FirstNet – A Boon or Boondoggle?

The federal program FirstNet was born out of the tragedy of the 9/11 terrorist attacks. At the time there was a lot of negative press when it was realized that first responders from New Jersey were unable to communicate with those from New York. And the idea was born to create a nationwide platform so that all first responders could easily communicate with each other.

The FirstNet concept first tackled the concept of interoperability. There were a number of jurisdictions where interoperability was an issue then. But since 9/11 most metropolitan areas have solved the interoperability issue on their own. The fire and police departments in regions got together in the years after 9/11 and made sure they could communicate with each other. One of the easiest fixes was for first responders to add cellphones to complement the first responder radios that were the major method of communications in 2001. So the concept morphed into a discussion of finding cellular bandwidth for first responders. We’ve seen repeatedly that local cellular networks instantly get clogged during any kind of major emergency, and this means that first responders have trouble making cellphone connections just like everybody else.

Congress stepped into the discussion in 2012 and created FirstNet (First Responder Network Authority). As part of that action Congress set aside Band 14 of the 700 MHz spectrum for the exclusive use of first responders nationwide. After several reboots of the RFP process the new agency finally chose AT&T to provide a nationwide LTE network for first responders. The company was given $7 billion as the first payment towards creating the nationwide cellular network. The GAO had estimated that the final network could cost as much as $47 billion.

States were given the right to opt-in to FirstNet with zero cost to the states. In the last month or so thirteen states have chosen to be part of the effort. That means that AT&T will provide the network in those states using federal dollars.

But there is a huge question, mostly technical, of whether this network makes any sense. A lot of engineers say that FirstNet is overkill and that there are now other ways to solve the same problem. A hint of how easily this can be done came from a press release from Kansas, which just bought into FirstNet. In that release AT&T said that until FirstNet is built in the state that first responders would immediately get priority access to cell towers and by the end of this year would have preemptive access – meaning that a call attempt made by a first responder would shove somebody else off the cellular network. Providing preemptive access is a far less costly way of solving the problem. If first responders can be given preemptive access that easily, then there really is no longer a need for FirstNet.

To add fuel to the fire, Verizon just announced at the end of the next week that they would offer these same services to first responders everywhere – and with zero federal dollars. Verizon will immediately offer preemptive access to cell towers to all first responders.

Any topic having to do with first responders is always an emotional one and much of the first responder community has bought into the concept of having interference-free spectrum. But the Verizon announcement shows that the FirstNet solution is obsolete before the first piece of network is constructed.

And the FirstNet implementation comes with a big national cost. It’s clear that we need a huge amount of bandwidth to satisfy customer demands for cellular data. It seems wasteful to use a slice of prime spectrum in Band 14 of 700 MHz when it’s not needed. That spectrum is worth more to the country for providing cellular data than for handling calls from first responders. This would not be true if first responders really needed this spectrum to communicate – but the cellular companies can give them preemptive access using existing cellular spectrum. For the vast majority of time the FirstNet spectrum will sit virtually unused – at any given time in a city it might be handling hundreds of transmissions from first responders when it could instead be handling hundreds of thousands of transmissions for everybody.

There is also the rural issue to deal with. FirstNet is supposed to provide nationwide first responder access. But as somebody who travels widely in rural America, I can tell you that a lot of the AT&T LTE coverage map is bosh. There is a whole lot of rural America where cell coverage is either spotty or non-existent. When you get to a rural place you quickly come to understand the short distance that a cell signal travels from any given cellular tower. There are gaps everywhere in rural America between widely-spaced cell towers.

First responders in rural America are not going to rely on the FirstNet spectrum even if it’s freely available to them. They are more likely going to keep their current radio networks that work today, using spectrum that travels farther than the 700 MHz spectrum. I can’t help but picture a rural tragedy, such as a downed-plane, where first responders from outside the area will have no communication ability if the FirstNet signal to the needed area is weak or nonexistent.

I see this as another giant government handout to the huge carriers. You can be assured that a lot of the money going to AT&T will go to their bottom line. I hope, at least, that some of the money they are getting for FirstNet will at least improve normal cellular coverage in rural America – but I’m not holding my breath. To me this seems like another big federal program that is being spent to fix a problem that no longer exists. Local jurisdictions solved the interoperability problem in the first few years after 9/11. And the ability of cellular companies to give preemptive access to first responders means there is no reason to set aside a huge valuable slice of spectrum.

OTT News – August 2017

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It’s been a busy time in the OTT market with players coming and going and the choices available to customers growing more complicated and confusing.  Here are some of the bigger recent events in the industry.

