But advertising on the Internet is now up to 28.2% of total advertising and growing rapidly.

The lowering of TV ad revenues are interesting for several reasons. This is the first time in years that ad revenues have fallen this significantly. In the past any falls in advertising were attributable more to a general economic slowdown. But it seems like the drop now is being driven by other factors. The main factor driving this shift is that many large companies are now spending a lot of their advertising dollars on the web.

If this trend continues it certainly is going to have major repercussions in an industry already under strain. For example, the average age of viewers of network TV continues to climb. In an article that just came out today in the Huffington Post was a report that the average age of a viewer on CBS is 55 years old, on ABC is 51 years old, on CBS is 52 and on Fox is 35. But even the lower Fox numbers are skewed because of the heavy viewing of their Sunday night animation lineup by younger viewers.

This is a problem because advertisers tend to go after younger viewers. That is where large companies want to create brand loyalty. The age of TV viewers has been increasing steadily over the last few decades. For example, the average age of viewers of NCIS, the current number one rated TV series is 57 and a few decades ago the average age of number one shows like Home Improvement or Cosby was around 30.

So it looks like advertising dollars are beginning to finally catch up with the demographics of who watches TV. It seems inevitable that TV advertising must fall as advertising online continues to rise. What is interesting is that it took it until this year to manifest as negative growth in TV advertising revenues.

For networks, advertising is still king and is still their major source of revenue. But they have been chasing an alternate revenue source for a decade in the form of local retransmission fees. Ten years ago almost no cable system paid to show local TV networks. They just put up an antenna, took the signal off the air and put it on their cable systems. But the local network affiliates have been charging for local retransmission fees and it’s estimated that this has grown to become about $2 per local network channel. That means that a cable system that is carrying all four major networks is probably paying around $8 per customer per month in these fees.

The retransmission fees are not insignificant and one has to figure that each major network is now collecting over $2 billion per year in these fees. It’s also been reported that almost all of that money goes back to the network and that the networks have been raising the rates to affiliates for programming every year to essentially rake back the retransmission fees to the corporate coffers. Local network affiliates are not getting rich off of these increased fees.

Meanwhile, cable networks have been raising rates at an average rate of 7% per year for well over a decade. And recently we’ve seen some of these increases come in even higher, such as in recent renewals with Viacom.

One can only expect that a drop in advertising revenues is going to result in even more demands for increased programming fees from all of the networks. This feels like an industry in desperation. I think everybody in the industry understands that increased cable TV fees are really starting to strain the American pocketbook. While the cord cutter phenomenon is still relatively small, the dissatisfaction with what people pay for cable is really high. One has to think the day will come when the avalanche of people dropping cable becomes drastic.

But the programmers are all major corporations and are driven by quarterly earnings, and so no network wants to be the one to blink. Nobody wants to say, enough is enough and stop raising rates at 3 – 4 times inflation. Instead, we are looking at an industry where the average household will be paying over $100 per month for cable in a few years and over $200 in fifteen years if we can’t break the cycle of rate increases. One only has to follow the money to see that this is an industry in denial and headed for an eventual cliff.

Broadband in Big Cities

san_francisco_skyline-wideI’ve often written about the issues with rural broadband, but today I thought I would take a look at the state of broadband in the large cities. As people read and hear about Google and other fiber projects I think the natural assumption is that the cities either have fiber or soon will get fiber. I don’t think that’s true.

Let’s look at a few of the larger fiber builders and what they have done with cities. First is Verizon FiOS. It’s a great service and I had it at one of my previous homes. But for the most part it’s not been built deep in the heart of the larger cities. FiOS has been a suburban and medium town product and you are far more likely to be able to get FiOS in a suburb than if you live downtown.

Google is currently building a few cities. Both they and AT&T have also released a list of possible candidate cities for fiber. But Google only builds in neighborhoods where enough customers sign to buy fiber. And AT&T’s fiber construction seems to be more press release for now than substance.

And nobody wants to talk about is that none of these providers builds to MDUs. Not FiOS, not Google, not AT&T, not the munis and pretty much not anybody else. Nobody has solved the inside wiring issues that come with multi-dwelling units, and so none of the big fiber providers are building to them. In some cities over half of the living units are in MDUs, and even when fiber comes, these residents don’t get it.

There are a few companies that are specializing in MDUs, but they either concentrate on student housing or on that small slice of apartment buildings that have already been wired with category 5 cable. And most apartments and condos are wired only with traditional coaxial cable and telephone copper. And then you have to layer the contractual issues on top of the wiring issues. The FCC took a stab a few years ago of fixing some of the more egregious abuses where cable companies had tied up the rights to the existing wire inside MDUs. But they didn’t close all of the loopholes and there are plenty of apartment complexes that are still contractually locked into allowing only the cable company.

