Author Archives: Doug Dawson, CCG Consulting

What’s the Case for Home IoT?

Goneywell LyricSome of the biggest names in tech have invested heavily into the Internet of Things for the home. But when I look around the marketplace and among people I know, almost nobody is yet using any of this technology. In fact, several recent polls have shown that over half of the people in the country haven’t yet even heard of IoT. This leads me to ask if there is yet a business case for home IoT.

The initial promise of home IoT is that it will make our life easier. The picture painted by the industry is one of having scores of smart devices in the home that all act in harmony to make daily life easier. I’m a huge fan of Star Trek and I look at their future with automatic doors and lights, background music, holodecks, and food replicators and I get it – and I want it.

But the IoT devices on the market today are still a long way away from that Star Trek future. The reality of the situation is that this is an industry that so far only caters to geeks and hobbyists. Today the technology involves buying some sort of central console and then connecting all of your devices to the hub. That alone looks like a lot of work. There are also no standards in the industry and each of the many hubs is proprietary, so you have to worry if a new device you buy will even work with the hub you selected.

Samsung has taken perhaps the first step to pull this all together. They bought a startup called SmartThings that has developed a hub that is controlled entirely by smartphone. Samsung is then developing their whole suite of products to work with this hub.

But I don’t think even the Samsung solution is going to make much of a difference. Just consider smart lights as an example. My house easily has fifty light bulbs, maybe more. Upgrading them all to smart lights sounds extravagantly expensive. And then I am imagining trying to use the smartphone to control my lights. In the time I could fish through a menu and find the right lights to adjust I could have just changed them manually and gone on to do what I was doing. The smartphone idea certainly provides a central way to control everything, but has it really made life easier than today? Unless this works a whole lot easier than I imagine it, what I’ve done is to create a new chore for myself whenever I want to do something simple like dim a light. Unless I’m bedridden, the manual way still requires less effort than a smartphone.

And that is the big catch right now for the industry. They are coming out with devices that do all sorts of neat things, but they have not made life easier. Consider energy management. Programmable thermostats have been around for years and it’s been relatively easy to lower the heat while you sleep or to tone back the air conditioning when you are away at work. The newer smart thermostats go a step farther and help you understand your electric usage in detail so that you can save even more money than with a programmable thermostat. But in doing so they have not made life easier, they have instead created a new monthly chore, which is to interpret the data coming out of the energy monitoring system and then make changes in the way you use electricity. My electric bill is pretty affordable, and so I might be doing all of this new effort to save $20–40 dollars per month. That is certainly a good thing, and it’s probably the right social thing to do, but it is not compelling enough for me to add a new task into my already busy life.

I am guessing that home IoT isn’t going to really go very far until the whole system is smart, like in Star Trek. When I can sit in a room and say, “Dim lights” and it happens, then we are starting to get somewhere. When I can tell my house to play a certain piece of music and then have that music follow me around from room to room, then we are getting somewhere. That sounds like something that almost everybody is going to want, assuming it’s affordable, and assuming it doesn’t take too much effort to set it up and to make work.

That day will come. It’s going to require both better language interfaces that always understand me (something that is improving rapidly) as well as a computer assistant that is smart enough to know what I want and to be able to turn my wishes into real world events. And that is going to take smarter and more powerful computers, something that is also coming soon.

But until then I can’t make a case for home IoT in my own home. I’ve considered a smart security system and video monitoring, and that is likely to be the first thing I might buy. But most of the other things on the market seem to be more work than the satisfaction they will produce. Until that equation flips I am not yet sold, and I don’t think I am unusual in this.

Expect Higher Data Prices

Numismatics_and_Notaphily_iconThe US already has some of the highest Internet prices among developed nation. This is due largely to the lack of competition in most markets, meaning that there is no downward price pressure. Brian Fung of the Washington Post reported on a recent congressional hearing where Craig Moffett, a well-known market analyst, said that prices for Internet access are likely to climb in the future.

Moffett’s reasoning is that cable companies, who have most of the data customers in the country, are losing cable customers (or are running out of the ability to continually raise cable rates), and so they are going to have little option but to raise data rates.

The large cable companies, who together control the majority of the data customers in the country, are mostly publicly traded companies (except for Cox) and they are very much driven by the need to have profits climb quarter over quarter, year over year.

