Local Government Funding for Fiber

There is an interesting new trend where local government acts as the banker for rural broadband projects. It’s an interesting new twist on public / private partnerships and is a model that more communities should consider.

Consider these rural broadband projects in Minnesota.

  • First is RS Fiber. This is a new broadband cooperative that serves most of Sibley County and some of Renville County in Minnesota. Bonds were approved to fund 25% of a broadband project and those bonds are backed by the counties, some small cities and also by townships that are getting the fiber. The expectation is that the project will make the bond payments.
  • Next is in Swift County Minnesota. Federated Telephone Cooperative, an existing telephone company, was awarded $4.95 million to build fiber to rural homes in the county. The county approved general obligation bonds of $7.8 million to complete the project, or 60% of the funding.

Both projects are classic examples of a public private partnership. In these particular cases the company that will own and operate the network is a cooperative, but these same agreements could have been made with a for-profit telco or some other telecom provider as well.

These kinds of projects make sense for a number of reasons:

  • The process of approving bond financing is far faster than securing traditional funding for these kinds of projects.
  • Bonds for fiber can be financed over a long period of time – 20 to 30 years, while loan terms for commercial loans are usually shorter. Just like with a home mortgage, borrowing for a longer time period means lower annual debt payments, which is essential to make these projects financially feasible.

In both cases the Counties and other local government entities have taken on the role of banker. The local governments will have no operational role in running the fiber business (a role they did not want). The Counties expect for the bond payments to be covered by the fiber project. And since these networks are being built in rural areas with few other broadband alternatives the new fiber ventures should get high customer penetration rates. But if the ventures fail then the local governments are on the hook to cover any shortfalls in the bond payments.

These are both cases of local governments deciding that the need for rural broadband was great enough to risk taxpayer money to get this done. They also decided that the risk of not getting paid is low. The business cases show that even in the worst case the revenues from the projects should cover almost all costs, meaning that the downside risk to the Counties is minimal. In the case of RS Fiber, as a start-up new cooperative, they would not have been able to get any traditional funding without the seed money from the local governments.

This is a model that the rest of rural America should consider. Small ISPs like these cooperatives stand ready to serve a lot of rural America, but they often don’t have the financial wherewithal to do so. In these cases, a public private partnership with local government as the banker seemed to be the only way to make this happen.

Everywhere I travel in rural America homeowners and farmers want good broadband. They understand that it’s costly to build fiber to farms and small rural towns. But they also seem willing to help pay to make this work. I think if more rural counties would listen to their constituents they would take a harder look at this model.

Of course, a county needs to do their homework up front and make sure they know it’s a sound project and that the estimated cost of building the broadband network is accurate. But assuming there is a solid business plan, perhaps the most valuable role a county can tackle is that of being the banker to help new broadband builds get off the ground

Why Isn’t Everybody Cutting the Cord?

Last year at least two million households cut the cord. I’ve seen headlines predicting that as many as 5 million more this year, although that seems too high to me. But both of these numbers are a lot lower than the number of people who say they are going to cut the cord in the coming year. For several years running various national surveys show that 15 million or more households say they want to cut the cord. But year after year they don’t and today’s blog looks at some of the reasons why.

I think one of the primary reasons people keep traditional cable is that they figure out that they won’t save as money with cord cutting as they had hoped. The majority of cord cutters say that saving money is their primary motivation for cutting the cord, and once they look hard at the actual savings they decide it’s not worth the change.

One issue that surprises a lot of potential cord cutters is the impact of losing their bundling discount if they are buying programming from a cable company. Big cable companies penalize customers who break the bundle. As an example, consider a customer who has a $50 broadband product and a $50 cable product, but for which the cable company charges $80. When a customer drops one of the two products the cable company will charge them $50 for the remaining one. That means there is a $20 penalty for cutting the cord and thus not much savings from cutting the cord.