But then one has to ask if any of this is all that bad, because the cable companies in the large cities have increased cable modem speeds and it’s hard to find a city that doesn’t have speeds of at least 100 Mbps available. But you have to look a little closer to see that is not as good as it sounds.

The faster cable modem products are expensive. In many cities the 100 Mbps products are around $100 or more per month, absent any sign-up specials. But that is not the only cost customers face. For example, I have Comcast and they wouldn’t let me buy a 50 Mbps cable modem without having to take some of their cable product. Cable companies don’t have to sell naked cable modems, and so there are a lot of households that just can’t afford the big packages that are needed to get the faster cable modem speeds. This goes back to the same categorization of broadband as an information service, and just like with net neutrality, the FCC doesn’t have the authority to force cable companies to sell naked cable modems. Finally, there are problems with cable modems in some MDUs. Some of them with older wiring will not allow the delivery of faster data speeds. Or, in some MDUs the internet comes with the rent and you get whatever the landlord will pay for.

There is some good news for cities in that over the next decade the cable companies are going to be able to offer speeds as fast as a gigabit. They have a lot of work to do on their networks to get to those speeds, but the technology to get there is already developed or on the drawing boards at Cable Labs. One has to wonder if the cable companies will upgrade in cities where they don’t have a real competitor. One has to think that the cable companies will be as judicious in handing out gigabit speeds as they today are handing out 100 Mbps speeds. It’s one thing to be in a market that has the potential for very fast data speeds, but it’s something else to be able to actually order it or to be able to afford it.

I am afraid that most cities are going to be at the mercy of the cable monopoly for decades to come. FiOS is no longer expanding. Google is going to go where they go, and that is not going to be everywhere, even in the cities where they do build.

There is some hope in the future for apartment buildings. I’ve reported before on a technology that uses ultrawideband that looks to be able to deliver gigabits of data over existing coax without disturbing the cable traffic. Think of it as DSL for cable systems. But the fast versions of that technology are still a few years away, and even that is going to require somebody to build a fiber to the front of an apartment.

Those Damned Statistics

thCAVW45NPOne of my biggest pet peeves in life is the misuse of statistics. I am a math guy and I sometimes tackle math problems just for the fun of it. I understand statistics pretty well and my firm performs surveys. I think I disappoint a lot of my clients when I try to stop them from interpreting the results in a survey to prove something that the responses really don’t prove. Surveys are a really useful tool, but too often I see the survey results used to support untruthful conclusions.

A week ago the NTIA (National Telecommunications and Information Administration) released their latest poll looking at broadband usage in the US. The survey asked a lot of good questions and some of the results are very useful. For example, they show that overall broadband penetration in the US is up to 72% of households. But even that statistic is suspect, as I will discuss below.

The problem with this survey is that they didn’t ask the right questions, and this largely invalidates the results. The emphasis of this particular survey was to look at how people use cellphones for data access. And so they asked questions such as asking the various activities that people now use their phone for such as browsing the web or emails. And as one would expect, more people are using their cellphones for data, largely due to the widespread introduction of smartphones over the last few years.

There is nothing specific with any of the individual results. For example, the report notes that 42% of phone users browse the web on their phone compared to 33% in 2011. I have no doubt that this is true. It’s not the individual statistics that are a problem, but rather the way the statistics were used to reach conclusions. In reading this report one gets the impression that cellphone data usage is just another form of broadband and that using your cellphone to browse the web is more or less the same as browsing off a wired broadband connection.

The worst example of this is in the main summary where the NTIA concluded that “broadband, whether fixed or mobile, is now available to almost 99% of the U.S. population”. This implies that broadband is everywhere and with that statement the NTIA is basically patting themselves on the back for a job well done. But it’s a load of bosh and I expect better from government reports.

As I said, the main problem with this report is that they didn’t ask the right questions, and so the responses can’t be trusted. Consider data usage on cellphones. In the first paragraph of the report they conclude that the data usage on cellphones has increased exponentially and is now deeply ingrained in the American way of life. The problem I have with this conclusion is that they are implying that cellphone data usage is the same as the use of landline data – and it is not. The vast majority of cell phone data is consumed on WiFi networks at work, home or at public hot spots. And yes, people are using their cellphones to browse the web and read email, but most of this usage is carried on a landline connection and the smartphone is just the screen of choice.

