Category Archives: The Industry

Lifting the Ban on Municipal Competition

FCC_New_LogoFCC Chairman Tom Wheeler said a few weeks ago that the FCC was strongly considering lifting state barriers to municipal competition. His reasoning is that there is such a large need for broadband infrastructure that governments should not stand in the way of anybody who is willing to make the last mile investment. There are twenty-two states that have barriers that are significant enough to either ban or make it almost impossible for municipalities to compete with broadband.

There are a number of kinds of existing barriers to entry in State laws. First there are states like Texas that just have an outright ban on municipal competition. But there are also a few states that handled this a different way, like North Carolina, which instead created a list of barriers to entry that are impossible for any City to meet. North Carolina’s law is an effective ban, but it never explicitly bans municipal competition, but instead is written to sound like there might be a path to compete.

Utah has an unusual restriction in that Cities there are allowed to build fiber networks, but they can only operate them on a wholesale basis, meaning that some commercial provider must come in to provide the services. This same restriction is also in place in Washington where the Public Utility Districts (rural electric companies) have this same restriction. As it turns out it is very difficult, and maybe impossible over the long-run to make money with a wholesale network. This was the issue faced by Provo who finally gave up and sold their network to Google. And the problems faced by Utopia in Utah are well known.

Finally, there are states like Louisiana that create extra hurdles for a municipal provider. These restrictions are generally couched in language that creates a ‘level playing field’. That sounds good on paper, but the municipal provider ends up being regulated and having to comply with more rules than the incumbent. An example of this is the Fair Competition Act in Louisiana that places a lot of requirements in Lafayette, the only municipal provider there so far. But since that law has been written, AT&T has been effectively deregulated in the state but leaving Lafayette with significant and expensive regulation

What is interesting is that these bans are sponsored by the large incumbents like AT&T and Comcast. But for the most part the Cities that have decided to build fiber are small, rural and are in places that the incumbents have written off years ago. No large NFL City has ever given really serious consideration to building fiber. And only two Tier 3 Cities – Chattanooga and Lafayette have done so. Most of the places that want to get into the fiber business are towns that realize that no commercial company is going to make an investment in their community.

The cities that want fiber see that their kids leave town because there are no decent jobs in the local economy. With poor broadband the businesses that are there have trouble competing today and many of them will eventually relocate to where there is fiber. Most towns that decide to consider fiber feel they have been pushed into that decision. They generally have asked the incumbent providers to make the investments, but those big companies are not investing in small town America. In fact, just the opposite is happening and AT&T told the FCC that they would like to disconnect millions of rural landlines.

I don’t know a town that built fiber that didn’t do it reluctantly. But I think everybody is finally coming to understand that fiber has become basic infrastructure. It’s as essential to the well-being of a community as streets and sewers. Places without broadband are going to fade away over time and become irrelevant in economic terms. And towns get this. They want fiber as a way to make sure that their community is still here and still relevant twenty and thirty years from now.

It just seems incredibly selfish and greedy for the incumbents to work so hard to ban small towns from building fiber, when they themselves will never make any investment in those communities. I guess that is just in the nature of large corporations to generically fight against any competition if it can be legislated. They want to milk the last dollars out of their aging copper plant before they cut it down one day and leave these communities stranded.

The Death of the Browser

internet explorerI wrote yesterday a bit about the evolution of the devices that we use, but today I want to talk about a much more substantive change that is happening. There is a generational shift in the way people use the Internet and people under 30 years of age are using the Internet in a fundamentally different way than older people. This is starting to manifest itself in the services that are available over the Internet and we are reaching a point where it is going to affect what is available to everybody.

I’ve written before about how differently young people today use video. They rarely watch video in a linear fashion from the beginning to the end of a show. They would rather look at a highlight of a movie on YouTube than actually watch the movie. They generally are multitasking when watching anything and they don’t give video their undivided attention. One of the most popular ways for them to watch video is in the 7-second film clips on Vine.