Continued Cord Cutting. The major cable providers lost 946,000 cable customers in the second quarter – the worst quarterly loss ever. This puts cord cutting at an annual loss rate of 2.7% of customer, up from only 1% a year ago. It’s obvious that cord cutting is picking up momentum, and the wide variety of OTT viewing has to be a contributor. Nielsen recently reported that 62% of homes now watch OTT content at least occasionally.

It’s getting harder for analysts to count cable customers. For example, Dish Networks is not reporting on the specific performance of its satellite service versus SlingTV. The losses for the quarter were also eased a bit by the fact that Charter began counting seasonal customers even when they go dormant, such as the snowbird in Florida who subscribe only in the winter but who keep the account active.

ESPN / Disney OTT Offering. Disney announced that it would be launching two new OTT offerings in 2019 – a standalone ESPN offering and a standalone Disney offering. Along with this announcement they announced they will be withdrawing Disney content from Netflix. The ESPN offering will not duplicate the cable version of the network and will not include things like the NFL and NBA. But it will include major league baseball, the NHL, major league soccer, grand slam tennis events and college sports. Analysts think this offering is mandatory since ESPN has lost 13 million subscribers since 2011 and advertising revenues dropped 8% last quarter.

The standalone Disney offering is also interesting in that the company has decided to take Netflix on head-to-head. Because of contractual arrangements Netflix will still have access to content produced by Disney such as the numerous shows produced by Disney’s Marvel Studios. But starting in 2019 Disney is going to make new content only available on their own platform. This prompted Netflix to purchase Millarworld, a major comics producer.

NBC Closing Seeso. NBCUniversal says that it will be ending the Seeso OTT offering later this year. This is an offering that consisted largely of NBC comedy and related entertainment such as Saturday Night Live and the Tonight with Jimmy Fallon.

This failure is a big warning to the many cable networks that have been contemplating using the strategy of shoving existing content online. Industry analysts say that simply taking linear content online is not a recipe for success. It seems that the platform is just as important as the concept and the bigger platforms like Netflix keep customers engaged and enabling them to move from show to show without leaving the platform. But it’s too easy for a customer to leave a limited-offering platform, thus diminishing the perceived value for customers to buy a subscription.

Facebook OTT Offering. Facebook has announced the launch of Watch, an OTT service that will include content from A&E, Univision, Major League Baseball and other content such as worldwide soccer. For now the new service is being launched overseas with some limited US trials, but is expected to hit the whole US market later this year.

The offering is being structured like YouTube to enable content creators to launch their own channels. Facebook is currently funding some content providers to seed content on the new service. They are hoping that within time the platform becomes self-sustaining and can be an alternative to the wildly popular YouTube. Facebook is counting on their ability to lure enough of their billion plus users to the new platform to make it a success. The company’s goal is to keep people on their platform for more than just social networking.

Apple. Apple will be entering the OTT world and announced that they will spend $1 billion to create programming content over the next year. This puts them into rarified company with Netflix that is spending $6 billion, Amazon at $4.5 billion and HBO at $2 billion. There is no news yet of the nature or timing of an Apple OTT offering.

Consolidation of Fiber Networks

I’ve written a few recent blogs discussing the amount of fiber that’s going to be needed to support the 5G networks envisioned by Verizon and AT&T. This blog in particular cited a recent Deloitte study that estimates that the cost to build the fiber needed to support a ubiquitous 5G network nationwide would be $130 billion.

We know that adding fiber is now a high priority for Verizon. They announced in April a deal to buy over $1 billion of fiber from Corning over 3 years. (As an aside, all of the press releases and articles about that purchase say that amount buys 12.4 million miles of fiber per year, or 37.2 million miles of fiber. There are only a little over 4 million miles of roads in the US, so that obviously means miles of individual fiber strands. Pardon the interruption, but misleading statistics drive me up the wall.)

We can almost be certain that Verizon plans to build fiber for backhaul to cell sites. There are around 250,000 current cell towers in the country, but the deployment of small neighborhood cell sites is going to explode that number potentially by millions. Years ago both Verizon and AT&T elected to let other companies build and own cell towers, which spun off a major new industry. And in that process both companies largely agreed to lease fiber transport to reach those towers. But as the cell industry margins are tightening the companies are now looking to directly own as many of those fiber routes as possible to hold down lease expenses.

While Verizon plans to build a lot of fiber, they are also on an obvious path to buy existing fiber networks that supply transport to cell towers. Last year they purchased XO Communications and just last week announced they were buying a Chicago-area fiber network from Wide Open West.

I have seen several analysts speculate that Verizon will be considering more fiber purchases. Interestingly the analysts focus on the potential purchase of large ILECs like Consolidated or Cincinnati Bell, which both own a lot of fiber. But much of the fiber in these companies is last-mile fiber to reach customers, and it would be curious to see Verizon buy back into that business. Just last year they sold off a significant chunk of their FiOS fiber network to Frontier and it would be a major reversal of that strategy to turn around and invest this soon in last mile fiber. We’ve seen big companies pivot before, but this would be possibly the biggest such change of mind our industry would ever have seen.

