Video Trends for 2017

RCA_CT100-hdFollowing are the major trends in video going into 2017.

Skinny Bundles. Last year at this time the industry talk was all about cable companies offering skinny bundles to keep customers from bailing. But this never panned out. Dish Network has a true skinny bundle option but almost nobody else has done so. Comcast entered this market last month by adding Sling TV to their X1 settop box lineup. The big companies aren’t talking and it’s hard to know if this changed due to market research about customer desire for such products or if this was due to problems with programmers assembling the right packages. But for now skinny bundles offered over cable systems seems like a dying idea.

OTT Options Exploding. DirecTV Now joined Sling TV and Sony Vue as the three providers of online skinny bundles. Hulu, Amazon and YouTube are launching similar packages in 2017 and sources at programmers report there might be as many as a half dozen other companies getting ready to join the OTT fray. Additionally there are a number of programmers directly entering the market such as the CBS package that will feature the new Star Trek: Discovery starting in January and available only online. ESPN is rumored to soon be launching an a la carte offering. This is going to turn into a crazy year for online programming and it’s impossible to believe this many entrants can succeed.

Cord Cutting Continues. But nobody knows how fast. The best I can tell from the numbers is that there is a lot more cord trimming with households paring back to less costly packages than actual cord cutting. You can find estimates of annual US cord cutters between 1 million and 4 million and only the cable companies know the right answer. But even if the number is at the bottom of the range, traditional cable companies are facing real problems. Eyeball time watching cable networks is way down and is expected to continue to drop in 2017 as people watch OTT content.

Some Networks in Trouble. It looks like ESPN will lose over 4 million customers in 2016. The same is happening to a number of other channels, but analysts track ESPN closely since it is the costliest network. Some of the more popular channels are making up for us losses by overseas sales, but sports, weather and other US-specific content has no market outside the country. By the end of 2017 I expect to hear rumors of smaller networks folding.

Continuing Rate Increases. All the big cable companies recently announced their rate hikes for 2017. Rate increases seem to be as large as recent years. But more of the rate increases are being buried in ancillary fees and equipment charges rather than as direct increases to cable packages.

No Break in Programming Cost Increases. And those rate increases are being fueled, in part, by the continued increases in the cost of programming. Many of those increases are baked into 3-5 year contracts, but even new programming programming contracts being approved in 2016 continue to include significant future cost increases.

Flood of New Content for OTT. The market is being flooded by new content at an unprecedented rate. Netflix is the king of new content and is producing most of the highly-rated alternatives to traditional cable. But there are dozens of companies now making content with the hope of grabbing a piece of the giant revenues earned by the most popular content.

New Bells and Whistles. Comcast is the industry leader in introducing new features for the home video product. Probably the best new one is the ability to talk to the settop box and eschew the remote. It’s hard for smaller companies to keep up with the numerous improvements.

Wireless Trends for 2017

Wi-FiToday I look at wireless trends for 2017. While most of my clients are small landline carriers, the wireless industry has a lot of impact on every ISP these days.

New Spectrum for Rural Broadband. The FCC should release spectrum at the end of the current Incentive Auction that can be used for rural broadband. This would be a slice of spectrum that used to be occupied by UHF television stations and that is being referred to as ‘white space’ spectrum. The beauty of this spectrum for rural broadband is that it will travel significantly far from a tower and will penetrate most obstacles that stop other spectrum. This spectrum has been allotted to only a few carriers under experimental licenses and so it might be a few years until affordable gear is ready for the market – but this would be a great tool for reaching remote customers.

New WiFi. The FCC should also finally release new WiFi in the 3.5 GHz band. This bandwidth will be available through a new spectrum sharing arrangement that will make it available to carriers while giving first priority to existing government and satellite users of the spectrum. But it’s a broad swath of 150 MHz and within a few years will add to the capacity of wireless point-to-multipoint networks. If the spectrum-sharing rules being used for 3.5 GHz work well, expect to start seeing sharing with other spectrum. This would be a great change for everybody and would spectrum owners on the notice that they have to either use or share spectrum and they can’t sit on it and let it go unused.

LTE Replaces Rural Copper. This is the year when we will start to really see AT&T and Verizon tearing down rural copper networks and forcing rural customers onto 4G LTE. What will never stop amazing me is that the FCC is paying for a lot of this from the CAF II fund.