For many years the revenues and the profits of the large cable companies have been driven by two phenomena—the quickly growing data market and continual large cable rate increases. While data customer penetration rates are still growing, the rate of growth has slowed down and the vast majority of homes that want and can afford high speed Internet access already have it. And so the cable companies are no longer going to see the steady boosts to their bottom line that comes from double digit growth in very high margin data customers.

The cable companies have also been living off cable rate increases. They loudly blame cable rate increases on increases in programming costs. But the truth is that they have almost always raised cable rates more than what was needed to just cover higher programming costs, and so each rate increase added to the margins from cable and went straight to the bottom line.

But we are now seeing what I call consumer rate fatigue with cable rates. As cable keeps getting more expensive we are going to see more cord cutters, and even more cord shavers. Cable rates have climbed to the point where the cable companies should now hesitate when thinking of raising rates more than needed to cover cost increases. One only has to do the math to see that raising cable rates only 7% per year will increase an $80 monthly bill to over $100 per month in only four short years. The math is finally catching up to the cable industry, and at a time when there are finally online alternatives appearing for content.

Without those two historic bottom line drivers the cable companies are left with having to raise data rates if they want to grow profits to meet investor expectations. The cable companies are all dabbling with new revenue streams such as home power management, security systems, WiFi phones, and other new products. But these new products don’t have the same kinds of high margins as Internet data, nor is it likely that cable companies will sell enough of these new products to make a real bottom line difference.

The industry has been somewhat spoiled for the last couple decades due to having the powerful triple play bundle of voice, video, and data. While the margins on video aren’t great, the other two products have extremely high margins. The bundles have allowed the cable companies to have relatively high penetration rates of all three services. But nobody expects the new products to do nearly as well as the triple play services. Rather than having a few products with very high penetration rates, the cable companies are likely to end up with a product portfolio containing numerous products, each with a relatively small 5–10% penetration. That is going to make them into very different companies than today.

And so expect to start seeing data rates raised every year. This has already begun with the base rates for many cable companies and the large telcos like Verizon. I would expect the rate increases to be small at first but to climb over time to feed the bottom line expectations.

This is all counterintuitive. Most of my clients have 70–80% margins on Internet service today and it’s probably higher than that for the large cable companies. It takes some chutzpah to raise the rates on a product that is already that profitable. But I completely agree with Moffett and I think this is inevitable that data prices will rise, considering the lack of competition in most of our markets.

The Urban / Rural Gap

Seattle-SkylineI have written a lot about the urban/rural broadband gap. I work with a lot of rural communities that have either no broadband or connectivity so slow it shouldn’t count as broadband. In today’s world it’s nearly as frustrating to be stuck with a 1 Mbps Internet connection as it is to have no connection.

But in the last two weeks I have spent time in places like Philadelphia and Seattle/Tacoma and it strikes me that there are now a huge number of ‘gaps’ between urban places and the rest of the US. People in those urban places have opportunities that the rest of us don’t have. The tech press is full of news about various new start-ups, and a lot of these new businesses only do business in big cities. I suspect that people who haven’t recently spent time in downtown cities don’t realize how fast life there is changing.

So what kind of gaps am I talking about? Here are some examples, though you can find plenty more:

  • Wireless Coverage. There is a huge gap between the quality of cellular data in cities and the rest of the country. I routinely visit suburban and rural places where you still have to hunt for a signal. In the early days of cellular this was common everywhere and it used to be comical to watch people roving around airports trying to catch a bar of service. But this problem has largely been solved in urban areas. Now most urban places not only have good coverage, but there is usually good 4G coverage almost everywhere. This means that people in cities can use apps that don’t work well, or at all, in places with worse coverage. But even in urban areas there are holes in the coverage. For example, I talk to a friend in DC who loses voice coverage every time he drives across one of the Potomac bridges. But overall, the cellular experience in urban areas is far superior to the coverage in the rest of the country.
  • Sharing Economy. While the sharing economy is booming in urban areas, it’s harder to find anywhere else. The concept of sharing resources is applied to many services people need in cities. Cities have Uber and Lyft which makes it a lot easier to get around without a car. But if somebody in a city wants a car there are numerous vehicle sharing services like Zipcar and Car2Go where you can conveniently share a fleet of cars with others and use one whenever you need it. You can also walk up and grab a shared bicycle using Spinlister or other bike sharing services.
  • Delivery of Basic Services. It’s now possible to get almost anything delivered to you on demand if you live in a city. I live in an upscale small town in Florida and our only food delivery is a few pizza places. But in cities there are delivery services that will bring you food from almost every restaurant. People in cities now routinely shop for groceries online and have them delivered. And almost anything else you can imagine can be routinely and affordably delivered in a city.
  • Instant Shipping. There has been a lot of press in the last few years about Amazon and other delivery services offering same day, or even just a few hour, shipping. But these speedy services are only available in cities.
  • Ubiquitous WiFi. It is getting to the point in cities where you can walk around and find WiFi almost everywhere. It’s still a hassle at times to keep logging into new networks, but that is going to be fixed soon with the widespread deployment of Hotspot 2.0. Free WiFi allows people in cities to stay connected cheaply everywhere, which is a huge contrast with the rest of the country where there might be WiFi in a few restaurants and other places, but otherwise public WiFi is a rarity.