I think it’s more likely that they will consider buying transport fiber networks rather than last-mile networks. The problem the company faces is that there are not that many big fiber providers left. CenturyLink recently purchased the largest such network from Level 3, which owns over 55,000 miles of fiber. The only other fiber transport networks left that own over 10,000 miles of fiber are Birch, Zayo, EarthLink, Cogent and Lightower/Fibertech. There are only another half dozen companies that own fiber transport networks of between 5,000 and 10,000 miles. I have to think that Verizon and AT&T have considered buying many of these companies over the last year or two.

There is one other set of big fiber networks that don’t get as much national attention. These are fiber transport networks built largely by consortiums of independent telephone companies. Most of these networks were constructed as a way for the telcos to gain cheap fiber transport to the world outside of their operating territories. Many of these smaller telcos were held hostage to incredibly expensive special access transport from the RBOCs which made it difficult for them to buy affordable Internet access. Since these networks were originally built a lot of them now have expanded throughout their operating regions and are now connected to cell towers, large businesses, governments, universities and other customers needing fiber transport.

Most of these ILEC-owned networks have joined together to form INDATEL. Here is a map showing the wide-spread footprint of INDATEL-member networks. Through this consortium many of these networks are now interconnected, providing a nearly nationwide fiber footprint. The various members have POPs in all of the biggest cities in their region but then also go to all of the smaller communities that have largely been ignored by most of the other fiber providers, with perhaps the exception of Level 3.

I have no idea if either Verizon or AT&T has considered buying these networks. For a company like Verizon these fiber routes would provide transport into many areas where they don’t have fiber today. The owners of these networks might want to explore the possibility of selling their networks. Now that the networks are in place the ILECs that built these networks are no longer isolated from the rest of the world. A sale would let them capitalize on their investment in fiber at a time when fiber networks have an all-time high valuation.

Of course, the downside to all of this is that if Verizon, AT&T and a few others like CenturyLink gobble up the few remaining independent fiber networks they will have a virtual monopoly on fiber transport. During the XO and Level 3 purchases there were a lot comments filed with regulators expressing concern about the negative impact on competition from fiber consolidation. I’d hate to see us go back to the bad old days where the only option for transport was a handful of the big telcos.

The Economics of Tower Transport

Many of my clients lease towers and/or fiber transport to reach towers to wireless companies. Since most of my clients operate last-mile networks this is not usually a major source of revenue for them, but it is a significant one, and one of the more profitable things they sell.

I have been advising clients that we are in the midst big changes in the cellular industry and that they should expect payments for cell tower connectivity to start dropping. Transport providers and cell tower owners that won’t renegotiate lower prices could risk losing the business entirely.

Let’s look at AT&T as an example of this. AT&T has been aggressively pushing its vendors to lower prices. At an investor meeting last year AT&T’s president of technology operations told investors that the current industry model is not sustainable. And he is right. As I wrote in a recent blog the entire cellular industry seems to have crossed the threshold where cellular service is becoming a commodity, and that is putting huge pressure on the cellular companies to reduce costs.

Last year FierceWireless posted a letter that AT&T sent to many of vendors telling them to expect to renegotiate rates and terms. In that letter AT&T said that they would pushing for early termination of existing contracts with the expectations of lowering fees. They said they would be looking for the ability to modify or upgrade existing towers for free. And they want to eliminate any automatic price increases and instead have “rents reduced to competitive rates”.

There are two major costs for a cellular company to use somebody else’s tower. First they must lease space on towers including paying for power and space underneath to house equipment. Where AT&T doesn’t own the fiber connecting to the towers they also have to pay for fiber transport to reach the towers. And that transport is not cheap because the bandwidth they need at towers is growing at a torrid pace. Where just five years ago there were very few towers that needed more than a gigabit of bandwidth, I’ve seen rural towers where the carriers are now asking for the right over time to grow to five gigabits. And everything I read about cellular data usage tells me that demand for bandwidth at towers will continue to grow rapidly.

Many of my clients operate in rural areas and some think that their physical isolation makes them immune from any price negotiations with the wireless companies. But I think they are wrong for several reasons.