Zero Rating Will Be Big. Expect all of the cellular carriers to aggressively adopt zero-rating, which is where they will provide their own video products to customers without it counting against cellular data caps. Zero-rating is not allowed under net neutrality rules, but it’s clear that the new FCC will soon reverse those rules.

Zero-rating is a really mixed bag. It will certainly be a boon to customers who don’t mind getting locked into big company bundles – for instance, an AT&T cellular customer might be able to watch unlimited DirecTV Now (but not Netflix) on their cellphone. But zero-rating also is glaring proof that wireless data caps are all about the extra revenue and not about bandwidth issues since the wireless carriers will open up wireless data pipes wide for those willing to pay them a lot of money.

There Will Be Huge 5G Hype. Expect the wireless companies and the press to talk about nothing but 5G. We will hear all year how the technology is being tested and how it’s right on the horizon. And all of the press releases won’t make any distinction between 5G cellular and 5G indoor gigabit wireless. So the general public will end 2017 mistakenly thinking that they will soon have gigabit cellphones.

There Will Be New Wireless Choices. Expect Comcast to launch their wireless product in a few test markets this year. Charter will also be closely watching those trials. Also don’t be surprised if Sprint or T-Mobile are bought by companies wanting to get into the cellular business. A really crazy rumor I read had Verizon merging with Comcast – but honestly nothing would surprise me any more with big company mergers.

WiFi Calling from Cellphones. There will be a big short this year as more and more calls will be made from cellphones directly over WiFi networks. Google Project Fi and Republic Wireless started this trend in 2016 and many others, including the big cell providers will join the trend.

2017 Regulatory Trends

FCC_New_LogoNow that we are at the end of the year I’m going to spend a few blogs looking forward into 2017 from the perspective of small carriers. Predictions about the direction of regulation is perhaps the easiest trend to write about since it looks like the trend for 2017 will be to undo many of the things done by the FCC over the last few years. So here are the regulatory trends I think will be most important to small carriers.

Net Neutrality Will be Reversed. It’s pretty obvious that the FCC’s current net neutrality rules will be reversed in short order in the new year. We already have Commissioners Ajit Pai and Mike O’Rielly strongly on the record opposing the FCC’s prior actions. This could be done in two ways. First could be a direct reversal of the net neutrality ruling. But another tactic might be to reverse Title II regulation but allow the net neutrality principles to stay in place – basically to acknowledge the net neutrality principles that the public clearly likes but to remove the ability to enforce those rules.

Interestingly, net neutrality hasn’t had much direct impact on small carriers since none of them have the market power to violate it. The one impact of this reversal for small carriers is that it will unfetter Comcast, Charter, Verizon and AT&T from most regulations and will give them greater market power and the ability to more aggressively squash smaller competitors.

One benefit of net neutrality was that it gave the general public some comfort that they couldn’t be preyed upon by large ISPs. So small carriers might want to periodically remind your customers that you will still be adhering to the principles of net neutrality even though this might not still be a formal requirement.

Reversal of New Privacy Rules. It’s also clear that the FCC is going to reverse most or all of the new privacy rules. These rules stopped ISPs from using customer data without explicit permission. There were parts of these rule that small carriers didn’t like. But for the most part small ISPs don’t use customer data for marketing purposes and don’t sell customer data to marketers. I think small carriers should periodically remind your customers that you don’t misuse or sell their data, but that your big competitors do.

Lifeline Changes. I think it’s likely that the new FCC will change the data lifeline program that pays $9.25 per month towards the data bill for qualifying families. At a minimum they might curtail this for cellular data plans, but there is even the possibility that they will eliminate it.

There is also talk of going back to a numbers-based method to fund the Universal Service Fund. This would impose a tax of around $1 on every telephone number. This is supported by the big telcos since they no longer control the majority of telephone numbers, but even more so because this would remove USF assessments on special access circuits.

A New Telecom Act. I expect Congress to enact a new telecom act. There are certainly parts of the Telecommunications Act of 1996 that are way out of date. That Act concentrated on copper telco networks and on traditional large cable line-ups and we need to now acknowledge that copper telco networks are quickly disappearing and that the public wants non-traditional cable packages.

But I also expect that any new act is going to drastically change the role of the FCC. My guess is that Congress wants to throttle the FCC’s power so that the agency won’t have much power if there is another change in administration. There have been threats from Congressmen in the past year to abolish the FCC altogether, but I think once they look at all of the things the agency does that cooler heads will prevail. But we might be seeing permanently reduced federal regulatory oversight of the industry.