The same fundamental differences are also there in the way that younger people use the Internet. People of this younger generation have now been raised on smartphones. And from that experience they predominantly prefer smartphone over PCs and tablets. You can see it in everything they do. They hate email and rarely use it. They instead text or chat with others directly. They don’t like sites like Facebook because the communications are too linear for them and instead use sites like Reddit, Imjur, 4Chan and 9gag, which are more akin to the way they communicate.

One of the biggest differences is that young people don’t use browsers and don’t even much like PCs or tablets. When people over 30, like me, think about the Internet we are really thinking about the browser experience. That means using programs like Internet Explorer, Google Chrome or Firefox. That is how we navigate the web, find information and communicate. We all learned the Internet with the AOL or similar browser and we still use the Internet in pretty much that same way. We generally drive our web experience based upon a browser and an email reader. We use Google to search for websites we are interested in. The way we use the web is very linear and based upon reading web sites, playing games, reading emails.

But younger people prefer the smartphone over the PC or tablet. To them computers are what they are forced to use for schoolwork, but the smartphone is where they do everything else. They assemble a pile of individual apps, each one to do a specific task. They are quick to swap any one of these apps when something better comes along. This is backed up by surveys. Pew Research Group has shown that 74% of teenagers use the Internet from their cellphone and 55% of them only use the cellphones to be on-line.

This trend is having a big influence on what is being developed for the web. It’s projected this year that web hits from cellphones will surpass hits from PCs and tablets, and so the Internet is flipping from PC-based to smartphone-based. We’ve already seen this in the marketplace where there are now major applications like WhatsApp that don’t even have a desktop equivalent. We also see PC staples like Facebook now being released as a series of apps rather than as a unified platform.

As more and more development is done for apps rather than for PCs, users of PCs are going to start falling out of the mainstream. And I get this, to some degree. I get my news from Flipboard, an application on my smartphone because it beats anything I have found on the PC. And most older users have a few apps they like, but as a group they mostly still use browsers. But as more and more new things are developed only for smartphone, older users will be lured more and more towards apps. In not too many years new development of the browser is going to die, and a few years after that the browsers will probably die.

I am not much enticed by the things that kids like today and I would rather be shot than spend an afternoon watching Vine. But when it comes down to being productive and actually getting work done, I turn to my PC or laptop. I am a PC man through and through, and if it comes down to it, you’ll have to pry my PC from my cold dead hands!

Can Open Access Work?

MLGW_Substation_Whitehaven_Memphis_TN_2013-01-06_006Today I am meeting with the Public Utility Districts (PUDs) in Washington State and they have been gracious enough to invite me to be the keynote speaker at their convention. These are the rural electric companies that serve much of the state outside of the major cities.

Whenever there is any listing of the fastest Internet speeds in the country the areas served by some of these PUDs show up among the fastest places because many of the PUDs have invested heavily in fiber. But they have a unique business plan because there is a legal restriction in the state that prohibits PUDs from being in the retail telecom business. This has forced them into operating open access networks where they build the fiber network and let other companies provide services.

No two of the PUDs have gone about this wholesale business in exactly the same way, and so together they provide multiple experiments on ways to operate a wholesale open access network. I know several of the PUDs well and they have one universal problem – no large, well-financed service provider has agreed to offer service on their networks. No big cable companies or telcos or anybody you ever heard of wants to serve the many customers on these fiber networks. There are a handful of connections sold to companies that serve large businesses, like Zayo and Sprint, but no bit company that wants to serve smaller customers.

What is lacking is vigorous competition on their networks from multiple companies willing to serve residents and small businesses. And that is what open access is supposed to bring. Instead, most of the retail service on these networks is provided by local ISPs who took advantage of the opportunity to reach more customers. In many cases the local ISPs were so small and undercapitalized that the PUDs had to assist them to expand onto their networks.