There have always been differences between living in a city versus living other places. But the proliferation of these better services in the cities is widening the gap much more than in the past. Years ago I lived in downtown cities like Dallas, St. Louis, and San Francisco and the differences were not nearly as great as they are today. Cities have always been noisier and more crowded and hard places to own a vehicle. Of course there has always been the added benefits of the accessibility of a lot of choices for food, entertainment, and culture. But overall it wasn’t all that different living in a city and you didn’t experience a huge change in lifestyle when you went outside the city.

But the proliferation of easy-to-use services, largely fueled by the Internet, is making city life very different than what the rest of us experience. One can imagine people being raised in the city who are going to feel like life elsewhere in the US is an alien experience. And these differences are going to grow greater as cities get even more services that are enabled by ubiquitous bandwidth and that also benefit by the economy of scale of large places. For many years it’s been common for young professionals to take jobs in big cities and then move out to the suburbs when they have kids and a family. But people that get used to the amazing service economy in cities might find that transition harder to accept than in the past.

Is There a Business Case for Free WiFi?

Wi-FiLately I have seen numerous press releases about free WiFi networks in various cities. I can certainly understand why a City would want to provide free WiFi if it can afford it since there are numerous benefits to citizens from having ubiquitous WiFi. But most of these press releases talk about having private companies supply the WiFi. And that makes me ask the question: is there a business case to be made for providing free WiFi?

Probably the most talked about recent example is where Google agreed to retrofit the numerous abandoned payphone booths in New York City into free outdoor WiFi hotspots. But Google is different than anybody else who would do this and perhaps they will gather enough data through these various free connections and sell enough advertising to make this pay for itself. I suspect that even for them this won’t be profitable, but I can grant them the benefit of the doubt and perhaps for them this will work financially.

But it’s hard to see the case for other private providers. For instance, in Pittsburgh a start-up, Meta Mesh, is hoping to bring free WiFi throughout the city. Their business plan hopes to get funded by grants from Google and the Braddock Community Development Corp. They will then place commercial mesh routers throughout the city and hope that households and businesses will agree to add their WiFi connections to the larger mesh.

This again sounds like something beneficial for the city in that it will provide WiFi to those who can’t afford it. But it doesn’t seem like much of a permanent business plan. Grant funding is notoriously unreliable and while they may raise the money to get this going, it’s quite a challenge to keep getting grants year after year to keep it going. If they hit one dry spell in raising money the project probably dies. And to a large extent they are not really deploying WiFi but are instead counting on homes and businesses to agree to share their bandwidth with others.

I hope what I wrote doesn’t sound like I am belittling the project, because it will provide great community benefits if it works. My question is rather to ask if this is a permanent business model that can be sustained and copied elsewhere. These kinds of efforts are usually local and very much depend upon a few key people to make them work and to keep them working. With no reliable customer-based revenue stream it’s really hard to maintain something that is being done for altruistic rather than monetary purposes.

Another similar project is the solar-powered trash cans that will provide WiFi in lower Manhattan. These are also being provided by a non-profit company in conjunction with a trash removal company and are funded through grants from the city and others.

These efforts show that a city might be able to get WiFi started through a non-profit. But time is going to tell if this is sustainable. I can remember numerous similar WiFi projects that were started over the years and I think each of them eventually fizzled out.

Cities can certainly provide WiFi directly as a municipally-funded community benefit. Wikipedia lists 57 US cities that currently provide some sort of public WiFi. I am familiar with many of the cities on the list. In some cases they only provide WiFi in and around city buildings like City Hall or perhaps also in their local airport. And there are many other cities that provide WiFi that are not on this list. I also know that many of these cities deployed WiFi many years ago, and the speeds available with the older WiFi technology probably means that they offer speeds in the range of a few Mbps. That was a great speed when it was launched but is woefully inadequate today.

