The Battle for Public Spectrum

Wi-FiIt’s fairly obvious that we are going to need more unlicensed spectrum going into the future. We are already stressing the existing WiFi blocks of spectrum and there are more planned uses for WiFi coming in the near future. Cisco recently estimated that by next year that over half of all mobile data is going to be off-loaded to WiFi. Cisco also estimates that by 2020 that there will be over 50 billion IoT devices and that most are going to use WiFi to communicate with the world. In possibly the biggest use of WiFi on the horizon, the large cellular companies want to use the most common WiFi blocks of spectrum for making cellular calls during busy times of the day.

A few weeks ago Senator Brian Schatz (D-HI) introduced the Promoting Unlicensed Spectrum Act. This bill, if passed, would require the FCC to consider unlicensed spectrum any time they make a change in the allocation of spectrum. It would require the FCC to establish a long-term strategy to make sure that there is always enough unlicensed spectrum to meet our needs. This is most recent of several attempts to take a stab at the issue and this is becoming one of the new policy battlegrounds at the FCC.

Of course, like any big national battle these days, money is behind the battle and the lines have been drawn on both sides of the issue. On one side is the Wi-Fi Alliance which represents all of the companies that make money from WiFi. This includes the vendors that make WiFi devices and radios and all of the companies that have products that want to use WiFi like the IoT companies. On this side of the fight are also the groups that represent the public interest like Public Knowledge as well as Silicon Valley where all of the big web companies like Facebook and Google want as many people connected the Internet as possible.

On the other wide are groups that are pro-licensed spectrum. For example, TV station owners are very upset that the FCC is considering setting aside several UHF bands for WiFi in each market. The license holders of this spectrum view this as taking their valuable spectrum without offering them fair compensation.

And so, like most commercial battles, there will be the war of lobbyists. But there seem to be a lot more large companies on the side of expanding WiFi, which should give that side an edge in the battle. Besides, this seems to fit into the FCC’s existing mindset and they have been considering more WiFi even without such new laws.

WiFi has been called the spectrum of innovation, which seems like a pretty apt name. Over the last few decades there has been a huge number of different ways to use WiFi, which was only made possible because companies were willing to tackle the R&D knowing that they had the spectrum available.

Much of our licensed spectrum in the country goes to waste. The FCC divvies out huge blocks of licensed spectrum. In metropolitan areas where there is a huge amount of demand this spectrum sometimes gets used to the maximum. But even that is not always the case because there are large sections of spectrum, like the LMDS and the MMDS spectrum that was auctioned a decade ago where the technology was never fully developed and where the spectrum now sits mostly unused.

That is probably the biggest drawback of licensed spectrum. The ways that it can be used are limited to the interests and plans of the license holders. When a new block of licensed spectrum gets awarded the vendors all descend making sales pitches on how to best use it. But the final call is up to the license holders, and they generally have a fairly specific and narrow vision of what they want to accomplish with the spectrum. There generally is no innovation in licensed spectrum other than what the license holders are willing to pay for.

And in rural America most blocks of spectrum go unused. Rural areas will see some cellular spectrum used as well as a handful of point-to-point microwave spectrum, but for the most part the vast majority of spectrum blocks go completely unused in rural areas. This is sad because there is spectrum that could do a much better job at delivering rural data than WiFi, but which is off-limits for public use.

I have no idea if this legislation is going to move out of Congress, and perhaps it doesn’t matter much if it does. The FCC already seems to favor more WiFi and so this legislation just forces them to do what they already seem to be doing. But you never know when the political tide will change and so it’s probably better to make this the law rather than leave it as an FCC policy.

Big Government and Broadband

Capitol_domeOne of the platforms of Hillary Clinton’s campaign is to create a 5-year $275 billion infrastructure plan that would, among other things, foster faster broadband for rural America. The plan would also pay for crumbling roads and bridges and other infrastructure. I’ve seen estimates that as a country we have a several trillion dollar infrastructure deficit, and so this plan would be the proverbial drop in the bucket towards bringing our infrastructure back to where it needs to be. But it’s a start and is better than doing nothing.