Households also quickly realize that they need to subscribe to a number of OTT services if they want a wide array of programming choices. If you want to watch the most popular OTT shows that means a $10 subscription to Netflix, an $8.25 per month subscription to Amazon and a Hulu package that starts at $8. If you want to watch Game of Thrones you’ll spend $15 for HBO. And while these packages carry a lot of movies, if you really love movies you’ll find yourself buying them on an a la carte basis.

And OTT options are quickly proliferating. If you want to see the new Star Trek series that means another $5.99 per month for CBS All Access. If your household likes Disney programming that new service is rumored to cost at least another $5 per month.

And none of these options bring you all of the shows you might be used to watching on cable TV. One option to get many of these same networks is by subscribing to Sling TV or PlayStation Vue, with packages that start at $20 per month, but which can cost a lot more. If you don’t want to subscribe to these services, then buying whole season of one specific show can easily cost $100.

And then there is sports. PlayStation Vue looks to have the best basic sports package, but that means buying the service plus add-on packages. A serious sports fan is also going to consider buying Fubo. And fans of specific sports can buy subscriptions to Major League baseball, NBA basketball or NHL hockey.

Then there are the other 100 OTT options. There is a whole range of specialty programmers that carry programming like foreign films, horror movies, British comedies and a wide range of other programming. Most of these range from $3 to $7 per month.

There are also hardware costs to consider. Most people who watch a range of OTT programming get a media streaming device like Roku, Amazon Fire, or Apple TV. Customers that want to record shows shell out a few hundred dollars for an OTT VCR. A good antenna to get local programming costs between $30 and $100.

The other reason that I think people don’t cut the cord is that it’s not easy to navigate between the many OTT options. They all have different menus and log-ins and it can be a pain to navigate between platforms. And it’s not easy to find what you want to watch, particularly if you don’t have a specific show in mind. It’s hard to think that it’s going to get any easier to use the many OTT services since they are in competition with each other. It’s hard to ever see them agreeing on a common interface or easy navigation since each platform wants viewers to stay on their platform once logged in.

Finally, none of these combinations gets you everything that’s on cable TV today. For many people cutting the cord means giving up a favorite show or favorite network.

If anything, OTT watching is getting more complicated over time. And if a household isn’t careful they might spend more than their old cable subscription. I’m a cord cutter and I’m happy with the OTT services I buy. But I can see how this option is not for everybody.

 

When Customers Use Their Data

In a recent disturbing announcement ,Verizon Wireless will be disconnecting service to 8,500 rural customers this month for using too much data on their cellphones. The customers are scattered around 13 states and are a mix those with both unlimited and limited data plans.

Verizon justifies this because these customers are using data where Verizon has no direct cell towers, meaning that these customers are roaming on cellular data networks owned by somebody else. Since Verizon pays for roaming the company say that these customers are costing them more in roaming charges than what the company collects in monthly subscription fees.

Verizon may well have a good business case for discontinuing these particular data customers if they are losing money on each customer. But the act of disconnecting them opens up a lot of questions and ought to be a concern to cellular customers everywhere.

This immediately raises the question of ‘carrier of last resort’. This is a basic principle of utility regulation that says that utilities, such as traditional incumbent telephone companies, must reasonably connect to everybody within their service territory. Obviously cellular customers don’t fall under this umbrella since the industry is competitive and none of the cellular companies have assigned territories.

But the lines between cellular companies and telcos are blurring. As AT&T and Verizon take down rural copper they are offering customers a wireless alternative. But in doing so they are shifting these customers from being served by a regulated telco to a cellular company that doesn’t have any carrier of last resort obligations. And that means that once converted to cellular that Verizon or AT&T would be free to then cut these customers loose at any time and for any reason. That should scare anybody that loses their rural copper lines.

Secondly, this raises the whole issue of Title II regulation. In 2015 the FCC declared that broadband is a regulated service, and that includes cellular data. This ruling brought cable companies and wireless companies under the jurisdiction of the FCC as common carriers. And that means that customers in this situation might have grounds for fighting back against what Verizon is doing. The FCC has the jurisdiction to regulate and to intervene in these kinds of situations if they regulate the ISPs as common carriers. But the current FCC is working hard to reverse that ruling and it’s doubtful they would tackle this case even if it was brought before them.