And that is my real concern. WiFi, like most technologies, is rapidly changing and anything deployed in the past is obsolete today, and anything deployed today will soon be obsolete once HotSpot 2.0 is perfected and as soon as MIMO antennas get better. Deploying an alternate bandwidth source for a community is going to require constant upgrades to make WiFi keep up with public expectations. And upgrades are expensive and it’s hard to maintain an adequate network in a world where the amount of data that people and households use doubles approximately every three years.

I wish all of these ventures good luck and I hope they can make it work. And I hope that more cities expand their free WiFi because it can be a huge benefit to those who can’t otherwise get bandwidth. But I have yet to see a sustainable financial model, other than perhaps a direct tax subsidy that can both pay for the initial WiFi deployment and then keep up with the needed upgrades to keep it relevant.

Shorts for July

HTC-Incredible-S-SmartphoneToday I am going to look at a few short topics that I found of industry interest.

Comcast Ordered to Identify Commenter. The Illinois Supreme Court ordered Comcast to disclose the identity of a subscriber who was identified in a defamation suit. That is of interest both to people who make comments on the Internet as well as to ISPs.

The particulars in the case are that an anonymous poster compared Bill Hadley, who was running for a county Board seat, to Jerry Sandusky, who is convicted of child molestation. Hadley has persisted in seeking the identity of the poster through several layers of state courts.

The order is an interesting precedent because if it holds then it means that people cannot hide behind avatars and imaginary names and that they can be held responsible for what they say on the Internet. So Internet trolls, beware. But it also puts ISPs in an awkward position. Your customers want to believe that you will protect their identity and if ISPs have to routinely turn over these kinds of records it will be one more reason for people to not trust their ISP.

Computers Don’t Get Sarcasm. There are companies doing data analytics on comments left on websites like Twitter and Facebook to get an indication about how the country feels about topics in the news. One thing they have discovered is that they are unable to get their computers to understand sarcasm.

This matters because they try to classify what people say on a given topic as positive or negative, and they regularly misclassify sarcastic comments. This is not surprising since the primary purpose of sarcasm is to say a thing one way but mean just the opposite. This has implications beyond big data, because as we move towards having digital assistants that are more sophisticated than Siri, they will have to understand the way we really talk, including the ability to recognize sarcasm. I can picture numerous bad consequences arising from having a smart car, for example, misunderstand a direction because it doesn’t recognize when someone is being sarcastic.

Cell Phones Can Enable Stalking. Both Microsoft and Apple phones will soon have the ability for people to track the locations of others. Apple has had an app for a while called Find My Friends and now Microsoft has developed an app called People Sense. Both of these apps let you follow friends across a map to see their location and soon will get more sophisticated and let you initiate communication with people just by touching their dot on the map.

I can understand why some people find this of use and this could be a good way to keep track of your teenagers. But I find these applications disturbing for several reasons. First, it means that it will be even easier for your cell phone provider to keep tabs on where you go. I am further disturbed by the lack of privacy and wonder if people are ever going to have real privacy in the future as these kinds of apps become widespread. Finally, I can imagine hackers sneaking these applications onto phones and then stalking somebody in real time. I know that this is the sort of things that smartphones can be good at, but that doesn’t mean that it’s a good idea.

Court Rules that Butt-Dials are Not Private. Almost everybody with a smartphone has butt-dialed a call from time to time. I have one business associate that seems to butt-dial me fairly often. Good etiquette is to hang up on a call when somebody butt-dials you and not listen to what is happening at the other end.

But the Sixth Circuit Court of Appeals just ruled that people have a right to listen to a call made in this manner. The case in question involved a person who butt-dialed somebody and then talked for 90 minutes about firing the boss of the person who was called. The person who received the call recorded part of the call.

The court rejected the argument that the person who made the accidental call had any expectation of privacy. Instead, the court said that it’s up to people to implement apps, lock their phones, or in some other way make sure that they don’t make such calls.

This is obviously an important lesson for anybody. Before you have a conversation about anything sensitive you ought to check to make certain your phone isn’t broadcasting your conversation.

 

What is 5G?