Resurgence of State Regulation. If the FCC delivers on the stated goal of the new administration to whack FCC regulations, I expect that some state regulators will step in to fill the regulatory gap. After all, regulators like to regulate! It would not be surprising to see the most active state regulatory commissions like California, New York, Texas and Illinois tackle topics that the FCC might drop. And that would undoubtedly mean a string of states-rights lawsuits.

Is Santa Listening?

santa-watchingThis Christmas season brings not only the usual joy and cheer, but also new challenges and privacy threats, which seem to be the nature of technology these days. It seems even Santa isn’t immune to gifting technology which invades our homes with toys that gather secret information about us.

It turns out that the My Friend Cayla doll and the i-Que Intelligent Robot have the ability to spy on everything that kids (or anybody else) says within listening range of the toy. There have been a few other toys in the past that were capable of conversing with kids. Last year’s Hello Barbie chatbox also had this capability. But the big difference is that the Hello Barbie only recorded speech when a button was pressed while these new toys are always listening.

This phenomenon is not limited to toys and there are other devices today that listen to us all of the time such as Siri-enabled iOS devices, OK Google-enabled phones or the Amazon Echo with Alexa. It seems like 2016 was the year when technology began to actively listen to us, even though the concept has been around a bit longer. In 2015 there was a furor when it was revealed that Samsung TVs could both watch and listen to whatever was happening in the room with them. But now the market is seeing a lot of devices with this capability and one can imagine this is going to soon be included in a lot of new devices.

There have always been concerns that future IoT devices would enable tech companies to spy on us. The example given in the past was that motion detectors and cameras that are part of a security system could log all movements inside a home and provide a lot of detail about how various family members move during the day.

But this new technology leaps beyond that scenario to devices that actively listen and record everything we say. One would have to think this new technology is going to be built into most future smart devices as we quickly move towards a world where we talk to our house and the devices in it. All of these technologies work today by using voice recognition software in the cloud that convert everything it hears into text. From there the software in the cloud reads the text to determine if anything said warrants a response.

I’m sure that the average person hasn’t considered what this new technology means, and perhaps having this technology show up in toys will begin the conversation. The potential for abuse from this technology is almost unimaginable. One can envision family members spying upon each other. It’s not a hard stretch to foresee a repressive government listening to everything we say looking for ‘bad’ thoughts like was predicted in Fahrenheit 451 and 1984. It’s also not a hard stretch to see transcripts of what is said in a home end up on the dark web for sale so that anybody can buy our private conversations for a price. And in the business world it’s not hard to envision hacking into office devices as the ultimate form of corporate espionage – to catch those things that are said but are not put into writing.

Probably the worst thing about this technology appearing in toys is that it was put in half-baked with no real thought about security. The Electronic Privacy Information Center (EPIC) has brought a complaint about these toys to the Federal Trade Commission and asked that they be recalled, and that no future toys be allowed with the technology until there are some basic safety requirements defined for the industry. For example, EPIC showed that these toys can be easily hacked and that hackers are able to both listen to everything said within 50 feet of one of the toys, but worse, they are able to hold a conversation with kids through the toy. This opens up the scary scenario of child molesters talking directly to kids through the guise of a supposedly “safe” toy.

The company behind the technology in the toys is Nuance. Their response to the issue is not assuring. They said that they do not sell the recorded voice data to anybody. But there is no law to stop the company from changing this policy at any time. And in today’s world there can be no guarantee that the company won’t be hacked and piles of our conversations stolen by nefarious people.

This is a new technology and now is the time to craft some laws about its use. Today there are only a handful of companies deploying the technology. But now that Amazon and Google are making their AI functions available to others as a cloud-service, this technology will soon be built into huge range of devices. I know it sounds cool to change the settings on your washing machine by telling it how to wash the next load, but is it worth it if your washing machine also sends a recording of everything it hears everything to the cloud?

So we enter this Christmas season with another new technological worry. For the first time it might really be true that Santa is actually listening and he really will know if you’ve beene naughty or nice.

How Important are Data Upload Speeds?

cheetah-993774I’ve recently seen that the cable industry is working towards a solution that will provide what they call “full-duplex,” or, what the rest of the industry calls, “symmetrical” data speeds. Currently cable networks are capable of download speeds of up to a gigabit, but the technology supports relatively tiny upload speeds.