There are not many other open access networks in the US. One of the largest ones was in Provo, which struggled with the model and eventually sold their network to Google. I was privy to Provo’s books and they could not find a business plan model that would make their business model cash flow. But if we look outside the US there is another great example of how open access can work if done right. Europe has a number of cities that have built fiber networks and invited ISPs and others to serve customers. In Europe this has been a big success because numerous service provider show up to provide service. Some of these providers were the former state monopoly companies that were unleashed to compete after the formation of the European Union. But there are also new competitors there akin to our CLECs and ISPs.

The big difference between US and Europe is that here none of the incumbent competitors are willing to operate on somebody else’s network. I can’t think of one example in the US of large cable companies competing against another one. And there is very little competition between the big telcos other than some fierce competition for some giant government and business accounts. Here in the US the PUDs have only been able to attract small local ISPs to operate on their networks. For the most part these ISPs do a good job, but they are small and have the problems that all small telecom companies have.

Many of the PUDs are in the uncomfortable position of only have one real service provider on their network. Should the owner of that business die or just go out of business a PUD could see most of their network go dark and all of the residents and businesses in their towns lose their fast Internet.

Anybody who understands telco finances instantly understands why this model is so hard to make work. A company must spend a lot of money to build a fiber network and then can charge only relatively small fees to others that use it. A typical revenue for wholesale access to a fiber network is in the range of $30 per customer per month and that is really not enough revenue to pay for building and operating the fiber network. By comparison, most triple play providers have an average revenue per customer north of $130 per customer per month.

The PUDs built the fiber because they are in rural areas where nobody else was going to do it. Their communities have already benefitted tremendously from the fiber. But they have their work cut out to keep this going, and I am sure they will figure out a way to do so.

The Cost of Bond Financing

ppp_logoI have worked on fiber projects where the project has a choice to finance something through municipal bonds or through commercial loans. Such projects involve a government entity as well as a commercial partner. These public private partnerships are becoming more common as cities are looking for fiber and commercial companies are looking for help getting projects financed.

I have always told people that financing through municipal bonds is the most expense kind of debt possible. People at first don’t believe this until I show them. Afterall, the interest rates on municipal bonds is generally a lot lower, and in today’s market, and depending upon the rating of the bonds involved, you see 4% or 4.5% interest on bonds versus 7.0% – 10% interest on the equivalent commercial debt. And so people assume that municipal financing is a better deal.

In fact, around the country when the large incumbents try to pass laws that make it hard for municipalities to get into the fiber business they generally list the ability to obtain municipal financing as one of the big benefits that municipalities have over commercial firms. However, as the following numbers show, this is not true. Consider a project that is going to build a $30 million dollar fiber network. The project is also going to ask for $2.3 million in working cash to cover operating expenses. Following shows the financing using a revenue bond and using commercial debt.

Revenue Bond  Commercial Loan
Assets to be Built $30,000,000 $30,000,000
Fees $900,000 $100,000
DSRF $2,700,000 $      –
Bond Insurance $300,000 $      –
Capitalized Interest $6,500,000 $      –
Construction Interest $1,600,000
Working Capital $2,300,000 $2,300,000
Loan $42,700,000 $34,000,000
Interest Rate 4.50% 7.00%
Term 30 15
Annual Payment $2,621,419 $3,733,017
Total Outlay $78,642,566 $55,995,259

The first obvious difference is that you have to borrow a lot more money with a bond. Here are some of the reasons:
• Bonds require you to take the money in a lump sum and then pay interest on the full amount of borrowing during the time the project is being constructed. Further, bonds generally require the project to capitalize interest, that is borrow the amount up front to make the first three years of bond payments. In contrast, a commercial loan generally uses construction financing, meaning you draw the money as needed and only pay on what you have borrowed.
• Revenue bonds generally require a Debt Service Reserve Fund (DSRF) which puts one year of debt payment into escrow as a hedge against the project having trouble making the bond payments.
• Bonds often also require bond insurance, which is a policy that will make a full annual payment to bond holders should the bonds default.
• Finally, there are huge fees associated with floating bonds. There are many attorneys involved as well as substantial payments to bond trading desks for selling the bonds.