Probably the most disturbing thing about this is that it’s scary for these folks being disconnected. Rural homes do not want to use cellular data as their only broadband connection because it’s some of the most expensive broadband in the world. But many rural homes have no choice since this is their only broadband alternative to do the things they need to do with broadband. While satellite data is available almost everywhere, the incredibly high latency on satellite data means that it can’t be used for things like maintaining a connection to a school server to do homework or to connect to a work server to work at home.

One only has to look at rural cellular networks to understand the dilemma many of these 8,500 households might face. The usable distance for a data connection from a cellular tower is only a few miles at best, much like the circles around a DSL hub. It is not hard to imagine that many of these customers actually live within range of a Verizon tower but still roam on other networks.

Cellular roaming is an interesting thing. Every time you pick up your cellphone to make a voice or data connection, your phone searches for the strongest signal available and grabs it. This means that the phones of rural customers that don’t live right next to a tower must choose between competing weaker signals. Customers in this situation might be connected to a non-Verizon tower without it being obvious to them. Most cellphones have a tiny symbol that warns when users are roaming, but since voice roaming stopped being an issue most of us ignore it. And it’s difficult or impossible on most phones to choose which tower to connect to. Many of these customers being disconnected might have always assumed they actually were using the Verizon network. But largely it’s not something that customers have much control over.

I just discussed yesterday how we are now in limbo when it comes to regulating the broadband practices of the big ISPs. This is a perfect example of that situation because it’s doubtful that the customers being disconnected have any regulatory recourse to what is happening to them. And that bodes poorly to rural broadband customers in general – just one more reason why being a rural broadband customer is scary.

The Next Big Broadband Application

Ever since Google Fiber and a few municipalities began building gigabit fiber networks people have been asking how we are going to use all of that extra broadband capability. I remember a few years ago there were several industry contests and challenges to try to find the gigabit killer app.

But nobody has found one yet and probably won’t for a while. After all, a gigabit connection is 40 times faster than the FCC’s current definition of broadband. I don’t think Google Fiber or anybody thought that our broadband needs would grow fast enough to quickly fill such a big data pipe. But year after year we all keep using more data, and since the household need for broadband keeps doubling every three years it won’t take too many doublings for some homes to start filling up larger data connections.

But there is one interesting broadband application that might be the next big bandwidth hog. Tim Cook, the CEO of Apple, was recently on Good Morning America and he said that he thinks that augmented reality is going to be a far more significant application in the future than virtual reality and that once perfected that it’s going to be something everybody is going to want.

By now many of you have tried virtual reality. You don a helmet of some kind and are then transported into some imaginary world. The images are in surround-3D and the phenomenon is amazing. And this is largely a gaming application and a solitary one at that.

But augmented reality brings virtual images out into the real world. Movie directors have grasped the idea and one can hardly watch a futuristic show or movie without seeing a board room full of virtual people who are attending a meeting from other locations.

And that is the big promise of virtual reality. It will allow telepresence – the ability for people to sit in their home or office and meet and talk with others as if they are in the same room. This application is of great interest to me because I often travel to hold a few hour meetings and the idea of doing that from my house would add huge efficiency to my business life. Augmented reality could spell the end of the harried business traveler.

But the technology has far more promise than that. With augmented reality people can share any other images. You can share a sales presentation or share videos from your latest vacation with grandma. This ability to share images between people could drastically change education, and some predict that over a few decades that augmented reality would begin to obsolete the need for classrooms full of in-person students. This technology would fully enable telemedicine. Augmented reality will enhance aging in the home since shut-ins could still have a full social life.

And of course, the application that intrigues everybody is using augmented reality for entertainment. Taken to the extreme, augmented reality is the Star Trek holodeck. There are already first-generation units that can create a virtual landscape in your living room. It might take a while until the technology gets as crystal clear and convincing as the TV holodeck, but even having some percentage of that capability opens up huge possibilities for gaming and entertainment.