  • First, I think a lot of the billions being spend by the FCC’s CAF II program is being used to construct fiber to rural towers. AT&T is spending a most of the $2.5 billion from that program to extend fiber into rural areas. And where they build fiber they won’t need to lease it from anybody else.
  • I also suspect that the cellular companies are working with Frontier and CenturyLink, the other two big recipients of CAF II money to piggyback on their fiber expansion to reach cellular towers at a lower cost.
  • Both AT&T and Verizon are also undertaking significant fiber expansion, with one of the goals of that program to cut transport costs. I believe they are doing the math and that they will build fiber to the towers that save them money over the long-run – with those places with the most savings at the top of the list. If they sustain this kind of construction for five or ten years they will eventually be able to bypass most of the towers that they lease today. And the cellular companies should be doing this. If there are going to be lower margins in the cellular business then they ought to use their capital, while they have it, to permanently reduce operating costs.
  • I also suspect that, while AT&T and Verizon are competitors that they are cooperating to reach the more rural cell sites and have transport swap plans in place that save them both money.
  • Finally, these companies have been buying fiber network providers, like Verizon’s purchase last year of XO Communications. It would not be surprising to see them continue to buy companies that provide cell site transport.

The cellular companies and their partners don’t communicate well with smaller transport and cell tower owners. I suspect that many of clients will only get an inkling that a cellular company is going to bypass them when they get the cancellation notice of their contracts. So I have been encouraging folks to reach out to the cellular companies to renegotiate terms and prices. I think that those willing to so might be able to keep this as a long-term revenue stream, but that those that want to stick with higher historical prices will eventually get bypassed and will lose the revenue stream altogether. It’s a tough call, because some places are remote enough that they may never be bypassed – but it’s a crap shoot to guess if your own region is on the fiber-expansion list.

ATSC 3.0 – More Spectrum for Broadband?

This past February the FCC approved the voluntary adoption of the new over-the-air standard for ATSC 3.0. for television stations. There will be around twenty different standards included within the final protocol that will define such things as better video and audio compression, picture improvement using high dynamic range (HDR), a wider range of colors, the ability to use immersive sound, better closed captioning, an advanced emergency alert system, better security through watermarking and fingerprinting, and the ability to integrate IP delivery.

The most interesting new feature of the new standard is that it allows programmers to tailor their TV transmission signal in numerous ways. The one that is of the most interest to the telecom world is that the standard will allow a TV broadcaster to compress the existing TV transmission into a tiny slice of the spectrum which would free up about 25 Mbps of wireless bandwidth per TV channel.

A TV station could use that extra frequency themselves or could sell it to others. Broadcasters could use the extra bandwidth in a number of ways. For example, it’s enough bandwidth to transmit their signal in 4K. Stations could also transmit their signal directly to cellphones and other mobile devices. TV stations could instead the extra bandwidth to enhance their transmissions by the addition of immersive sound and virtual reality. They could also use the extra bandwidth to transmit additional digital channels inside one slice of spectrum.

But my guess is that a lot of TV stations are going to lease the spectrum to others. This is some of the most desirable spectrum available. The VHF bands range from 30 MHz to 300 MHz and the UHF bands from 300 MHz to 3 GHz. The spectrum has the desirable characteristics of being able to travel for long distances and of penetrating easily into buildings – two characteristics that benefit TV or broadband.

The first broadcasters that have announced plans to implement ATSC 3.0 are Sinclair and Nexstar. Together they own stations in 97 markets, including 43 markets where both companies have stations. The two companies are also driving a consortium of broadcasters that includes Univision and Northwest Broadcasting. This spectrum consortium has the goal of being able to provide a nationwide bandwidth footprint, which they think is essential for maximizing the economic value of leasing the spectrum. But getting nationwide coverage is going to require adding a lot more TV stations to the consortium, which could be a big challenge.

All this new bandwidth is going to be attractive to wireless broadband providers. One has to think that the big cellular companies will be interested in the bandwidth. This also might be an opportunity for the new cellular players like Comcast and Charter to increase their spectrum footprint. But it could be used in other ways. For instance, this could be used by some new provider to communicate with vehicles or to monitor and interface with IoT devices.

The spectrum could provide a lot of additional bandwidth for rural broadband. It’s likely that in metropolitan areas that the extra bandwidth is going to get gobbled up to satisfy one or more of the uses listed above. But in rural areas this spectrum could be used to power point-to-multipoint radios and could add a huge amount of bandwidth to that effort. The channels are easily bonded together and it’s not hard to picture wireless broadband of a few hundred Mbps.

But this may never come to pass. Unlike WiFi, which is free, or 3.65 GHz, which can be cheaply licensed, this spectrum is likely to be costly. And one of the major benefits of the spectrum – the ability to travel for long distances – is also a detriment for many rural markets. Whoever is using this spectrum in urban areas is going to worry about interference from rural uses of the spectrum.

Of course, there are other long-term possibilities. As companies are able to upgrade to the new standard they will have essentially have reduced their need for spectrum. Since the TV stations were originally given this spectrum to transmit TV signals I can’t think of any reason that they should automatically be allowed to keep and financially benefit from the freed spectrum. They don’t really ‘own’ the spectrum – it was provided to them originally by the FCC to launch television technology. There are no other blocks or spectrum I can think of that are granted in perpetuity.