It looks like the solution for full-duplex won’t be cheap. Cisco says that their solution will require having additional fiber to the last active component in the network, which either means more fiber to nodes, or in some cases even past the nodes. It’s also going to require setting aside a few more empty channels from the cable network unless the duplex operates by cannibalizing the downstream data.

This raises the question of how important upload speeds are. Are they important enough for big cable companies to implement an expensive network upgrade? Already today cable companies have built (or plan to build) fiber to larger businesses or to sizable business communities. The DOCSIS cable networks have been unacceptable for business broadband for many years, except perhaps to smaller businesses that use the web in ways similar to home users. Most of the large cable companies have also begun building fiber to greenfield communities rather than extend their coaxial network.

But there is no doubt that upload speeds are vital to businesses. There are huge numbers of businesses served with cable modems today that would benefit from faster upload speeds. The case for symmetrical residential speeds is harder to make.

There are only a few types of residential customers that need fast upload speeds. One is gamers. They don’t necessarily need superfast speeds, but everything I read shows that they love speeds somewhere between 25 – 50 Mbps. There are also lots of folks that work from home that need faster broadband. For example, I know several photographers who send out massive files of pictures and videos to customers and who struggle if they are on slow upload broadband.

In my work I sometimes send fairly large files and attachments. And yet, except for those few times when somebody is on the phone waiting for the files while we talk, I’ve never much cared if it takes a little longer to send files. I’ve always figured that’s how most people feel. One of the services we offer at CCG is conducting consumer surveys and I’ve never reviewed a survey that showed a big consumer demand for fast upload speeds – most survey respondents say that it doesn’t matter.

Many of you probably suppose that once somebody buys fiber broadband that they get blazingly fast upload speeds. But when I look at my small clients that is not the case. I would guess – without sitting and counting –  that 60% to 70% of my clients with fiber networks do not offer symmetrical data speeds.

But there is obviously a lot of marketing advantage in offering symmetrical speeds. Verizon FiOS converted all of their products to symmetrical speeds late in 2014. CenturyLink built fiber past a million homes this year and is offering symmetrical data speeds. And of course, Google Fiber made the huge splash a few years ago by offering a symmetrical gigabit product for $70. The first symmetrical data products I can remember were from municipal providers like the ones in Chattanooga and Lafayette.

It will be interesting to watch to see if the cable industry decides to implement full-duplex. By doing so they might be able to wipe out the perceived advantage that fiber has in the marketplace today. I would think today that a lot of consumers would view a 100/100 Mbps product as superior to a 100/25 Mbps product even if they never use the upload capabilities. And perhaps it is that marketing perception that most matters, and maybe that is what will drive the cable companies to make the investment, at least in the markets where they have competition.

Why is my WiFi Slow?

Wi-FiOne of the universal complaints in the broadband world is that WiFi networks operate poorly. So today I thought I’d talk a bit about how WiFi functions. I think it’s probably different than what most people expect.

Most people know that there are two frequencies used for WiFi today – 2.4 GHz and 5 GHz. The 2.4 GHz band covers 80 megahertz of total bandwidth and is divided into 11 channels in the US. That may sound like a lot, but one 802.11 connection requires five consecutive channels. In practical terms this means that almost all WiFi gear in the US is preset to only offer channels 1, 6, and 11 and that means that only three non-overlapping transmissions can occur at the same time. The WiFi in Japan covers a wider spectrum footprint, up to channel 14, meaning they can use four non-overlapping signals simultaneously.

In practical use if you can see three or more WiFi networks you are experiencing interference, meaning that more than one network is trying to use the same channel at the same time. It is the nature of this interference that causes the most problems with WiFi performance. When two signals are both trying to use the same channel, the WiFi standard causes all competing devices to go quiet for a short period of time, and then both restart and try to grab an open channel. If the two signals continue to interfere with each other, the delay time between restarts increases exponentially in a phenomenon called backoff. As there are more and more collisions between competing networks, the backoff increases and the performance of all devices trying to use the spectrum decays. Your data is transmitted in short bursts each time you make a connection and before the restart cycle repeats.