As the quality of augmented reality improves, the technology is going to require big bandwidth connections with a low latency. Rather than just transmitting a 2D video file, augmented reality will be transmitting 3D images in real time. Homes and offices that want to use the technology are going to want broadband connections far faster than the current 25/3 Mbps definition of broadband. Augmented reality might also be the first technology that really pushes the demand for faster upload speeds since they are as necessary as download speeds in enabling a 2-way augmented reality connection.

This is not a distant future technology and a number of companies are working on devices that will bring the first-generation of the technology into homes in the next few years. And if we’ve learned anything about technology, once a popular technology is shown to work, demand in the marketplace there will be numerous companies vying to improve the technology.

If augmented reality was here today the biggest hurdle to using it would be the broadband connections most of us have today. I am certainly luckier than people in rural areas and I have a 60/5 Mbps connection with a cable modem from Charter. But the connection has a lot of jitter and the latency swings wildly. My upload stream is not going to be fast enough to support 2-way augmented reality.

The economic benefits from augmented reality are gigantic. The ability for business people to easily meet virtually would add significant efficiency to the economy. The technology will spawn a huge demand for content. And the demand to use the technology might be the spur that will push ISPs to build faster networks.

Are You Texting Your Customers?

In the last year I’ve found all sorts of my outside interactions now involve texting. I get texts from the dentist affirming an appointment, texts from a furniture company making sure I was home during a delivery, and texts from AT&T wireless for my cellular billing. All these various businesses have found that texting saves them money. Yet I have only a few ISP clients that make wide use of texting. I find that a bit surprising because I can think of a number of ways that texting can be a big money saver for an ISP.

The most obvious one is that it can save from making unneeded truck rolls. Every ISP I know says that truck rolls are expensive, and there is nothing more wasteful than making a truck roll to a customer who is not at home. I’m sure that is why the furniture company made the text and they would not have tried to deliver if I wasn’t at home. Better yet, texting puts a technician into direct contact with the customer and allows them to work out a plan if a customer isn’t home.

But there is probably even a bigger savings in the way that AT&T uses texting. They send me a text each month when they bill me and invite me to view my bill online. This saves them from having to mail a paper bill – something that makes no sense to somebody like me that uses autopay to pay my cellular bill. I can’t imagine I would ever open an AT&T paper bill and they would be spending money and margin to send me one. Many of my clients tell me that today that over half of their customers pay by bank debit or credit card and there is a huge savings from not mailing paper bills to these customers.

I do have a few clients that use texting and they report some other significant savings. For example, they say that texting has greatly reduced their uncollectible billing. They say that it’s far more effective to prompt customers immediately if they are late in paying their bills, and that most customers promptly pay when reminded. That’s particularly effective if you give them an immediate opportunity to pay the bill by credit card.

But the savings that surprised me a bit is the fact that companies that allow interactive texting with customers report that they have significantly reduced the number of calls to customer service. There are a two primary issues that prompt the majority of calls to customer service – outages and billing inquiries.

I have a client who uses texts to inform customers about outages. Customers can get quickly frustrated if they don’t know what’s happening and when service will be restored. This client has tied texting into their OSS and network mapping system and can send texts to only those customers that have outages. And they can inform customers proactively of planned maintenance outages. They say this largely eliminates calls about outages and particularly works great after hours when they are not answering the phones.

Texting can also be a good way to answer a lot of billing inquiries. Texting can be a great tool for answering simple customer questions like their outstanding balance or the due date of their payment. It takes a lot less time for both the customer and the company to answer a simple question by text. This is a great way to communicate with customers (like me) who would always choose an option other than making a call and getting into a customer service queue.

There are a few issues with texting to be aware of. There are some archaic FCC rules that define requirements for when customers text you. This harkens back to the day when many people paid for each text message – something that barely exists any longer. But the rules are still in place and are something to be aware of. There are also rules about using texting as a form of marketing – again, something that can be done in a way that doesn’t violate the FCC rules.