TV station owners like Sinclair and Nexstar are watering at the mouth over the huge potential windfall that has come their way. I hope, though that the FCC will eventually see this differently. One of the functions of the FCC is to equitably allocate spectrum to best meet the needs of all users of spectrum. If the TV stations keep the spectrum then the FCC will have ceded their spectrum management authority and it will be TV stations that determine the future spectrum winners and losers. That can’t be in the best interests of the country.

Local, State or Federal Regulation?

Last week the FCC clarified its intentions for the Broadband Deployment Advisory Committee (BDAC). This group was tasked with exploring a wide range of topics with the goal of finding ways to lower barriers for broadband deployment.

The BDAC was divided into subgroups with each examining issues such as speeding up access to poles and conduits, or how to streamline the morass of local regulations of such things as rights-of-ways that can slow down fiber deployment.

There has been a huge amount of buzz in the industry since the expectation has been that the FCC would act to impose federal rules that ‘fix’ some of the most important impediments to competition. That expectation was bolstered on several occasions by speeches made by new FCC Chairman Ajit Pai that hinted that the FCC was willing to take steps to lower barriers to broadband deployment.

But FCC Senior Counsel Nicholas Degani just clarified that the FCC’s intentions are not to create new regulations, but rather to create ‘model codes’ that they hope that cities and states around the country will use to make it easier to deploy broadband.

We’ll have to wait a while to see if the FCC really can refrain from issuing new regulations. Chairman Pai has said many times that he is in favor of ‘light touch’ regulation and the agency is in the process of relaxing or undoing many of the regulations from the past. But one thing that I have repeatedly seen from regulators over the years is that they love to regulate. It will take major restraint for the FCC to not try to ‘fix’ the many problems that the BDAC is highlighting. This will be the ultimate test to see if they really are anti-regulation.

Frankly, some of the issues that the BDAC has been exploring cry out for some sort of regulatory relief. For example, in some parts of the country it takes so long and is so expensive to get onto poles that it’s nearly impossible to implement a business plan that needs pole access. And it is extremely frustrating for a national company that deploys fiber everywhere to work with local rules that vary widely from city to city.

Part of what is pushing this effort is the fact that everybody expects a massive investment in new fiber over the next decade as fiber is built to bring bandwidth to homes and as we deploy 5G networks. Everybody recognizes that there are impediments that add delay costs to those deployments.

At the same time that the FCC has been looking at the issues there are numerous state attempts to create state regulatory rules to fix some of these problems. A number of states have already created regulations that are aimed at making it easier to do things like get access to poles. But state efforts vary widely in the motivation for new regulations. There are some states that are looking hard at imposing statewide rules that balance the needs of competitors, network owners and municipalities.

But there are other attempts prompted by the big cellular companies and ISPs to run roughshod over the rights of pole owners and municipalities. These efforts are being driven, in part, by model legislation developed by ALEC and funded by the big companies. Many of these rules are attempting to set low nationwide rates for pole attachments and also to force streamlined timelines that ignore local conditions.

Finally, there are efforts being made by many cities to make it easier to deploy broadband. Most cities understand that they need fiber everywhere to remain competitive with other cities. Yet these efforts are often ineffective because cities, by definition, have a lot of stakeholders to satisfy. When a City looks at changing local rules they end up have to give a lot of weight to issues such as the environment, aesthetics, historic preservation, safety, unions and others that make it impossible to create rules that favor fiber deployment over these other concerns.

Fixing these issues is a problem that may never find the right solution. We live in a country where cities across the board have been granted varying degrees of controlling things like rights-of-way that affect network deployments. Fiber deployment is not the first issue that has come along that has pitted federal, state and local regulators against each other when trying to solve the same problems. It’s not unlikely that if either the FCC or the states try to strongarm cities that we will see a pile of lawsuits challenging any egregious decisions. And that just leads to delays since disputed laws don’t go into effect. I hope we can find solutions that don’t lead to those lawsuits, because the worst kind of regulation is one that is in limbo in some court for years. Nobody is likely to make any significant new investment in that environment.

Availability of Existing Fiber

I work with rural communities all over the country and one of the first thing I am usually asked is to help them figure out how much fiber is already in their community. There seems to be a natural assumption that all fiber is the same and that existing fiber can somehow be used to get better broadband in their area. I always hate to have to tell them that existing fiber is rarely of any benefit to them.

I also have to tell them is that it’s usually exceedingly difficult to find the location of existing fibers. Incumbent telcos, cable companies and electric companies rarely will provide that kind of detail to anybody. This is partly due to security issues, and anything told to a government entity ends up in the public domain.