Cell-TowerThe International Telecommunications Union (ITU) has created an official plan to bring 5G data to the market by 2020. So what is 5G and how does it differ from 4G? The goal of 5G is to increase the data capacity of cell sites, reduce latency, and increase the distance that can be served from a cell site. The goal of 5G is to build a wireless data path with built-in intelligence that can maximize the data delivery to a given handset or device. There is no specific bandwidth goal in the 5G plan, but it’s assumed to be a lot faster than today’s 4G networks.

But there are a lot of challenges to overcome to get to that future vision. Delivering more bandwidth is going to require more spectrum. Every slice of spectrum in use has limitations imposed by physics, and since today’s spectrum is already stressed, achieving 5G will mean adding more bands of spectrum into the cellular network.

It looks like the ITU is depending upon using both existing WiFi spectrum as well as a lot of higher frequencies that are not in use today. I’ve recently written about the wireless industry’s hope of poaching existing WiFi spectrum and I hope the FCC stops that attempt in its tracks. If 5G is ever allowed to use WiFi then that spectrum will quickly become a cellular spectrum that won’t be useful for anything else.

There is a lot of development work to be done to use higher frequencies, particularly for handsets. The higher the frequency used, the bigger the challenge to hold a connection with a non-fixed receiver like a handset. Even if they solve these issues, the higher frequencies they are considering, by definition, travel very short distances, and so the higher frequency portion of 5G will only benefit those very close to a cell site. This might be a great solution inside of a convention center, but not so much in the outside world.

What all of this means is that a 5G network is going to require a lot more cell sites packed closer together than today’s network. That has a lot of implications. First, it means a lot more investment in towers or in mini-cell sites of some type. But it also means a lot more fiber to feed the new cell sites. And those two factors together mean that any 5G solution is likely to be an urban solution only, or a suburban solution only for those places where a lot of users are packed tightly together. No wireless company is going to invest in a lot more 5G towers and fiber to cover suburban housing sprawl and certainly nobody will invest in the technology in rural areas.

We already have a cellular wireless divide today with urban areas getting pretty decent 4G and rural areas with 3G and even some 2G. Expect that gulf to become greater as high-bandwidth technologies come into play. This is the big catch-22 of wireless. Rural jurisdictions have always been told to wait a while and not clamor for fiber because there will eventually be a great wireless solution for them. But nobody is going to invest in rural 5G any more than they have invested in rural fiber. So even if 5G is made to work, it’s not going to bring a wireless solution to anywhere outside of cities.

I’ve read a number of technologists who are skeptical about the targeted 2020 date for 5G, but it’s the nature of progress to set aggressive goals in order to goad improvement. But when you look at all of the issues that must resolved to implement 5G, 2020 looks unrealistic.

Instead, what is likely to happen is that the carriers will implement some pieces of 5G over time as each technological challenge is solved. This means we are likely to see a whole series of incremental upgrades over the next decade rather than one big flash-cut to a faster data network. This will provide numerous marketing opportunities and I would expect that by the time that the ITU’s version of 5G is fully implemented we will be calling it 10G. After all, we are still a long way from meeting the original specification for 4G, which was to implement 100 Mbps data speeds for a moving user in a car and 1 Gbps for a stationary user. Even the planned 5G isn’t going to do that.

Is the Internet a Necessity?

The InternetIn a speech recently made by FCC Commissioner Michael O’Rielly, he said that the Internet was “not a necessity in the day-to-day lives of Americans.” That’s a rather startling statement from somebody who seemingly has the job of making sure that the country has adequate broadband to meet its needs. But if we look at his statements in context, it raises some important policy issues that are worth public discussion.

O’Rielly made the comment as a counterargument to the spreading concept that access to the Internet has become a necessity, perhaps even a right. It’s also widely expressed today that broadband is now a utility, much like electricity and water.

It’s an interesting discussion. Several surveys in the last few years show that a significant majority of households rank Internet access as the most important service purchased at their homes. I certainly know that my daughter and all of her 16-year old friends would ‘die’ without the Internet and it seems like the younger you are, the more the Internet is an important component of daily life.

But O’Rielly’s comment was really a political and policy statement. There are certainly a lot of implications for governments if the country adopts the idea that having Internet access is a right. For instance, that would put a lot more pressure to bring Internet access to the places that don’t yet have it and to work hard to close the gap in the quality of the Internet between urban and rural places.