There are a wide range of texting solutions. At one end of the spectrum your technicians can text customers from their cellphones. But in order to get all of the advantages listed above you will want a fully interactive texting platform that’s integrated into your OSS/BSS. Feel free to contact me and I can describe the best solutions on the market.

Pent-up Customer Demand

I’ve recently read several articles that talk about how the new ‘unlimited’ cellular plans have increased data demands. One article quoted analyst Chetan Sharma who pointed to research done by Opanga Networks that show that Verizon’s daytime data traffic has doubled since the introduction of the unlimited cellular data plans.

These plans aren’t really unlimited, but have increased the monthly data caps to much higher levels of 20 Gigabytes or more per month. For the average cellular user this is a large enough increase to allow them to stop self-limiting their cellular data usage. It finally frees customers to use their cellphones in the way they want.

This phenomenon was expected and is familiar to any network owner who has ever done a major broadband network upgrade. I’ve worked with a number of companies over the years that have improved customer broadband and they always see a similar surge in customer broadband usage. For example, companies that have made the transition from DSL to fiber have seen this same immediate surge in customer use of the network.

But it doesn’t take a network upgrade to experience this kind of surge. I’ve had customers that operate fiber networks that have had the same phenomenon when they increased network speeds. When one of my clients moved their basic broadband product from 10 Mbps to 50 Mbps they experienced almost the same thing as Verizon.

This surge comes from freeing pent-up customer demand for broadband. Customers limit their data usage when their broadband connection isn’t fast enough. For example, with a slow broadband connection they quickly learn that they can’t watch two different video streams simultaneously. Or parents might not let their kids game online while somebody else is watching streaming video. Customers quickly understand that slow download speeds impede their ability to do multiple things at the same time. And they learn to curtail their broadband usage accordingly.

But when customers find they can do multiple things at the same time they do so. They begin to use the broadband for anything they want to do and they stop curtailing usage. When a lot of customers discover they are no longer throttled then network owner experiences an immediate surge in broadband usage. Customers will use broadband in multiple ways simultaneously in the evenings. They will begin watching HD video instead of SD video. They will subscribe to OTT video services for the first time.

But speed is not the only thing that curtails customer usage. In the case of the unlimited wireless data plans it is the fear of exceeding a costly data cap that curtails usage. The same thing can happen for home broadband usage that has data caps – customers consciously don’t use bandwidth to avoid getting higher monthly bills.

There is an interesting thing that always happens following these data surges when customers are freed to do what they want. The amount of usage surges higher, like Verizon’s doubling, and then it flattens out at a higher usage level.

It’s been well known that home broadband usage, both in terms of desired speeds and total monthly downloads, has been doubling every three years for decades. Any time that customer broadband usage is somehow capped or curtailed, customers will catch up to this original curve and will start looking like other customers that don’t have broadband restrictions.

ISPs need to be aware of this phenomenon. I still know of numerous fiber-to-the-home networks that have base data products of 10 Mbps or 20 Mbps. The owners of these networks are squelching their customers’ usage and they are dictating to customers what they can and cannot do.

The bigger ISPs understand this. The cable companies have kept ahead of the customer broadband demand curve by unilaterally increasing data speeds. In many markets the base broadband product is now at least 60 Mbps – higher than the FCC definition of broadband and higher than what most customers need today. Cable companies have learned that giving customers a little more broadband than they need stops most complaints about broadband.

Little ISPs and fiber network owners need to understand this as well. There is not a lot of excuse on a gigabit-capable network for a fiber-owner to limit customers to speeds under 25 Mbps. Their base product ought to be at least as fast as what the big cable companies offer.

I know it is fear of having a surge in network usage that stops a lot of network owners from increasing speeds. I think a lot of them also don’t fully grasp the real implications of broadband demand constantly growing in a geometric manner. When a network owner first set speeds at 10 Mbps that might have been a great speed – but it’s now holding back customers from using the data product they are paying for. I always ask network owners the question – why did you build a fiber network if you don’t want customers to use all of the broadband they want?