Cellular data usage is not growing exponentially, or maybe just barely so. Sandvine measures data usage at all of the major Internet POPs and they show that cellular data is growing at about 20% year, or doubling every five years, while landline data usage is doubling every three years. I trust the Sandvine data because they look at all of the usage that comes through the Internet and not just at a small sample. The cell carriers have trained us well to go find WiFi. Sandvine shows that on average that a landline connection today uses almost 100 times more data than a cellphone connection. This alone proves that cellphones are no substitute for a landline.

I have the same problems with the report when it quantifies the percentage of households on landline broadband. The report assumes that if somebody has a cable modem or DSL that they have broadband and we know for large parts of the country that having a connection is not the same thing as having broadband. They consider somebody on dial-up to not be broadband, but when they say that 72% of households have landline broadband, what they really mean is that 72% of homes have a connection that is faster than dial-up.

I just got a call yesterday from a man on the eastern shore of Maryland. He live a few miles outside of a town and he has a 1 Mbps DSL connection. The people a little further out than him have even slower DSL or can only get dial-up or satellite. I get these kinds of calls all of the time from people wanting to know what they can do to get better broadband in their community.

I would challenge the NTIA to go to rural America and talk to people rather than stretching the results of a survey to mean more than it does. I would like them to tell the farmer that is trying to run a large business with only cellphone data that he has broadband. I would like them to tell the man on the eastern shore of Maryland that he and his neighbors have broadband. And I would like them to tell all of the people who are about to lose their copper lines that cellular data is the same as broadband. Because in this report that is what they have told all of us.

What Makes Cellphone Coverage Vary?

HTC-Incredible-S-SmartphoneIt seems I have been writing about cellphones for a few days, so I thought I would cover a question that I have been asked many times. I travel a lot and it’s not unusual to sit next to somebody and note that the two of you are having a very different cellular experience. One of you may be getting one bar for data and voice while the other might be getting four, sitting only a few feet apart. What explains this difference in cellular performance? I will start with the obvious explanations, but sometimes the differences are due to more subtle issues.

Who is your carrier? Both people might have an iPhone, but if one has Verizon and the other has AT&T the experience is different because both are connected to completely different technologies and totally separate networks. AT&T and T-Mobile use GSM (Global System for Mobile) technology, the technology that is used in most of the rest of the world. But Verizon and Sprint use CDMA (Code Division Multiple Access) technology. These technologies are so different that a handset that is made only for one technology won’t work on the other. This is why you can’t take your Verizon handset to most of the rest of the world when you travel.

Who’s on the nearest tower? I’ve often been driving with somebody and hear them be glad to see an upcoming cell tower because they assume this means they’ll get better coverage. But you can’t assume this because not every carrier is on every cell tower. There are a large number of cell towers in the country. Some of these are owned by the wireless carriers but many are leased. The cellular companies look at available towers and then cobble together the combination of towers that make the most effective and cost-efficient network for them.

This task has gotten hard for the carriers because of the fact that cellphones now carry data. The original cell tower network with all of the giant towers was created back when cellphones only carried voice. But now that the networks are deploying data and using higher frequencies it turns out that a more ideal network would place the towers closer together than the traditional locations. This is causing massive reconfigurations of the networks as the carriers try to improve data reception.

Cell sites get busy. Or said another way, any one carrier on a tower might get busy while another carrier might not be busy. As cell sites get busy they do a couple of things to handle the excess traffic. Most carriers still give preference to voice over data, so as more voice calls are added to a network the amount of bandwidth allocated to data is often choked down (but not always). And eventually the tower site refuses to add new customers. But when sites get busy the performance normally degrades.

You might be roaming. Roaming is when a customer is riding a different network than the one to which they subscribe. If you are an AT&T customer and are roaming on a T-Mobile site, you will not get the same priority as a T-Mobile customer. This might mean getting slower data speeds if the site becomes busy, and it could also mean being booted from the site as it becomes full.

Spectrum is not created equal. There is not just one spectrum being used for cellular data. There are already nearly a dozen different slices of spectrum being used and the FCC is going to be auctioning more over the next two years. Every time you move to a different cell site you might be changing the frequency you are using. Carriers not only cobble together a network of the ideal cell sites, but they also play a chess game of deciding which spectrum to deploy at each tower. None of the carriers owns all of the different spectrum available, and the spectrums they own in different cities can be drastically different. This means getting four bars at your home might not give you the same experience as getting four bars when you are traveling.