In this example, the bond debt is $8.7 million higher than the equivalent commercial debt. Bonds typically have lower interest rates and longer terms than commercial debt, and in this example mean that the annual payments are $1.1 million less per year. But there is a penalty to be paid for financing anything over a long term (like your home mortgage) and that is that you pay a lot more out over the life of the loan. In this example, the total cash outlay is $22.6 million higher for the bond debt, which is a 40% cash premium to pay for using bonds.

Municipal entities generally use bonds for several reasons. First, bonds rarely require any equity and the borrower can borrow 100% of the cost of the project. But the main reason that municipalities use bonds is that they are comfortable with this kind of financing and they don’t know anything else.

The problem this causes is that everything that the government builds in this manner costs more than if a commercial entity built the same project. I said the above example was for a fiber network, but it could just as well been for a water processing plant, a new high school, a new court house or any other municipal project.

We have an infrastructure crisis in this country and all of governments added together are capable of only borrowing a small percentage of the money needed to build and fix everything that is needed. So we need to abandon the bond model of financing a lot more often and start looking at public private partnerships as a way to get things done.

The Story of the Numbers

I ran across some interesting statistics from the Leichtman Research Group. They track a lot of basic industry statistics and the ones I found most interesting are summaries showing the number of cable and data customers at all of the largest carriers in the industry. Consider the following table that I have created from their statistics:

Data Customers 2013 2012 2011
Comcast 20,662,000 19,366,000 18,143,000
Time Warner 11,606,000 11,395,000 10,909,000
Charter 4,640,000 4,269,000 3,946,000
Cablevision 2,740,000 2,723,000 2,633,000
Suddenlink 1,059,500 1,002,100 948,700
MediaCom 965,000 915,000 851,000
Cable One 472,631 459,235 451,082
Major Cable 42,145,131 40,129,335 37,881,782
AT&T 16,425,000 16,390,000 16,427,000
Verizon 9,015,000 8,795,000 8,670,000
CenturyLink 5,991,000 5,851,000 5,659,000
Frontier 1,836,000 1,724,000 1,702,000
Windstream 1,170,900 1,214,500 1,207,800
FairPoint 329,766 324,977 312,745
Cincinatti Bell 268,400 259,400 257,300
Major Telco 35,036,066 34,558,877 34,235,845
Major Carriers 77,181,197 74,688,212 72,117,627
Cable Customers 2013 2012 2011
Comcast 21,690,000 21,995,000 22,331,000
Time Warner 11,393,000 12,218,000 12,743,000
Charter 4,342,000 4,158,000 4,314,000
Cablevision 2,813,000 3,197,000 3,250,000
Suddenlink 1,177,400 1,211,200 1,249,000
Mediaom 945,000 1,000,000 1,069,000
Cable One 538,894 593,615 621,423
Major Cable 42,899,294 44,372,815 45,577,423
DirecTV 20,253,000 20,084,000 19,885,000
Dish 14,057,000 14,056,000 13,967,000
DBS 34,310,000 34,140,000 33,852,000
AT&T 5,460,000 4,536,000 3,983,000
Verizon 5,262,000 4,726,000 3,981,000
Major Telco 10,722,000 9,262,000 7,964,000
Major Carriers 87,931,294 87,775,815 87,394,423

This table only looks at the major carriers, but in this country that is almost everybody. For example, missing from the table of cable customers are all of the other providers, who altogether only have 7% of the total cable market.