The Best Way to Bundle

I read an interesting quote recently in an article written by Mike Dano of FierceWireless. He interviewed Ronan Dunne, the EVP of Verizon Wireless. He quoted Mr. Dunne as saying, “In competitive markets, and the U.S. is one, if you’ve got real choice in the individual products, the cost of bundling is that you end up taking the second-best wireless product and you map it to the third-best TV bundle in order to get the cheapest broadband connection or fiber connection. No wonder you get $5 off at the end of the bill,

That statement is a perfect lead-in to talk about the different ways to bundle. Mr. Dunne was referring to bundles like the one that AT&T does with DirecTV to try to get more video customers. That AT&T bundle is similar to what we see from most of the big ISPs. I wouldn’t even label these efforts as bundles, but rather as marketing specials that are designed to lure customers to buy specific product sets.

And Mr. Dunne is right. If you go to the web pages of all of the big ISPs you will see their pages splashed with really low-cost sounding specials. By now most people have figured out that the price for these specials increases at the end of the special term. And often people have found out that even with these specials that the actual price paid is higher because the ISP will load up these specials with all sorts of extra fees and charges that were not described in the advertising.

But Mr. Dunne is making an even more important point in that these specials end up luring customers to buy the smallest and least profitable products that an ISP sells. In order to get a cheap web price the ISP will pair their slowest broadband product with a small cable TV package. When customers contact the company to buy this special the customer service rep answering the phone then has an uphill battle to talk the customer into anything better – because they already have the advertised low price in mind when they call. Mr. Dunne went on to say that this kind of bundling is not attractive to Verizon wireless and that they would much rather sell premium products at a fair market price.

My clients face this same dilemma all of the time. I have some clients that take the exact opposite approach. They list all of their possible packages on the web, including those that might cost over $150 per month. But companies that do this face the opposite problem in that the high prices on the web might drive customers away from buying what they really want.

Many of my clients don’t post bundled pricing on their web sites for these exact reasons. They don’t want to lure people with false specials and they don’t want to chase customers away by talking about high prices. I see these clients taking several different approaches on how to handle bundling.

Some provide a discount for buying multiple services. For instance, they might discount $5 when somebody buys two products and $10 when they buy three. I’ve never particularly liked this kind of discounting for a few reasons. First, if a customer does buy your lowest margin products, such as your smallest cable package and a basic telephone line, then this discount might be giving away most of the margin on those small products. Another customer that buys the two highest margin products would get the same discount. I also don’t like the message that sends – it says that in general your products are overpriced.

I have other clients that don’t give any bundling discounts. They try to right-price each product on a standalone basis. They are not afraid to tell this to their customers and they take pride that they think each product is a bargain at the price they sell it at. I like this approach because I like the math. If a company ends up giving some sort of bundling discount to most of their customers then they have given up margin on every one of them. If you do the math you’ll see that you’d make more money with no discounts even with significantly fewer customers. A $10 bundling discount is giving away $10 of bottom line margin, which for most ISPs is a significant amount.

I’ve always asked clients who give big bundling discounts if they think they are saving any money when customers buy multiple products. The answer I get back – when they really think about it – is that they don’t save much. I think a lot of small companies bundle because the big ISPs do it and they think it’s the only way to do business. But I look at companies like Google and many of my other clients that don’t bundle and I see them getting similar market penetrations as my clients that offer bundles.

There is no question that it’s harder to sell without the bundle. It largely means that a sales call with a customer needs to be consultative and a good salesperson will ask a customer to define what they really want before talking price. Then, if the price is too high they will work with a customer to find a compromise they can live with. This kind of sales approach is going to sell a lot more of your premium products. And it’s going to make customers better understand just what they are buying. I think a lot of the customers that buy the cheap advertised bundles are not really happy with their products and are likely to churn at the end of the contract. What they really might want is faster data speeds or more TV channels, but when they start the conversation with the ISP based upon getting the lowest price that real desire gets lost in the transaction.

The main point of this conversation is that ISPs really need to examine their bundling practices. Just copying the big companies might mean giving away a lot of bottom line needlessly. And offering big discounts to new customers might not be adding many new customers after considering the churn and loyalty from customers who only buy due to the specials.