But it seems to me that the FCC has largely already bought into the argument that the Internet is a necessity. They are pouring billions of dollars into improving rural broadband. They are going to subsidize broadband access to low income households. They have adopted net neutrality as a policy which, to some degree, protects the ability of consumers to get what they pay for from an ISP. These all seem like the actions of an agency who thinks that everybody ought to have access to broadband.

FCC Commissioner Tom Wheeler responded to O’Rielly’s statement by saying that “broadband is the defining infrastructure of the 21st century. We should not and will not let up on our policies that make broadband more available.”

It’s obvious that Internet access is now a fundamental part of daily life for many people. I work from my home and I can’t imagine how I would function without it. Actually, I can imagine it, because after a hurricane and tornado hit me a few years ago I was without power and Internet access for 6 weeks. I basically regressed to what felt like the Stone Age. I essentially threw my hands up and gave up on work (and spent the time instead cleaning up the huge mess the storm left behind). I use the Internet almost continuously in making my living and as a society we have grown to a place where there is no realistic substitute for email and the ability to quickly exchange files and work products with others.

This is an issue that hundreds of municipalities are wrestling with. Communities look in envy at urban places that have great Internet bandwidth and they understand that if they don’t have adequate Internet in their community that they are liable to decline economically and fade away from relevance. Internet access is to cities today what the railroads were two centuries ago, and what electricity and Interstate highways were in the last century. Put into that context it starts feeling a lot like a necessity, at least at the community level.

I work with dozens of rural communities that have limited or no Internet access today. It’s heart-wrenching to hear people talk about trying to maintain a household of teenagers with only a cellular wireless plan or to hear parents lament that their kids can’t keep up in school without access to the Internet. For the vast majority of us who have Internet access it’s really hard to imagine going without.

I understand where Commissioner O’Rielly is coming from. He was formerly a Republican congressional aide and the Republicans feel generally that there are few ‘rights’ that the Federal government is obligated to recognize. But on this specific topic he might be on the wrong side of history, because my guess is that the vast majority of people in this country have grown to believe that having Internet access is a right and is something they cannot live without.

Can Cable Networks Deliver a Gigabit?

coax cablesTime Warner Cable recently promised the Los Angeles City Council that they could bring gigabit service to the city by 2016. This raises the question – can today’s cable networks deliver a gigabit?

The short answer is yes, they are soon going to be able to do that, but with a whole list of caveats. So let me look at the various issues involved:

  • DOCSIS 3.1: First, a cable company has to upgrade to DOCSIS 3.1. This is the latest technology from CableLabs that lets cable companies bond multiple channels together in a cable system to be able to deliver faster data speeds. This technology is just now hitting the market and so by next year cable companies are going to be able to have this implemented and tested.
  • Spare Channels: To get gigabit speeds, a cable system is going to need at least 20 empty channels on their network. Cable companies for years have been making digital upgrades in order to cram more channels into the existing channel slots. But they also have continued demands to carry more channels which then eats up channel slots. Further, they are looking at possibly having to carry some channels of 4K programming, which is a huge bandwidth eater. For networks without many spare channels it can be quite costly to free up this much empty space on the network. But many networks will have this many channels available now or in the near future.
  • New Cable Modems: DOCSIS 3.1 requires a new, and relatively expensive cable modem. Because of this a cable company is going to want to keep existing data customers where they are on the system and use the new swath of bandwidth selectively for the new gigabit customers.
  • Guaranteed versus Best Effort: If a cable company wants to guarantee gigabit speeds then they are not going to be able to have too many gigabit customers at a given node. This means that as the number of gigabit customers grows they will have to ‘split’ nodes, which often means building more fiber to feed the nodes plus an electronics upgrade. In systems with large nodes this might be the most expensive part of the upgrade to gigabit. The alternative to this is to have a best-effort product that only is capable of a gigabit at 3:00 in the morning when the network has no other traffic.
  • Bandwidth to the Nodes: Not all cable companies are going to have enough existing bandwidth between the headend and the nodes to incorporate an additional gigabit of data. That will mean an upgrade of the node transport electronics.

So the answer is that Time Warner will be capable of delivering a gigabit next year as long as they upgrade to DOCSIS 3.1, have enough spare channels, and as long as they don’t sell too many gigabit customers and end up needing massive node upgrades.

And that is probably the key point about cable networks and gigabit. Cable networks were designed to provide shared data among many homes at the same time. This is why cable networks have been infamous for slowing down at peak demand times when the number of homes using data is high. And that’s why they have always sold their speeds as ‘up to’ a listed number. It’s incredibly hard for them to guarantee a speed.