This plan leads me to speculate on the role that big government might be able to play in solving our broadband needs. What might the US government do with billions of dollars aimed at improving broadband?

We’ve seen two previous big federal broadband programs and the results have not been very good. First was the billions that were part of the broadband stimulus package. This money was used mostly to create middle mile fiber – that is fiber that stretches between communities. Some of that fiber has been used to get better broadband to the last mile, but the vast majority of that investment has not benefitted a whole lot of people other than the cellular companies who use that fiber to get cheaper access to cell towers.

The stimulus money also put a lot of emphasis on getting fiber to ‘anchor institutions’ which it defined as schools, libraries, city halls, and other government institutions. So we ended up with rural fiber networks that serve only a handful of these anchor institutions, but not to the neighborhoods surrounding these locations. As I’ve written many times, bringing fiber only to anchor institutions is actually a disincentive to get fiber everywhere because it removes these large bandwidth customers from being potential customers of locally built fiber networks.

To give the federal government a little credit, the stimulus money popped onto the scene with no notice and there was no plan in place or even people in place to review the various grant proposals. There were some last mile networks financed from the stimulus money and I’m sure those communities are thrilled to have been the lucky few that benefitted from the many billions in spending.

More recently we have seen the FCC throw billions of dollars at the large telcos with the CAF II funding. They have given Frontier, AT&T, and CenturyLink billions of dollars to improve rural DSL broadband to 10 Mbps. And gave them six years to get it done. This is such a bad idea on so many levels that you’ll have to go and read my other rants on this. But this is mostly the equivalent of pouring money onto the ground and it going to bring no real broadband to anybody. This is a classic case of a government boondoggle that spends a lot of money and accomplishes almost nothing useful.

So what might the feds do if they were to give out more billions? One thing they will probably do is to overspend on broadband like was done with the stimulus money. Those grants included rules that inflated the cost of building fiber. The companies taking the money had to do expensive environmental and historical studies, something that makes no sense for fiber that is placed into pre-existing road rights-of-ways. And they required the contractors building the networks to use prevailing wages, which mostly meant paying large city wages for projects that could have normally been done in rural areas for a lot less. Altogether these extra requirements probably added 15% – 20% to the cost of the projects.

What is scary is that in order to shovel the money out the door quickly the federal government might either give the money to the incumbents as corporate welfare or else end up backing projects like more middle mile that largely build fiber to nowhere.

The most cost effective way to use federal money would be to give it to local groups in some sort of matching arrangement. This would stretch the federal money the farthest and would also enable communities to find the best local broadband solution. Some communities might tackle this directly using bond money for the match, while many others would seek out public/private partnerships with local carriers. And the small telcos and coops around the country could use this money to extend their fiber networks – many of them have already showed us how to bring fiber to remote places.

I have no idea if there will even be another big pile of federal money aimed at broadband – it’s a long way from a campaign platform to reality. But if this does happen I hope that this time they have a better plan that would use the money to build last mile fiber to rural communities – the only permanent solution to closing the rural broadband gap. I hope they take the time to listen to the industry and this time that they do it right – or at least better.

Sports Will be the First Victim of Cord Cutting

Maryland TerrapinsThe common industry wisdom is that sports programming is the most powerful weapon of the cable companies since it provides content that cannot be found anywhere else. But from what I have been reading lately, I think perhaps that sports programming might be the first victim of cord cutting and skinny bundles.

There is no doubt that there are a lot of rabid sports fans in the country. And to satisfy this base the programmers have come up with a slew of sports networks. Not only is there the ESPN suite of channels, but we have channels that specialize in golf, tennis, and a number of other sports. And there are local sports networks in every major market.

But except for NFL football, which is in a universe of its own, there are a lot fewer sports fans than you might imagine. In a recent poll that asked people what channels they would most like to have on an a la carte basis, no sports network including ESPN registered as even a 30% choice. Sports fans find having sports programming to be a necessity, but the fact is that a large majority of people would gladly do without sports networks if that lowered their cable bills.