What your phone allows. Perhaps one of the biggest differences in reception is that each cellphone maker decides what spectrum a given handset is going to receive. It costs a lot of energy, meaning battery time, for a phone to always search on all of the different frequencies. So different handsets allow different frequency bands. This is why LTE coverage differs so widely because there are many sets that don’t even see some of the LTE frequencies. All handsets look for the basic cellular bands, but only the most expensive sets are designed to look for almost everything out there. And as more cellular bands are allowed into the mix this will get more pronounced. Of course, you have to read very deep into the specifications of your phone to understand what it does and does not receive. Good luck asking that question at the cellphone store.

Plain old interference. Every cellular frequency has a different propagation characteristic. If you and the guy next to you are talking on different frequencies then you each will be dealing with a different set of interference. This is one of the reasons that cellular coverage is so wonky in complicated buildings like airports and hospitals. Each cellular frequency is likely to find a different set of problems in a complex environment and one frequency might get killed in a given part of the airport while another is fine. This is why you might find yourself walking around trying to find a signal while people around you are still talking.

The Upcoming AWS Spectrum Auction

Transmitter_tower_in_SpainThe FCC’s auction for new cellular data spectrum will begin on November 13. This is the first big spectrum auction in six years, so it’s worth watching. The spectrum being auctioned is being referred to as AWS or Advanced Wireless Spectrum. There are three separate bands being auctioned that go from 1,695MHz to 1,710MHz, from 1,755MHz to 1,780MHz and from 2,155MHz to 2,180MHz.

The FCC has set aside a reserve big for the auction at $10.5 billion. That means that if they don’t receive bids totaling at least that much in the first round that the FCC has the right to cancel the auction. Assuming that price is met, then the normal FCC bidding process will take place and one would expect the auction to go for a few more rounds.

The AWS spectrum is expected to be used almost entirely for data, and both Verizon and AT&T already own some spectrum that sits next to these new blocks. That is going to make it fairly easy for carriers to incorporate the spectrum into handsets. Further, this same spectrum is used in Europe for wireless data, meaning that there are already a wide array of handsets capable of using the spectrum.

Because it’s high frequency, this spectrum is capable of handling a lot of data. However, like other high frequencies it’s not great at penetrating building walls and other obstacles. Contrast this to the next auction that’s on the horizon. In two years the FCC will be auctioning chunks of the 600 MHz spectrum that is being vacated by television stations. This frequency can penetrate into elevators but doesn’t carry as much data per channel as the higher frequencies.

As you would expect the bulk of the spectrum is going to be auctioned to the largest carriers. It is expected that T-Mobile is going to be aggressive in the auction with AT&T and Verizon also buying a lot of spectrum. Sprint is expected to sit out the auction since they already own a lot of high frequency bandwidth. The wildcard player is going to be Dish Networks which may go after a lot of this spectrum. Dish has announced plans to offer a fixed data product using wireless spectrum that will also be used to deliver a cable TV line-up. This spectrum would give them more bandwidth for that offering.

The AWS spectrum is not immediately available since the Department of Defense and a few other government agencies still occupy some of the spectrum. It is expected that the bulk of the government usage will be gone in about two years, but these kinds of transitions almost invariably take longer than expected. This means that it’s unlikely that the bandwidth will have much of an impact on wireless data speeds until the two to three year time frame.

The spectrum is being auctioned off by market and as you would expect this means a wide variance in the interest by the carriers in any given market. In similar auctions in the past some markets went unclaimed, meaning that nobody was willing to pay the FCC’s minimum bid for the market, and if that happens again you can expect a second auction of the leftover, and certainly rural markets. This auction does have some incentives for small bidders and while the big carriers will grab the vast majority of the spectrum you can expect to see smaller companies going after secondary and rural markets.

The auction is expected to be tactical is that each carrier has holes they are trying to fill in certain markets. And the big carriers are keeping the upcoming 600 MHz auction in mind and may hold off on bidding now in markets where they would rather have that spectrum. This makes the auction a big chess game by market. The funny thing is that the carriers know exactly what each other already owns in terms of spectrum, so they know basically what each other is most interested in. But because there are two auctions close together or very different spectrum, nobody is going to know each other’s strategies until the first round bidding is done. The auction is often finished after the first round for a lot of markets and the following rounds are usually only for the prime markets.

I just looked at the amount of spectrum that cellphone users consume late last week. The current statistics show that the average landline connection is using almost 100 times more aggregate data in a month (download and upload combined) than the average cell phone. With that said, Cisco has predicted that the amount of wireless data usage will triple over the next five years, and many analysts think this is conservative.

It’s obvious that cellphone data is never going to rival landline data usage or even come close. I chuckle whenever I see somebody say that wireless data will win the bandwidth battle. There just is not enough wireless spectrum for that to ever happen. While cellular data usage is now doubling every five years, landline data is doubling every three years and one has to carry that trend out twenty years to see that the average landline home connection might be using nearly a terabit of data each month.