There are some interesting things to notice about these statistics:

  • The number of high-speed data customers continues to grow and the major providers added 2.5 million more customers in both 2012 and 2013.
  • The major cable companies either have or soon will have more data customers than cable customers. This explains why they now view themselves as ISPs who happen to sell cable.
  • The cable companies lost 2.7 million cable customers from 2011 to 2013. This may have more to do with service and competition than anything else since AT&T and Verizon picked up 2.7 million cable customers during that same time period.
  • The Comcast / Time Warner proposed merger is gigantic since those two firms are two of the top three data providers today and two of the top four cable providers.
  • As much effort as the satellite companies expend in advertising they are barely growing. Dish Networks, for example added a net 1,000 customers in 2013.
  • A few companies are really bleeding cable customers and Cablevision and Cable One both lost 14% of their cable subscribers over a two year period. Even Time Warner lost 11%.
  • As well as AT&T and Verizon have done in cable, together they have only grown to be 12% of the cable market.
  • The fastest growing ISPs over the two-year period are Charter (17%), Comcast (13%) and MediaCom (13%).

Training for a Telecom Career

800px-OSU_Bucket_TruckI was talking to one of my nephews and he said he is getting an IT degree so that he can move ahead in his career. He currently is a repairman for Frontier, the mid-sized teleco. That certainly gives him a lot of hands-on experience in telco. But there are drawbacks in working for an under-capitalized company who is still trying to find ways to modernize its DSL. I would have to agree with him that his experience in keeping old copper working is not going to make for a lifetime career. When I look at how hard Verizon and AT&T are working to get out of the copper business one can imagine that it will be obsolete within a few decades.

So my first question is to ask him what he wants to do with the degree, and his answer to me is networking. Whew. Because in my opinion nobody should be spending energy on specializing in servers these days. With the explosive growth in cloud computing that whole business line is going to be mostly be reduced within a few years to giant server farms run by Google and Amazon.

I remember when my own company had an IT guy who ran our server and internal network. At forty employees we thought we needed this because storing our files and keeping PCs working seemed like a lot of work. And servers were more art and science in those days and I don’t think any of us really understood what he was doing half the time. I am not sorry to see those days go. There are many tools today that make IT easy for small companies and our need for an IT guy died a decade ago.

But there are still technicians out getting Cisco certified and I shake my head at the world that would take their money to do so. One doesn’t have to look around very much to see that we are headed for a world that is taking the brains away from the edge of the network. Every part of the industry is working on technologies that will collapse all of the brains to huge centralized hubs. There is not a need for more than a few gigantic cable TV headends in the country. The cellular companies plan on migrating all of the brains from cell sites back to data centers within the next decade. Centralization and efficiency is the new mantra of the carrier world and this doesn’t bode well for companies or technicians who sell and work on the edge of the network.

In these cases bigger really is better, and centralized hubs will win because of the huge savings in hardware, software and labor. It is incredibly expensive for AT&T to upgrade all of their thousands of cell sites and it takes six months and an army of technicians. But make those sites into dumb transmitters and put all if the smarts in a data center and AT&T could effectuate a nationwide upgrade nationwide on the fly.

I saw an article yesterday that talks about the fact that Google doesn’t require a college degree to get hired there. In fact, the word college isn’t even listed in their hiring guide. They instead look at what people know and what they can do. They value expertise and the ability to think over a college degree. This doesn’t mean that they don’t hire people with degrees; it just means that they don’t believe that a degree demonstrates any particular expertise that can’t be gotten from real life experience.

So where is the best place to start in telecom today? If I was starting at the bottom I would look for a job as a trouble-shooter on FTTH networks. That experience is going to teach you a lot about networking and also a fair amount about the triple play products and integration. And it will teach you to work well with customers and other technicians. With the explosion of fiber networks these jobs must be one of the fastest growing segments of the industry, so a person starting their career ought to be able to find such a job if they are mobile and ready to move where the work is. If I didn’t want to be a technician I would look to work at one of the engineering companies that design fiber networks. The typical engineering firm works on enough different projects to give you a taste of everything. Engineers are forced to keep up with the cutting edge while a fiber provider like Verizon gets very locked into their specific version of the technology.

Do People Need Gigabit Fiber?

WDM_FOA few weeks ago I talked to a guy who has gigabit fiber at his home. There aren’t many people who have this service today, but with all of the announcements being made by Google, AT&T and others there are going to be a lot more of them over the next few years. My discussion with him has made me think about whether people really need gigabit fiber.