And now along comes cord cutting and skinny bundles. Cord cutters are those that abandon all big cable packages in favor of either no programming, or programming offered on-line. Skinny bundles are slimmed-down channel line-ups being offered by telecom providers as an alternative to their bigger channel alternatives. Add this to people who are down-sizing from large line-ups to smaller packages and there is a lot of change going on in the cable industry.

In looking at both of these alternatives today there is a dearth of sports programming offered on-line. Sling TV has the ESPN suite of channels. But most other on-line packages have little or no sports programming. The people abandoning cable are obviously not the sports fanatics.

There are many industry experts that want to pretend that cord cutting is not real. And for most of the networks that sell content, it really much doesn’t if it is real. In the US there are still around 100 million people buying some sort of cable package and sales of content from most programmers is booming worldwide as the US market ebbs.

But the same isn’t true for sports. ESPN has almost no appeal overseas and, like most US sports, the network is very much an American product made for Americans. I think that looking at ESPN is probably the best measure of the change in the industry. It’s been reported that ESPN has lost 7 million customers over the last few years, which is significant – and they aren’t going to make that up by selling their content anywhere else.

And so it looks like US sports networks, or the sports they support, might be the first real casualty of the changes in the industry. Every time somebody cuts the cord or flips to a skinny bundle the sports networks are going to lose a customer. And these customers are almost impossible to replace. Take ESPN: they charge nearly $6 per household per month to the cable companies to carry their programming. But if only 25% of households would actually value them enough to subscribe to their programming, then on an a la carte basis they would have to charge $24. But the big catch is that probably only a very tiny fraction of that 25% of sports fans would agree to pay that much. There is no model for a standalone ESPN that can make as much money as they make today.

Something is going to have to give as the sports networks lose customers. The most obvious thing to give is the millions that ESPN and the other sports networks pay to sports leagues to get exclusive rights to their content. As the sports networks make less money those payments are going to have to drop.

Many think that would be a good thing for sports. It is these TV payments that have led to college football teams paying multi-million dollar salaries for coaches. It’s these same TV payments that have led to crazy realignment of college leagues, such as seeing Maryland join the Big 10 or West Virginia join the Big 12. Big time college football and basketball have become all about the money and this has gotten carried to ridiculous extremes in recent years. Big TV revenues are also what feeds the giant payments to professional baseball and basketball players.

There are some sports networks that won’t survive a downsizing of the industry. But if a network like ESPN can be disciplined enough to not outspend their revenues then they should be around for a long time. There are a whole lot of folks who are going to be in for a rude awakening when this day hits – and the day of being realistic about payments for sports content is going to happen within the coming decade. It’s hard to imagine what college sports budgets will look like if a huge part of their revenues disappear = and the people in charge of those budgets better start thinking about that now before it’s too late to do anything about it.

AT&T – Building Fiber by Press Release

u_verse_truckIt seems like every few months AT&T makes a new announcement about markets where it’s going to bring its GigaPower broadband service. Just a week ago they announced more than three dozen new markets that include places like Memphis, San Francisco, and Detroit. And they supposedly already have this product available in over twenty markets today.

The trouble is that there is very little evidence anywhere that AT&T is actually building much, if any, new fiber. I’ve seen several reports that suggest that AT&T is offering the product only in those handful of places where they already have fiber – upscale high-rises and new housing developments where they decided to deploy new fiber rather than new copper.

The AT&T press releases make it sound like AT&T is undertaking a massive fiber building project in these cities similar to what Google is doing. Google pre-sells to neighborhoods and then follows up those pre-sales by building fiber past everybody in that neighborhood. I have my reservations about whether it’s really good for a city to let a carrier build to only select parts of their community, but at least Google is out spending the capital dollars on fiber.

In the communities where Google is building you find all sorts of evidence of the construction. There are tons of consumer reviews of the Google products. There are local news articles mentioning construction issues and warning people to stay away from certain streets on certain days. There are tons of local articles in each Google community speculating about who is going to get fiber and what it’s going to mean. The web becomes awash with local news of Google Fiber as it is being deployed.