If you’ve ever been in a hotel where you can see ten or more other WiFi signals, the reason for slow speeds is that there are huge conflicts between competing devices. People generally assume that the hotel has a poor Internet connection, but they could have a fast connection and the slo speeds are due to so many devices trying to connect simultaneously. Each WiFi device is rapidly turning on and off repeatedly trying to get open access to a channel. Your device will grab a channel for a short time and then get kicked off due to interference. Congestion has become so bad on the 2.4 GHz band that AT&T and Comcast no longer use 2.4 GHz for video or voice. Almost all smartphone makers no longer recommend using their smartphones at 2.4 GHz.

WiFi has improved dramatically with the introduction of the 5 GHz spectrum. In North America this spectrum swath has 24 non-overlapping channels. However, more than half of these channels are reserved for weather and military radar. However, this still provides a lot more potential paths to add to the three paths provided by the 2.4 GHz spectrum. Unfortunately the 5 GHz band shares the same WiFi characteristics as the 2.4 GHz spectrum and has the identical interference issues. But with more open channels there is still an increased chance of finding a free channel to use.

And interference between devices is not the only culprit of poor WiFi speeds. The network configuration can also contribute to poor performance. Some of the biggest sources of interference are range extenders or mesh networks that are used to try to get better signals. Range extenders listen to all WiFi transmissions and then retransmit them at a higher power level, and usually using a different channel. This creates even more WiFi signals in the intermediate environment competing for an open channel. When you can see your neighbor’s WiFi network, if they are using range extenders they might be always trying to use most of the available WiFi channels.

In a lot of the US we now also see a lot of public hotspots. For example, Comcast is in my neighborhood and I can walk and maintain a WiFi signal is most places from WiFi public signals that are transmitted from every Comcast home WiFi router. These public signals are always on, meaning that the WiFi router is using at least one channel at all times.

Probably the biggest new culprit for poor WiFi performance comes from our quest for greater speeds. The 802.11ac standard operates by merging together a lot of WiFi channels, and divides the whole WiFi spectrum into just two 160 MHz-wide channels. This means that only two devices using this 802.11ac can use up all of your home WiFi bandwidth. This standard was intended to be used to operate in short high-bandwidth bursts, but as people use this for gaming or watching 4K video the channels stay occupied all of the time.

Unfortunately the demands for WiFi are only increasing. The cellular carriers are still pestering the FCC to allow LTE-U, which would using WiFi to complete cellular calls. There are currently tests underway of the technology. We can also expect an increasing demand for WiFi from IoT devices. While most WiFi devices won’t use spectrum continuously, they still place demands on the channels and cause interference. There are also increasing use of devices that are always on, such as video surveillance cameras or smart home controllers like the Amazon Echo. A lot of experts look out five or ten years and expect WiFi to be unusable in a lot of places.

The FCC’s Latest Statistics on Internet Speeds

FCC_New_LogoThe FCC recently released their annual report that looks at the number of nationwide broadband customers and data speeds. As always, this is an interesting snapshot in time of where broadband is at in the US. The data is gathered from carriers on FCC Form 477 and captures connections that are at least 200 kbps in one direction, meaning it is leaving out dial-up and other extremely slow connections to the web. I would note that these numbers are self-reported by the carriers, meaning it represents the speeds that ISPs say they are delivering, which is not the same as what customers are actually receiving.

The statistics show that overall broadband connections continue to grow. Total landline connections grew from 97.8 M in 2014 to 102.2 M in 2015. Cellular data connection grew from 223.5 M to 253.0 M. Together that’s an annual growth rate of 11%, with cellular continuing to grow faster that landlines. The 102 M landline connections in 2015 includes 84 M residential and 18 M business connections.

The latest breakdown of download speeds delivered to households show that 4.9% have less than 3 Mbps, 15.4% have between 3-10 Mbps, 23.9% have between 10–25 Mbps, 39.9% have between 25-200 Mbps and 15.9% have over 100 Mbps. Again, these are carrier reported numbers which is most important at the lower end of the scale. My work in rural areas, for example, shows that a lot of households that are being sold 3 Mbps or 6 Mbps connections are often actually only getting slower speeds like 1 Mbps.

But the statistics show an increase of speeds over time. For example, the number of connections sold that are 100 Mbps or faster rose from 9.5 M in 2014 to 15.4 M. The number of connections between 25 Mbps and 100 Mbps grew from 34.0 M in 2014 to 39.3 M. And the slowest connections under 3 Mbps shrank from 8.1 M in 2014 to 5.8 M. The FCC bases nationwide performance on these numbers and they put out a proud press release when they estimated that more than 50% of households in the country had speeds greater than 25 Mbps, their definition of broadband.