The guy I was talking to is one of the technical people working for CSpire, the group that is bringing gigabit fiber to Mississippi. I quizzed this guy about his gigabit experience. He admitted that his PC wasn’t really capable of a gigabit throughput and he is thinking of finding one that is. But he was getting a good fraction of a gigabit in his home. He said that this clearly put the Internet at his fingertip. Anytime he went to search for anything on the web it was there instantaneously. He was particularly impressed when he would do an image search on Google and see thousands of images appear immediately.

In contrast to him I have a 50 Mbps connection from Comcast and I must say that I rarely feel like I am waiting. There are a few times when I download a very large program or video where I have to sit and wait a bit, but my computer lets those sorts of things happen in the background while I do something else and I don’t have to sit and stare at the screen while I download something.

My experience tells me that there are very few people for whom a gigabit is needed today. Maybe some scientist who works at home while connected to a supercomputer might need it, but the average person does not. But I never heard Google tell people that they need a gigabit today. They have always said that they are building a network for the future. And this got me to thinking.

Certainly there are no applications today that need that kind of speed. But we have lived through many upgrades in network speeds and what I’ve always seen is that when people are given more bandwidth that they always find ways to use it. I think back and remember when I had 8 kbps dial-up and thought that the upgrade to 56 kbps was awesome. I remember getting my first DSL which was probably something like 512 kbps and thinking that was the end all and be all. I felt the same way when I moved up to 3 Mbps, then 10 Mbps and recently to 50 Mbps.

And everywhere along the line, I first thought the new higher speed were great, and then within a few years they started to feel slow, because the web has always kept pace with the speeds that people can use. Web pages added video, got more graphics and freely included links to huge pdf files. And now everything is moving to the cloud. My PC is backed up all of the time. All my emails are in the cloud. And as we start migrating into the Internet of Things we are going to be sending a lot more data into the cloud.

Up until now my incremental improvements in speed have been between 3 and 8 times faster than what I had before. A gigabit is 20 times faster than what I have today, and I already have more speed than the vast majority of people. So it’s going to take longer for the web and the world to catch up to a change that is 20 to 100 times faster than what people have today. It might take a decade or even two for the average home to grow into routinely needing gigabit speeds. But we will do it, just like we have grown into all of the other speeds that we have ever been given.

So what concerns me is not gigabit speeds. I’m more bothered that networks are being built that aren’t capable of being upgraded to a gigabit. For example, there was a lot of money spent from the federal stimulus grants on wireless networks that can provide 30 Mbps speeds at best. While that is a fine speed today, those networks are not upgradable to faster speeds. Five years from now those networks are going to feel slow, and the small companies that built then are not going to have the money to keep them running. While many cities are going to have gigabit speeds by then, there will be many rural areas with much slower speeds and with networks that are crumbling, dying or growing obsolete.

After giving this some thought I conclude that we will find ways to use gigabit speeds and that there will be a lot of homes with that speed over the next decade. What we should not be doing is investing in networks that are not capable of gigabit speeds. Federal, state or other grants should not be used to build wireless networks that will feel very slow in less than a decade. Because once a rural area gets a wireless network, nobody else is going to invest more there. It’s a real dilemma for a rural area that has terrible broadband to choose between wireless and fiber. But I know when we look back in a decade that every place that picked something other than fiber is going to be kicking themselves in the rear.

Chipping Away at the Cable Industry

Digital-tv-antenna-620x400It seems that every day I read a story about some big company who is working very hard to break the cable monopoly and to bring alternate programming packages to the market. Aereo is at the Supreme Court this week for trying just that – for bringing a small package of network channels to cell phones and tablets in major metropolitan areas.

Yesterday I read that Dish Networks expects to have a new service out by late this summer that is going to further chip away at the cable industry. They plan to offer a smaller package of programs over the web that are aimed at Millennials that will let them watch TV on smartphones and tablets for $20 – $30 per month. But I think a package like that is going to be appealing to a lot of households and is going to lead to a lot more cord cutters.