But even if these companies were willing to provide details of all of their existing fiber, the chances are pretty high that the existing fiber cannot benefit communities in the ways the communities hope. There are a number of reasons for this:

  1. The primary reason for existing fiber lacking benefit for communities is that most existing fiber is part of a private network. This private network could be connecting two telco central offices. It could be connecting a cable TV headend with a neighborhood node. It could be a school network connecting schools. It might be used by the electric company to connect to neighborhood substations. It could be used by a railroad along its tracks. Or it might be used by the highway department to control hazard signs or sensors. And today we are finally seeing a lot of private fiber routes being built to reach cellular towers.
  2. Most fiber in private networks was built for a very specific function, like those listed above. The builders of the fiber designed and built the fiber for that purpose and are generally not very willing to use the fiber for any other purpose. Sharing fiber adds significant risk for a fiber owner. Sharing a fiber brings responsibilities that few of the private network owners are willing to tackle. They are generally content to use the fiber for their own purposes without having to worry about how their use of the fiber might affect somebody else.
  3. Private network owners are also extremely protective about who can have physical access to their fiber. I can’t think of a private network owner that will allow outside technicians to have direct access to their fibers. And this means that if they allow somebody to share their fiber they also have to take on all of the work to connect and maintain those connections. Companies that own rural fiber networks often have labor forces that are already stretched thin and they don’t want to take on this extra burden.
  4. There is another access issue that might be the most important reason to not share a fiber route. It’s likely that the party that wants to share an existing fiber wants to get onto and off of the fiber at different locations than the fiber owner. It’s not cheap or easy to gain access to existing fibers if it wasn’t designed with the needed access points. It is not unusual for a private fiber to be designed with no access points between the two ends of the fiber. It’s fairly easy and economical to add access points during the initial construction process. Handholes or other access points can be added to the fiber to provide future easy connectivity to the fiber. But adding access points to an existing fiber, particularly a buried fiber, can be costly and even risky since you have to dig to gain access to the already-buried fiber. Adding new connections also might mean adding pedestals or even something larger if power is needed at the new fiber junction.
  5. Often the fibers that pass through rural areas are long-haul fibers. These fibers are part of some larger network that connect large geographic areas or creates fiber rings. Long-haul fiber owners rarely will allow local connections to a fiber, because once a fiber is used for a local connection, that fiber can no longer be used to create a path around the larger fiber ring.
  6. The reason that communities find the most frustrating is when they find they are not allowed to use government-built fibers. I’ve often come across school or state government networks that were built with funding that prohibits sharing. I know of a number of state and county government networks that are not allowed to be shared for any commercial purpose – usually a requirement that was imposed by the funding that built the network. These kind of prohibitions often stem from laws in states that don’t want government networks competing with commercial networks. These networks often have large numbers of usable pairs that sit idle and that can’t be used by anybody but the government entity that built the fiber.

My message about the lack of benefits for existing local fiber is often met with incredulity. I have been hired a number of times just to prove that the fibers are not available. It generally only takes a few calls to the typical fiber owners to find that they have no desire to share fiber. But there are exceptions. For example, the large telcos will offer to share fiber if they have the capacity – but this is generally expensive and is part of a pricing scheme the telcos refer to as special access. And once communities understand the cost of special access they are rarely interested in that fiber.

I certainly understand the frustration that comes from finding out that a community might be fairly fiber rich, but that none of that fiber can be used to bring broadband to homes. It seems to fly against logic, but it is usually the market reality.

Broadband and Gaming

I recently saw an interesting statistic that showed that the most popular worldwide video content is gaming. The worldwide gaming video content industry has more than 665 million viewers which makes it bigger than HBO, Netflix, ESPN and Hulu combined. This is a segment of the video industry that I was only peripherally aware of, which I suspect is true for many of you as well.

The GVC (Gaming Video Content) industry is distinct from the on-line playing of games. The GVC content consists of watching others play games along with content that talks about gaming. The industry is estimated to generate $4.6 billion in revenues in 2017. One third of that will come from subscriptions to GVC content along with other direct consumer spending. The rest comes from advertising. There is a whole industry that has sprung up around the GVC content including big conventions and merchandise.

While you can’t characterize such a large group of people, the gamers and GVC viewers are often what you might think of as tech-savvy. In the US the average GVC viewer is around 30, has more education that average and makes a higher than average income of around $58,000. And while you might expect the viewers of GVC content to be largely male a surprising 46% of GVC viewers are female.

Around the world there are numerous video platforms that have been created for gaming content. In the US and Europe the biggest content provider is Twitch. This is a platform that was originally known as Justin.tv. The platform was created in 2007 by Justin Kan and Emmett Shear. The platform allowed users to post live video streams that could be watched by anybody else on the platform. The platform was often used to show pirated live sports feeds, but over time the majority of the content centered around gaming.