The report also looks annually at the state of competition, which might be the most important statistic for households since we know that competition generally means lower prices. One interesting statistic is the number of census blocks that have 3 or more providers competing at various speeds. The statistics count all satellite providers as if they were one provider. The FCC shows that 78% of census blocks nationwide have at least three ISPs offering 3 Mbps. 66% of census blocks have 3 providers offering at least 10 Mbps. But the numbers drop drastically when looking at higher speeds and only 4% of census blocks have 3 or more providers offering 25 Mbps  or faster. Less than 1% of census blocks have three providers offering 100 Mbps or higher – and that has to be a handful of places like Kansas City or Austin TX.

At the other end of the scale, 29% of all census blocks don’t have any ISPs offering 25 Mbps or faster. And a gigantic 53% of all census blocks have no ISP offering 100 Mbps or faster.

The report also looks at landline broadband by technology. The number of households by technology are: 59.7 M on cable modem, 28.2 M on DSL, 10.5 M on fiber, 2.1 M on satellite and 1.0 M on fixed wireless. The fiber number is up 1.3 M since 2014. I was surprised by the DSL number since the FCC shows DSL connections dropping only 400,000 since 2014. Other industry sources show DSL is bleeding customers.

The final FCC statistic tracked is the number of ISPs offering the various technologies. There are 958 providers of DSL, 390 cable companies, 984 FTTP providers, 969 fixed wireless providers, 11 satellite providers, and 97 cellular companies. It should be noted that some companies operate more than one kind of network.

Please Stop Hinting at Gigabit Cellular

SONY DSCLast week there were several press releases announcing that AT&T was working with a major corporation to provide a test of 5G technology. A few days later the industry found out that the company taking part in the test is Intel, which will be making the chips involved in the tests. Intel will apparently be beta testing early units for providing high-speed bandwidth at one of their locations.

It really bothers me every time I see one of these announcements, because the whole industry seems to have bought into the hype from companies like AT&T that conflate two totally different technologies under the name of 5G. The AT&T and Intel test is going to be for a technology to provide faster indoor wireless connections using millimeter wave spectrum in competition with WiFi.

But most of the world sees the term ‘5G’ and assumes it means the next generation of cellular technology. And that means that most people reading about the AT&T press release think that we are just a few years away from having gigabit cell phones. And we are not.

I don’t know who decided to use the term 5G for two drastically different technologies. My guess is that the confusion has been purposefully sown by AT&T and Verizon. Certainly the average consumer is more likely to pay attention if they think their cell phones will soon be blazingly fast.

But this kind of confusion has real life negative consequences. Politicians and decision makers read these articles and assume that there is a fast cellular alternative coming in a few years – and this allows them to take the issue of faster landline broadband off the plate. It’s not a hard mistake to make and I’ve even seen this same confusion from smaller telco and cable company owners who see the headlines but don’t dig deeper. I assume one reason this confusion is being promoted is that both AT&T and Verizon benefit if fewer companies are investing in fiber last-mile networks to compete with them.

The millimeter wave technology that Intel is going to alpha test is to provide gigabit speed wireless connections for very short distances. It’s a technology that can distribute gigabit speed connections around an office suite, for example. The gigabit speeds are good for about 60 feet from a transmitter which fits the indoor environment and desire for speed. But even in that environment the technology has a major limitation in that these frequencies won’t pass through almost anything. Even a wall or possibly even a cubicle divider can kill the signal. And so these early tests are probably to find the best way to scatter the bandwidth around the office to reach all the nooks and crannies found in the real world.

This technology is being called 5G because the technology will use the 5G standard, even though that standard is not yet developed. But we already know that the 5G standard will have one major benefit over WiFi. WiFi is a bandwidth sharing protocol which gives equal preference to every transmission. If one WiFi device in an office is demanding a large amount of bandwidth and another data-hungry device comes online the protocol automatically shares the bandwidth between the two devices. 5G will allow the router to guarantee the bandwidth at different levels to each device without sharing.

But this millimeter wave trial at Intel has almost nothing else in common with cellular data transmissions other than the fact that they use the same standard. Cellular networks use much lower frequencies which have been chosen because they travel a decent distance from a cell tower, and for the most part cellular frequencies are good at penetrating walls and trees and other obstacles.