Dish has already signed up Disney, which brings them Disney, ESPN and ABC. They have reportedly been in negotiations with A&E, Turner, Comcast (which includes NBC) and CBS. The largest content providers have reportedly placed some contractual conditions on Dish getting such a package. They must include at least two of the major networks of ABC, CBS, FOX and NBC. They also must include at least ten of the highest-rated other networks in the package.

This concept is not new for Dish and they already sell packages on the web in fifteen different languages that they market under the name of DishWorld. This includes packages at $14.95 per month in Arabic, Hindi, Cantonese, Urdu, Filipino, Punjabi and many other languages and is a great way for emigrants to see programming from their home countries.

In another announcement that came out today, HBO, a division of Time Warner agreed to sell its library of original content to AmazonPrime. This is the first time that HBO or any cable network has made such a deal. This content has been made available on the web to people who subscribe to HBO at a major cable company like Comcast or Verizon. But the content has never been available to people who did not subscribe to HBO.

No one of these deals is going to break the cable industry. However, these two particular deals will chip away at the subscribers who buy traditional cable packages. These are deals that will let people get content on the web in a way they could not get it before. I think it is these sorts of deals that will chip away at the cable industry, and the industry won’t die in a big bang but will die from a thousand cuts.

Dish will lure away a pile of cord-cutters with this package. Verizon Wireless will lure away another pile. Google, or somebody non-traditional will get the rights to the NFL Sunday package and will lure away a pile. Somebody will make a deal with ESPN and the other key sports networks and take a pretty big pile. The Dish deal is the first major OTT deal but it will not be the last. As the programmers find a way to monetize their content over the web we are going to see more and more people dropping the giant packages. Virtually nobody is happy about paying for content they never watch.

Interestingly, not everybody sees the world in this same way. Here is one guy who sees a rebound for the traditional cable providers. He sees an increase in both customers and penetrations through 2019 for the cable industry. Nothing is impossible and we don’t have to wait long to see if he is right, but just about everybody else predicts that the large cable companies are going to keep losing customers and that the rate of loss will accelerate. Every little side deal made with Dish Networks or Verizon Wireless or Google is going to drag another pile of customers away from the big dollar, big-channel packages.

And at some point, the big line-up model starts breaking when programmers start getting less revenues for the less popular channels that are not being included in the new Internet-only alternatives. ESPN and Disney and the other popular networks are going to do just fine since they will probably be viewed by more people than ever. But the other 80% of networks have to be very worried about the trend towards OTT.

Statistics on How We Watch Video

Old TVExperian Marketing has published the results of yet another detailed marketing survey that looks at how adults watch video. This is perhaps the largest survey I’ve seen and they talked to over 24,000 adults about their viewing habits. This one has a bit of a different twist in that it correlates TV viewing with the use of various devices. The conclusion of the survey is that people who use certain devices are much more likely to be cord cutters.

Probably the most compelling statistic from the survey is their estimate that as of October 2013 the number of cord cutters has grown to 7.5 million households, or 6.5% of all households. This is several million higher than previously published estimates. This survey shows that age is an important factor in cord cutting and that 12.4% of households that have at least one family member who is a millennial between the ages of 18 and 34 are cord cutters. And something that makes sense is that over 18% of those with a NetFlix or Hulu account have become cord cutters.

The survey also shows that the number of people who watch streaming video continues to grow and that 48% of all adults and 67% of those under age 35 watch streaming or downloaded video from the Internet each week. And this is growing rapidly and both of those numbers increased by 3 percentage points just over the prior six months.

The main purpose of this survey was to look at viewing habits by type of device. One of the surprising findings to me is that smartphones are now the primary device used to watch streaming video. I guessed it surprised me because this is not one of the ways we watch video in our household other than videos that pop up from Facebook. But during a typical week 24% of all adults or 42% of smartphone users watch video.