Justin.tv was a large content generator and in 2013 – before Netflix really took off – the service said it had 45 million unique viewers and was the fourth largest source of peak Internet traffic in the US. When the biggest competitor to Justin.tv shut down the platform had a near monopoly on gaming content.

The company was renamed to Twitch Interactive and was acquired at the end of 2014 by Amazon. Amazon beefed up the underlying delivery platform, which increased the quality of the streams. Since then Twitch has grown significantly. Amazon reports that the service has over 100 million unique viewers per month, nearly 10 million per day. The average number of simultaneous viewers at any given time on the platform is about 622,000.

Amazon has grown the service by opening up the platform to ‘partners’ much as it has done with OTT content. Twitch now has over 17,000 partners – those that stream unique content. 35% of the content is viewed on cellphones, with the rest on landline broadband connections.

Twitch viewers are loyal. Over half watch the service more than 20 hours per week – and for many of them this is their primary source of video content. The average Twitch user watches the service for 1 hour 46 minutes per day.

While the Twitch platform is free (and I recommend taking a few minutes to watch the above link), many of the channel partners charge monthly subscriptions.

I find it interesting that Twitch is not counted in the universe of OTT providers. But Twitch viewers and statistics are separate from, and not counted with viewers of Amazon Prime. Perhaps this is not considered as OTT content since a lot of the content is viewer-generated. But this is still largely true for YouTube, which is now counted among the OTT providers. Many of the channels on Twitch are now professionally produced and certainly are hard to distinguish from other OTT content.

The GVC industry is worth noting because they are a big source of video content on our broadband networks. The video watched on the web doesn’t just come from sources like Netflix and more and more of it is coming from platforms like Twitch that carry a mountain of viewer-generated content. This is just one more example of how the major programmers are going to be in trouble as the generations turn. Younger viewers are not watching traditional programming to nearly the degree of older generations.

Stats on OTT Viewing

A recent study by comScore examined OTT usage in detail across the country. They studied the OTT viewing habits in 12,500 homes over time across all devices. They looked at 52 OTT services, which collectively account for virtually all of the OTT content available. Their study is the most comprehensive study of OTT that I’ve seen to date.

Not surprisingly Netflix is the largest OTT provider and accounted for 40% of all viewing hours of OTT content. I must admit with all of the hype about Netflix that I thought they would be larger. They were followed by YouTube at 18%, Hulu at 14%, Amazon at 7% and all of the other OTT sources sharing 21%.

When it came to consumer engagement, measured by the amount of time that people watch a given service, the leader is Hulu with the average Hulu household watching over 2.9 hours of their content per day. This was followed by Netflix at 2.2 hours, YouTube at 2.1 hours and Amazon at 2.0 hours per day.

Here are some other interesting statistics generated by the survey:

  • 51 million homes in the US watched OTT content this past April. That is 41% of all homes.
  • The growth of OTT watching is exploding and only 44 million homes watched OTT in October 2016.
  • As you would expect, there is a substantial number of cord-cutters that watch OTT. The types of OTT viewers include 44% that also have a landline cable subscription, 22% that also have a satellite TV subscription, 18% that are pure cord-cutters, and 16% that mix OTT content with free content received through rabbit ears.
  • The average home watched OTT content 49 hours in a month. That viewing was spread on average across 15 viewing days – meaning that most homes don’t watch OTT content every day.
  • As you would expect, cord-cutters households watch OTT for more hours monthly than other households. For example, cord cutters watched Hulu 37 hours per month while other households watched 29. Cord cutters watched Netflix for 36 hours per month compared to 27 hours for other households.
  • OTT viewing largely matches regular TV viewing in that there is a big spike of viewing in the evening prime time hours.
  • However, OTT viewing differs from traditional cable with big spikes on weekends, largely due to binge-watching.
  • The survey shows that 10.1 million households use network TV apps (apps from a programmer such as HBO or ESPN).
  • There is an interesting correlation between the size of a household, the amount of OTT viewing, and whether a family has cut the cord. For cord cutting families, the smaller the size of the household the greater the amount of OTT viewing. But for families that still have a paid-cable subscription it’s reverse.
  • Single-member households are almost 50% more likely than average to be a cord cutter and 24% more likely than average to be a cord-never.
  • Cost of cable subscriptions have always been shown in other surveys as a factor in cord cutting. This survey shows a strong correlation between income and cord-cutting. The survey shows that hourseholds making less than $40,000 per year are cutting the cord at 19% more than average while households making between $75,000 and $100,000 are at 87% of average.
  • Their survey also was able to detail the devices used to watch OTT content on television screens. Of the 51 million homes that watched OTT in April, 38 million homes used a streaming stick / box like Roku, and 28 million homes used a smart TV.
  • The study also detailed penetration rates of streaming boxes / sticks for homes using WiFI: 16% own a Roku, 14% have Amazon Fire; 8% own Google hrome and 6% have AppleTV.
  • Samsung and Vizio are the big players in the smart TV market with shares in WiFi-connected homes of 33% and 30%. LG and Sony were next with 10% and 7% penetration with all other manufactures sharing the remaining 20% of the market.