Cellular networks are not going to use millimeter wave frequencies to get to cellphones. To make that work would require mini-cell sites of some sort every hundred feet or so. That can be made to work, but really is a totally impractical application in the real world unless we someday find a way to put little cell sites literally everywhere. Using these frequencies for cellular would be a niche application that might only work in a place like a conference center and the cellphone companies are not going to automatically build this technology into cellphones. It takes chip space, extra power and new antennae to add another frequency and nobody is going to add that extra cost to a cellphone until most of the world can use it – and that literally could take many decades, if ever.

Instead, the 5G standard will be used in cellphones to improve data speeds – but not at anything near to gigabit speeds. The early versions of the 5G specification have a goal of being able to deliver 50 Mbps data speeds to large numbers of phones out of a cell site. That’s a 4 – 5 times increase in cellular speeds from today and is going to make it a lot more enjoyable to browse the web from a cellphone. But 50 Mbps is very different than gigabit cellular speeds. The big companies really need have to stop implying there is going to be gigabit cellular. That is extremely misleading and is very far from the truth.

OTT is Not Easy on the Consumer

Fatty_watching_himself_on_TVThis article compares the channel line-ups for Sling TV, DirecTV Now and Playstation Vue.  I think it provides the best demonstration I’ve seen yet of how confusing it’s going to be for consumers to choose an OTT option.

The process of choosing an OTT provider is only going to get harder in the future as additional OTT providers enter the market. In the coming year we are going to be seeing Google / YouTube with a similar on-line option. Hulu has announced that they will soon be launching a live-streaming alternative. There is a strong rumor that Amazon is considering an OTT option and has already announced they are pursuing live sports. And various articles I’ve read hint at a few more new OTT providers in 2017.

Comparing OTT channel line-ups is a lot more work than comparing the line-ups of your cable company vs. one of the satellite providers. While satellite providers aren’t required to maintain the same rigidly-defined line-ups as the cable companies, the two sets of line-ups are still reasonably comparable.

Cable company line-ups are defined by the FCC cable rules that require a basic and expanded basic line-up. Contracts between cable companies and programmers has led to uniformity and there are not major difference between cable companies. Cable companies are free to offer additional premium tiers and packages, but even those are largely the same between cable companies. The satellite providers know that their basic package is competing against the expanded basic line-up, so they include roughly the same channels in their 50 – 75 channel packages as the cable companies.

The OTT companies have a different set of challenges. The programmers are not required to sell them any content, and so the OTT companies must negotiate with each programmer individually. These have to be interesting negotiations because the OTT providers want to put together the skinniest bundles they can get while still offering what consumers want. They are then free to bundle channels in any way that the programmer contracts will allow. Since each OTT providers negotiates a unique arrangement with programmers there are going to be major differences between the line-ups from different OTT providers.

The programmers, however, either want to sell multiple channels or else they want a revenue stream that insures them of some decent profits. Programmers understand the math, which is that they are losing money for every customer that moves from traditional TV to a smaller OTT offering. This puts them into an awkward position. It’s obvious that the cord cutting phenomenon is gaining momentum. But if the programmers help to create really attractive OTT packages they are then helping to accelerate cord cutting for consumers.

As I’ve written before, many of the programmers are able to tolerate the growth of OTT since they are selling a lot more new content overseas than they are losing to cord cutting. Many of them acknowledge that there are cable channels that only exist because of the monopoly the handful of programmers have over the industry. They know that the cord cutting phenomenon is going to mean the death of less popular cable networks.

But back to consumers. You can see in the comparison in the link I posted above that between the first three major OTT providers it’s not easy to even visualize what you get in the various packages. The options between the three providers are significantly different, and all of these options have some glaring holes from programmers that have not yet allowed their content into these OTT bundles. It’s hard to imagine how complex this comparison is going to be with 3 – 6 more options by the end of 2017. I think a lot of consumers are going to come to web sites like this and be intimidated by the choices and will delay cutting the cord.

It’s likely that over time the various OTT providers will find niches in the market. Certainly if they all end up with the identical sets of channels there won’t be a lot of difference between them. But I would expect the ones that will be successful in the long-run will find a demographic niche that will give them an advantage. But for now their line-ups are a messy hodgepodge since they are cobbling together line-ups from the channels that they are able to acquire. This is going to make for a number of confusing products for the first few years of this new industry until they all figure it out.