When you contrast this to fiber, it’s relatively easy for somebody like Google to guarantee a gigabit (or any other speed). Their fiber networks share data among a relatively small number of households and they are able to engineer to be able to meet the peak speeds.

Cable companies will certainly be able to deliver a gigabit speed. But I find it unlikely for a while that they are going to price it at $70 like Google or that they are going to try to push it to very many homes. There are very few, if any, cable networks that are ready to upgrade all or even most of their customers to gigabit speeds. There are too many chokepoints in their networks that can not handle that much bandwidth.

But as long as a cable network meets the base criteria I discussed they can sell some gigabit without too much strain. Expect them to price gigabit bandwidth high enough that they don’t get more than 5%, or some similar penetration of customers on the high bandwidth product. There are other network changes coming that will make this easier. I just talked last week about a new technology that will move the CMTS to the nodes, something that will make it easier to offer large bandwidth. This also gets easier as cable systems move closer to offering IPTV, or at least to finding ways to be more efficient with television bandwidth.

Finally, there is always the Comcast solution. Comcast today is selling a 2 gigabit connection that is delivered over fiber. It’s priced at $300 per month and is only available to customers who live very close to an existing Comcast fiber. Having this product allows Comcast to advertise as a gigabit company, even though this falls into the category of ‘press release’ product rather than something that very many homes will ever decide to buy. We’ll have to wait and see if Time Warner is going to make gigabit affordable and widely available. I’m sure that is what the Los Angeles City Council thinks they heard, but I seriously doubt that is what Time Warner meant.

Unbundling the Broadband Networks

canada_flag-1920x1080The Canadian Radio-television and Telecommunications Commission (CRTC) has ordered that large telecom companies, both telcos and cable companies, must unbundle the last mile of their network and make the facilities available to competitors.

With this ruling the CRTC has said that competition and choice is important. This was a surprising ruling because all telecom companies had filed comments stating that forced unbundling would be a disincentive for them to build expensive fiber facilities to homes and businesses.

This ruling was only the first step; the processes and procedures needed to accomplish unbundling still need to be worked out. It’s estimated that perhaps the first unbundled connections will be available to competitors by the end of 2016

This ruling applies to both fiber and coaxial networks and will apply to the larger providers like BCE (Bell Canada Enterprises) as well as to the two biggest cable companies, Rogers Communications and Shaw Communications. But the biggest impact is expected to be on BCE which has invested heavily in fiber to both businesses and residences.

The CRTC said that this was the only path they saw towards competition since the cost of building duplicate fiber networks was expensive and not likely to happen.

We know something about unbundling in this country. The Telecommunications Act of 1996 ordered large US telcos to unbundle their copper networks and make them available to competition. This promoted the explosion of CLECs in the late 90s, but the use of unbundled copper largely died when many of the CLECs formed during that period imploded during the telecom crash in the early 00s.

But the FCC in this country has never required unbundling of fiber. In fact, the 1996 Act removed the unbundling requirement as soon as a telco replaced copper with fiber. The Act did require the unbundling of dark fiber (fiber sold without electronics), but as is typical in this country, the telcos chipped away at that requirement to the point where it became incredibly difficult for a competitor to get access to telco dark fiber.

Our experience in this country is that the large companies will comply with this requirement only reluctantly, and here they put as many roadblocks as they could in the way of competitors. The telcos here required difficult paperwork for every step of the process and dragged their feet as much as possible any time they worked with a competitor. There is a famous rumor in the industry that in the work space at one of the large US telcos that dealt with unbundling there was a large sign reading “Delay, Delay, Delay”. Too bad this was before cellphone cameras because several reputable industry people swear this is true.

The idea of unbundling active fiber is an interesting one. Certainly if a competitor could get access to fiber affordably they could offer an alternate suite of products and bring both product and price competition into the network.

The idea of unbundling a cable company’s coaxial network is not as easy to contemplate. Coaxial cables are arranged so that there is not a unique cable for each customer. At the pole each customer is added into the same data and cable TV transmission path as everybody else in their neighborhood. It’s hard to think of a neat technical way to unbundle anything in an HFC network. It might be possible to unbundle the data path, but this is also shared through most of the network. It will be interesting to see how the CRTC deals with the technical issues.