The survey also analyzed Skinny bundles. They show that 3.1 million homes now have a skinny bundle. 2 million of those homes have SlingTV, with DirecTV Now and PlayStation Vue having most of the other customers. The survey shows that homes with one of these services watch the skinny bundle an average of 5.3 hours per day.

The main takeaway from this survey is a demonstration that OTT viewing has become mainstream behavior.  OTT viewing is now part of the viewing habits of a little over half the of homes in the nation that have an in-home WiFi connection.

 

Quad Bundling

Since Comcast and Charter are now embarking in the cellular business we are soon going to find out if there is any marketing power in a quad bundle. Verizon, and to a smaller degree AT&T, has had the ability to create bundles including cellular service, but they never really pushed this in the marketplace in the way that Comcast is considering.

Comcast has said that the number one reason they are entering the cellular business is to make customers “stickier” and to reduce churn. And that implies offering cellular service cheaper than competitors like Verizon, or to at least create bundles that give the illusion of big savings on cellular. For now, the preliminary pricing Comcast has announced doesn’t seem to be low enough to take the industry by storm. But I expect as they gain customers that the company will find more creative ways to bundle it.

The Comcast pricing announced so far shows only a few options. Comcast is offering a $45 per month ‘unlimited’ cell plan (capped at 20 GB of data per month), that is significantly less expensive than any current unlimited plan from Verizon or AT&T. But this low price is only available now for customers who buy one of the full expensive Comcast triple play bundles. The alternative to this is a $65 per month unlimited plan that is $5 per month lower than the equivalent Verizon plan. Comcast also plans to offer family plans that sell a gigabyte of data for $12 that can be used for any phone in the plan – for many families this might be the best bargain.

One interesting feature of the Comcast plan is that it will automatically offload data traffic to the company’s WiFi network. Comcast has a huge WiFi network with over 16 million hotspots. This includes a few million outdoor hotspots but also a huge network of home WiFi routers that also act as a public hotspot. That means that customers sitting in a restaurant or visiting a home that has a Comcast WiFi connection will automatically use those connections instead of using more expensive cellular data. Depending on where a person lives or works this could significantly lower how much a consumer uses 4G data.

There are still technical issues to be worked out to allow for seamless WiFi-to-WiFi handoffs. Comcast has provided the ability for a few years for customers to connect to their WiFi hotspots. I used to live in a neighborhood that had a lot of the Comcast home hotspots. When walking my dog it was extremely frustrating if I let my cellphone use the Comcast WiFi network because as I went in and out of hotspots my data connections would be interrupted and generally reinitiated. I always had to turn off WiFi when walking to use only cellular data. It will be interesting to see how, and if Comcast has overcome this issue.

A recent survey done by the investment bank Jeffries has to be of concern to the big four cellular companies. In that survey 41% of respondents said that they would be ‘very likely’ to consider a quad play cable bundle that includes cellular. Probably even scarier for the cellular companies was the finding that 76% of respondents who were planning on shopping for a new cell plan within the next year said they would be open to trying a cellular product from a cable company.

I wrote recently about how the cellular business has entered the phase of the business where cellular products are becoming a commodity. Competition between the four cellular companies is already resulting in lower prices and more generous data plans. But when the cable companies enter the fray in all of the major metropolitan areas the competition is going to ratchet up another notch.

The cable companies will be a novelty at first and many customers might give them a try. But it won’t take long for people to think of them as just another cellular provider. One thing that other surveys have shown is that people have a higher expectation for good customer service from a cellular provider than they do for the cable companies. If Comcast is going to retain cellular customers then they are either going to have to make the bundling discounts so enticing that customers can’t afford to leave, or they are going to have to improve their customer service experience.

Even if Comcast and Charter have only modest success with cellular, say a 10% market share, they will hurt the other cellular companies. The number one driver of profits in the cellular business is economy of scale – something you can see by looking at the bottom line of Sprint or T-Mobile compared to Verizon or AT&T. If Comcast is willing to truly use cellular to help hang on to other customers, and if that means they don’t expect huge profits from the product line, then they are probably going to do very well with a quad play product.

And of course, any landline ISP competing against Comcast or Charter has to be wary. If the cellular products work as Comcast hopes then it’s going to mean it will be that much harder to compete against these companies for broadband. Bundled prices have always made it hard for customers to peel away just one product and the cable companies will heavily penalize any customers that want to take only their data product elsewhere.