The television set is still the obvious device of choice for viewing content and 94% of adults watch something on their television each week. Only 84% of adults now use the television to watch live programming and the rest are watching in some different manner. For instance 40% of television watchers still view content from DVDs, 32% get content from a DVR, 13% watch pay-per-view and 9% watch streaming video. As of February 2014, 34% of television sets are now connected to the Internet. Of those 41% use AppleTV, 35% use Roku and the rest have Internet-enabled TVs.

Adults are watching content on a lot of different devices now. Something that might be surprising to bosses around the country is that 16% of adults with a PC at work use it to watch streaming video. One fourth of adults who own game consoles watch streaming video, 26% of adults who own a home PC use it for videos, and 42% of adults who have either a smartphone or tablet use them to watch video.

The survey also looked at what people watch and the time spent with specific programming on each kind of device. For example, YouTube is the source for 59% of the video watched on PCs and the average adult spends over 21 minutes per week watching it. Only 7% of content viewed on PCs is NetFlix, but the average time spent is over 23 minutes per week. And over 10 minutes per week is spent on PCs watching Hulu, Bing Videos and Fox News.

The survey also asked how adults feel about advertising that comes with the video on each kind of device. Not surprising to me, only 9% of those over 50 found the advertising on their smartphone to be useful and 14% found advertising on the TV to be useful. But younger viewers are not quite as jaded as us baby boomers and 36% of millennials find advertising on their smartphone to be useful and 39% find TVs advertising to be useful.

If They Can Do It

ppp_logoI think everybody agrees that we don’t have enough last mile fiber infrastructure in this country to bring high-speed internet to the homes and businesses that want it. For various reasons the large telecom companies have decided to not invest in rural America, or even in any town or neighborhood where it costs more than average to build fiber.

Meanwhile we have a lot of municipalities that are interested in getting fiber to their communities but don’t know how to get it financed. Lastly, from what I read, we have tens and maybe hundreds of billions of dollars of potential investment money on the sidelines looking for solid investment opportunities. It seems like there ought to be an easier way to pull these things together because all of the components are there to make this work – the customer demand, the community desire and the money needed to get it done.

One has to look north to Canada to see an economic model that offers an answer – public private partnerships (P3s). For an example of a working investment model, consider  Partnerships British Columbia. The venture was launched in 2002 and is wholly owned by the province. It’s operated by a Board comprised of both government and private sector members.

The primary function of Partnerships BC is to analyze potential infrastructure projects and then attract private capital to get them constructed. The benefits to the province are tremendous. First, Partnerships BC stops the government from undertaking projects that don’t make financial sense. After all, governments often like to build ‘bridges to nowhere’. Partnerships BC will analyze a project and make certain that it will cash flow. They then attract private bidders to build and operate the most financially attractive projects.

They bring private money in to take the place of tax money and in British Columbia this is getting things like hospitals and roads built without putting all of the burden on the taxpayer. Additionally, projects built with private money cost less to build. We know all of the horror stories of cost overruns on government-built projects and that doesn’t happen when there are financial incentives for the private entities to build things efficiently. In fact, a few hospitals were built so far ahead of schedule in BC that the province was not ready for them.

One of the biggest complaints against government fiber projects in the US is that government has no business operating a competitive business. The P3 model eliminates that complaint as well since it attracts qualified operators to build and run projects. The telephone companies in the US should all be in favor of having a P3 structure here since it would help them to finance new fiber projects. Smaller and mid-sized telecoms have always had trouble finding capital and a P3 fund would bring money that might not be found elsewhere.

And of course, while I have a bias towards funding and building fiber projects, a state P3 fund would fund almost any infrastructure project that has a demonstrable cash flow such as hospitals, water systems, roads, railroads and bridges. I keep reading that we have a multi-trillion dollar infrastructure need in the country which is far greater than the combined borrowing capacity of governments. So we need to wake up and look north and use the P3 idea along with any other idea that will let us dig ourselves out of our infrastructure hole. America is crumbling and P3s are one part of the solution that could be implemented immediately.