Obviously competitors here will keep an eye on the Canadian experiment to see how it progresses. There has been no cry here for unbundling of fiber networks, but if there was such a ruling I think it would enable a raft of new competitive providers and would bring real competition into the duopoly networks we have in most US markets. Certainly the US suffers from the same duopoly competition that drove Canada to make this ruling.

Remember the Human Equation

MR MONOPOLYI took a lot of economics courses in college – not quite enough to get a degree, but enough to keep me interested today in keeping track of how economists view the world. One thing that economists have always been trying to do is to build economic models that predict how people act in the real world.

Recently the World Bank issued a new report in a series of what they call World Development Reports and they suggest that economists are still not accurately predicting some key human behavior in their modeling. They mention three areas where economists need to improve their models. I found these three areas interesting, because these are also types of behavior that any good salesperson knows very well. This report reminded me that it’s as important for salespeople as it for economists to keep the human equation in mind. The report said that economists need to do better in reflecting the following three things:

The first principle is that all people think automatically. Automatic thinking means that people are often intuitive and impulsive. This differs from a lot of economic models that assume that people are logical and deliberative when making buying decisions. Certainly some people and businesses make deliberate buying decisions. But the real world is full of examples of things we all do that are not logical. Perhaps one of the most common example is how we save for our retirements. I don’t think you can find anybody who doesn’t understand that saving for retirement is really important. Yet a majority of people still don’t take the steps needed to be ready for retirement.

And every good telecom salesperson knows that buying decisions are often made on impulse or based upon emotional factors and are not always fully logical. When somebody changes telecom providers they generally do so somewhat blindly and based upon trust. They really hope that the quality of the service or the level of customer service will be better with the new provider than it was with the old provider. And so they often make an emotional decision to change based upon something they don’t like about their old provider—perhaps a negative billing issue or customer service experience.

The second finding in the Development Report is that humans think socially. This means that they often make decisions based upon either pleasing others or in accordance to what other people think. By contrast, economist models generally assume that people make decisions based upon their own selfish best interest. This finding isn’t as relevant to telecom buying as the other two items, but salespeople still see it in the market. For example, it’s a lot easier selling to people with kids to make the sales pitch based upon what’s good for the kids rather than what’s good for the parents.

The third principle is that people often think using mental models. For example, people might identify themselves as part of a larger group and make decisions based upon that identity. For example, young urban millenials are now a very hard sell for traditional cable TV. Once somebody is a part of that particular culture then they often make many buying decisions based upon the peer pressure of their friends. They might not buy a car and instead use Uber and they might not buy traditional telecom services and rely completely on their cellphone and other people’s WiFi.

It is possible to break a group identify mindset, but it must be done deliberately. For example, many elderly people are of the mindset that technology is beyond them and so they are immune to any normal sales pitch you might make to them. But if you take the time to show them what technology might do for them and let them know that there is training and help for them to learn to use the Internet, then they can become good customers.

I build a lot of business plans and every client who is thinking about building a new network always wants to know what their market penetration rate is going to be. That’s an easy thing to predict if you build in an area that doesn’t have broadband, because most people in that situation will buy what you have as long as it’s affordable.

But it’s a lot harder to predict market penetration when building to a market that already has broadband. Predicting the take rates in existing markets requires understanding the human equation. Here are a few of the things that I tell people, based upon the experience of having seen hundreds of market launches:

  • If you sell residential broadband you are almost always going to get at least 20% and maybe as much as 30% of the market rather easily as long as you have a decent price and as long as your product works well. It seems that in every market there are at least that many people who just can’t stand the incumbents and who will leap to a new competitor. And if you do a good job you will generally keep these customers.
  • But after this first easy pile of customers, how many customers you get is going to depend upon how good you are at selling. And selling means understanding the market and understanding the human equation. I generally see that companies that sell based upon having a good story to tell will do better than companies that try to sell on price alone. A customer that buys from you due to a low price will also drop you when they find a better price elsewhere. But if you can instead show them that there are reasons other than price to use you, then you have a chance of building a loyal customer base.

Interestingly, almost all businesses buy based upon reliability, and not price. Business customers know how badly they suffer when their voice or Internet service is down and so they care about the reliability of your network first and foremost. So selling telecom to businesses is something that meets existing economists’ models well because most businesses will choose a telecom provider deliberately and logically. It’s easy to build models to predict business penetrations, because if you do a good job and you are willing to put knowledgeable salespeople on the street, they will be successful over time.