The New Telecom Infrastructure Plan

eyeballI’ve been reading everything I can find about the next administration’s plans for investing in infrastructure. It looks like the heart of any plan is going to be tax incentives to lure private money to invest. It’s likely that telecom infrastructure will fall under the broader infrastructure plan unless Congress gets involved and pushes for direct government investment in broadband. There are rural members of Congress from both parties asking for a rural broadband funding plan separate from other infrastructure spending, but it’s too early to know if that has any legs.

So, how might tax incentives benefit the construction of more broadband networks? One benefit of such a plan is that it might attract back a lot of the money that US corporations have been hoarding overseas to avoid US taxes. If the tax credits are good enough, corporations like Apple might pull some of that money back into the country – and such money would have to be invested in infrastructure. Tax credits also ought to make it more lucrative for pension funds, insurance companies, and wealthy investors to invest in infrastructure.

But there is one feature of private investment that is not going to change due to tax credits – private investors are still going to want decent returns on any investment. That means that the private money is a lot more likely to chase infrastructure projects with guaranteed decent returns like water systems, toll bridges or electric grids. And it means that new private money is not likely to pursue infrastructure that has no return or a low return such as freeway overpasses, public transit or city streets.

Investing in fiber infrastructure lies in between these two extremes along with other infrastructure like toll roads. These kinds of infrastructure have the potential to make a decent return, but are not guaranteed to do so. And worse, infrastructure like fiber networks and toll roads can lose money for an investor.

It is the perceived risk that has kept private money from investing in fiber today. Investment in fiber in the last few years has come from several sources. First is from telcos that can mortgage their existing equity to finance fiber. This ranges from numerous small independent telephone companies up through CenturyLink and AT&T. There is also some municipal bond money being used to build fiber – and bonds are viable since they are generally supported by tax revenues in case of poor performance of the fiber asset. But there has only been a little more than a hundred projects financed with bonds over the last decade, and most of them are in relatively small towns. There has been some private money invested in fiber, such as has been done by Google, but that has also been relatively small on a nationwide scale.

It is no sure thing that a tax credit will be sufficient to lure private money to invest in fiber. A tax credit cannot reduce the risk or offset the possibility that the investor could lose their investment if the project doesn’t perform. A tax credit does not change underlying fundamentals of an investment – it instead adds icing on the cake for projects that already look relatively safe.

We have some history with tax credits and telecom. For example, there was an investment tax credit program for investing in telecom networks in the 1960s. The purpose for that particular program was to promote construction to stimulate job growth. Since that was long before competitive telephony, the credits went entirely to the incumbent telephone companies. But the ugly truth is that these tax credits did not induce much new investment. Instead, telephone companies took the credits for network expansions they were already planning to build.

My best guess is that new tax credits are not going to do much better for fiber this time. Companies that are already investing in fiber networks like CenturyLink will likely gain great benefits from claiming tax credits for their already-planned expansions. It is possible that tax credits might even induce somebody like CenturyLink to accelerate construction to take advantage of the tax credits, but it’s unlikely to lure them to build somewhere they weren’t already planning to build.

But tax credits are not likely to lure other big ISPs like Verizon or AT&T to build new fiber. Those companies already have sizable annual capital budgets and they will probably work hard to classify as much of that infrastructure as possible to qualify for the tax credits. But they are unlikely to build fiber to any homes or businesses that weren’t going to get fiber anyway.

And tax credits are unlikely to change the ability of smaller fiber builders to raise money. By definition, competitive overbuilding is a risky business from the perspective of an investor. Private investors like safety, and that means avoiding companies that don’t have a strong balance sheet. This means that private money is rarely available to small ISPs. Finally, I don’t see tax credits changing the financial picture for very many rural fiber projects. The vast majority of fiber projects that aren’t easy to finance today are not going to be made significantly more viable with tax credits.

I may be proven wrong, but I’ve spent the last decade working to finance fiber projects. And I can’t see tax credits changing the underlying risks of investing in fiber to the point where it will attract huge amounts of new money. There will be some new money attracted to fiber investments – but only for projects that have a relatively safe return such as fiber to cell towers or undersea cables. It’s already difficult to attract bank and investor money to last-mile fiber and I just don’t see tax credits fundamentally changing that.