But we like using data on our cellphones. The wireless carriers have trained us to be very cautious in that usage because of the severe data caps and the horrendously high price for exceeding your data cap. But even with those restrictions, the wireless carriers need more spectrum and are expected to make this an interesting auction.

Some Tiny Steps for Web TV

Rabbit_Ears)There were several announcements in the last week from programmers who are going to put their content onto the Internet. I’ve had several people ask me if they think this means that OTT is finally here, and unfortunately I have to say no. But from these time cracks might eventually come bigger fissures. What people are hoping for is the ability to buy only the channels they want without having to buy the big cable bundles. But we still have a long way to go to get to that

The first announcement was from HBO. They plan to roll out an undefined OTT product in 2015. HBO and the other movie channels are unique in the programming world since they are always sold as premium channels and are always expensive. HBO was reported to have over 28 million US subscribers in mid-2013 through terrestrial or satellite TV subscriptions

But HBO also has the most pirated show with Game of Thrones and they have gotten a lot of requests to sell their content on an a la carte basis. HBO has not announced the details of the planned offering, but one can picture it being something like the HBO Go product that comes with most cable subscriptions. It would not be surprising to see their offering consisting of one streaming live channel along with access to the HBO library of content. There has also been no talk of price, but it won’t be cheap. HBO sells its content wholesale to cable companies in the range of $12 per month, so one would expect them to charge an OTT price at least as high as the cable companies, meaning a price of between $15 – $20. Such a product is going to appeal to some cord-cutters and cord-nevers who want to get Game of Thrones and Bill Maher without having to pirate it. But it’s going to be easier and cheaper for most people to buy HBO from their cable company. It’s a smart move by HBO who will probably be able to add a few million new subscribers. But in doing so they are not going to be damaging the traditional cable market

The other announcement this week was from CBS which announced an OTT package for $5.99 per month. This would consist of a live network stream from major market affiliates as well as a library of older content on demand. But for now it won’t include football. This product is a bit more of a puzzle from an OTT perspective. Currently if you buy content from the big cable companies like Comcast you normally get access to the CBS library online to any device. For example, I pay my cable company for a basic package for about $20 that gets me access to the libraries of all four major networks. If ABC, NBC and Fox match the CBS offering, then a person wanting all four networks online would be paying more than they pay for basic cable

The only real advantage of the CBS package is that it comes with a live stream on-line, and this is the first time that a network has offered live content on-line. But one has to ask if that is really worth $6 per month? This is about triple what CBS gets from cable companies that carry their content, so one can see why they want to sell their content for a premium price. But are that many people willing to pony up $6 just to get one channel on the Internet? There will be some but I can’t see this being very popular. After all, in most of the US I can get this on a TV for the cost of a pair of rabbit ears

It’s becoming obvious that any OTT programming that makes it to the web is not going to be cheap. And it’s money that drives the cord cutters. The New York Post reported a week ago that the upcoming Sony OTT package was going to offer 100 channels on the web for $80, while others are reporting a price of between $60 and $65. Those prices are not going to lure many people off cable in metropolitan markets due to the bundling from the big cable companies. Most people are in a position where the cost of their cable internet product rises if they ditch cable TV. In my own case, Comcast would only sell me a 50 Mbps connection if I bought at least basic cable

One has to ask if any of the packages mentioned to date are going to have much appeal. There are going to be the stray customers who will think these products are great. The one with the most chance of success is HBO, because it’s going to appeal to some of those with no cable subscription. But the CBS offer to me is a head scratcher. While there will be some who would love to get network TV on any device, the $6 monthly price tag feels like a lot for one channel. And Sony’s plans are even odder to me. There are certainly people who hate their cable company and would love to change to somebody else. Having 100 channels available on any device sounds attractive (assuming that this won’t only be available on Sony smart TVs). But it’s really hard in metropolitan areas going against the bundle, so it seems that selling packages for about the same price as the cable companies won’t be that attractive. Sony might do better in rural areas for people who want to get off satellite, but those are the areas that often have the worst broadband and where people might not be able to subscribe to OTT programming

None of these announced products are going to make a big crack in the cable market, but these are all the starts to the change. Somebody is going to have to come up with packages that a lot of people are going to find attractive to get any market traction, and that is going to take the willingness of the programmers. They are still making too much from the traditional cable packages to flinch too much. A lot of these early attempts at OTT will probably fail, but that’s what happens to those willing to go first in a new market – a market that consumers want if it can ever be done right.