 

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.

The WISP Dilemma

For the last decade I have been working with many rural communities seeking better broadband. For the most part these are places that the large telcos have neglected and never provided with any functional DSL. Rural America has largely rejected the current versions of satellite broadband because of the low data caps and because the latency won’t support streaming video or other real-time activities. I’ve found that lack of broadband is at or near the top of the list of concerns in communities without it.

But a significant percentage of rural communities have access today to WISPs (wireless ISPs) that use unlicensed frequency and point-to-multipoint radios to bring a broadband connection to customers. The performance of WISPs varies widely. There are places where WISPs are delivering solid and reliable connections that average between 20 – 40 Mbps download. But unfortunately there are many other WISPs that are delivering slow broadband in the 1 – 3 Mbps range.

The WISPs that have fast data speeds share two characteristics. They have a fiber connection directly to each wireless transmitter, meaning that there are no bandwidth constraints. And they don’t oversubscribe customers. Anybody who was on a cable modem five or ten years ago understands oversubscription. When there are too many people on a network node at the same time the performance degrades for everybody. A well-designed broadband network of any technology works best when there are not more customers than the technology can optimally serve.

But a lot of rural WISPs are operating in places where there is no easy or affordable access to a fiber backbone. That leaves them with no alternative but to use wireless backhaul. This means using point-to-point microwave radios to get bandwidth to and from a tower.

Wireless backhaul is not in itself a negative issue. If an ISP can use microwave to deliver enough bandwidth to a wireless node to satisfy the demand there, then they’ll have a robust product and happy customers. But the problems start happening when networks include multiple ‘hops’ between wireless towers. I often see WISP networks where the bandwidth goes from tower to tower to tower. In that kind of configuration all of the towers and all of the customers on those towers are sharing whatever bandwidth is sent to the first tower in the chain.

Adding hops to a wireless network also adds latency and each hop means it takes longer for the traffic to get to and from customers at the outer edges of one of these wireless chains. Latency, or time lag, in signal is an important factor in being able to perform real-time functions like data streaming, voice over IP, gaming, or functions like maintaining connections to an on-line class or a distant corporate WAN.

Depending upon the brand of the radios and the quality of the internet backbone connection, a wireless transmitter that is connected directly to fiber can have a latency similar to that of a cable or DSL network. But when chaining multiple towers together the latency can rise significantly, and real-time applications start to suffer at latencies of 100 milliseconds or greater.

WISPs also face other issues. One is the age of the wireless equipment. There is no part of our industry that has made bigger strides over the past ten years than the manufacturing of subscriber microwave radios. The newest radios have significantly better operating characteristics than radios made just a few years ago. WISPs are for the most part relatively small companies and have a hard time justifying upgrading equipment until it has reached its useful life. And unfortunately there is not much opportunity for small incremental upgrades of equipment. The changes in the technologies have been significant enough that that upgrading a node often means replacing the transmitters on towers as well as subscriber radios.

The final dilemma faced by WISPs is that they often are trying to serve customers that are in locations that are not ideally situated to receive a wireless signal. The unlicensed frequencies require good line-of-sight and also suffer degraded signals from foliage, rain and other impediments and it’s hard to serve customer reliably who are surrounded by trees or who live in places that are somehow blocked by the terrain.

All of the various issues mean that reviews of WISPs vary as widely as you can imagine. I was served by a WISP for nearly a decade and since I lived a few hundred feet from the tower and had a clear line-of-sight I was always happy with the performance I received. I’ve talked to a few people recently who have WISP speeds as fast as 50 Mbps. But I have also talked to a lot of rural people who have WISP connections that are slow and have high latency that provides a miserable broadband experience.

It’s going to be interesting to see what happens to some of these WISPs as rural telcos deploy CAF II money and provide a faster broadband alternative that will supposedly deliver at least 10 Mbps download. WISPs who can beat those speeds will likely continue to thrive while the ones delivering only a few Mbps will have to find a way to upgrade or will lose most of their customers.