And yet there is virtually nothing similar in the press in AT&T gigabit cities other than in Austin. In Austin, AT&T built fiber-to-the-home to some neighborhoods as a way to counteract Google, and so in that city the local news is awash with news of AT&T fiber. But there is almost nothing on the web from the other AT&T markets. I can only find a small handful of customer reviews about the AT&T GigaPower product outside Austin.

And other than corporate press releases there doesn’t seem to be big local advertising push by AT&T in the GigaPower markets. Verizon FiOS got their initial fiber customer base by an aggressive door-to-door campaign, a tactic also employed by Google. These campaigns also generate web noise and I can’t see any evidence that AT&T is doing this.

One would also expect that if AT&T was really out building fiber that there would be a big bump in spending on the landline side of the business. It’s not easy to decipher the AT&T annual reports to figure out landline versus wireless capital spending, but there are several wireless analysts who think that the vast majority of AT&T’s capital budget goes to the wireless business. When Verizon was building FiOS there was a huge uptick in capital spending that had all of the telecom analysts buzzing.

The funny thing is that AT&T seems to be using the illusion of building fiber to gain regulatory favor. For instance, one of the ways they got approval of the DirecTV deal was by promising to bring fiber broadband to many millions of homes. In the net neutrality debate they threatened at one point to stop their largely non-existent fiber buildout if the FCC ordered Title II regulation of broadband.

The mainstream press seems to have been duped by the AT&T press releases. As an example, there was just an article last week by Brian Fung of the Washington Post that praised AT&T for entering so many new markets and which chided Google for going slowly. I don’t really want to criticize Brian too much because his tech reporting is usually on point, but he missed this one. Google is spending the millions of capital dollars needed to bring fiber to urban neighborhoods while AT&T seems to largely be building fiber by press release and by increasing speeds in the tiny percentage of their network already on fiber.

For a company that is crowing so loudly about fiber, AT&T is not reporting GigaPower customers separately, nor are they likely to. They do report ‘broadband customers’ which is a combination of fiber customers and customers added to the U-Verse DSL network. In the third quarter the company added 172,000 broadband customers, most of whom were regular DSL customers upgraded to U-Verse. That does not look like a statistic of a company that is aggressively rolling our fiber to almost sixty markets and which is supposedly going to add millions of customers to fiber.

Programmers Have the Power

huluIt was announced late last month that Time Warner is negotiating to buy a 25% share in Hulu. This would make them equal partners with Comcast, Disney, and Fox in ownership of the OTT service. I think this potential transaction highlights the very complicated dynamics in the industry between programmers and OTT companies.

It’s obvious that the programmers love Netflix, the largest OTT provider, but they also fear them to some extent. On the plus side, from the programmers’ perspective, the four companies (include Time Warner) currently get about $650 million per year just from Netflix to pay for selling rights to various programming, mostly older TV series, to Netflix. This is obviously a significant source of revenue.

But there is also a lot of unease in the industry since OTT providers, and Netflix in particular, are influencing people to demand alternate programming. And while the programmers have lost some money from cord cutters, the real threat to them is skinny bundles. While the revenue the programmers get from Netflix is good money, it is dwarfed by the revenues that come from traditional cable packages. I have never seen that exact number, but by looking at my clients I am going to guess that the average paid by cable companies per customer for programming is probably around $45 per month, not including premium movie channels. That would equate to more than $50 billion per year paid for programming.

The big threat from skinny bundles is that the cable companies will sell small packages of only the most popular programming. The owners of the most popular channels will do okay, but today the real money for a programmer comes from forcing cable companies to carry their entire large suite of channels. If skinny bundles get popular enough they are going to whack the revenue streams from the less popular channels in each programmer’s portfolio. And that means huge potential losses in revenue, far greater than what they will collect from OTT and skinny bundle providers.

There is talk in the industry that the major programmers might start withholding their best content from Netflix. Reed Hamilton from Netflix has voiced this concern many times and this is probably the reason that Netflix is spending so much money to create its own content.

The four programmers could instead funnel all of their own content to Hulu, and in effect pay themselves by hopefully drawing more paying customers to Hulu. The surveys I have seen have shown that a large percentage of viewers are becoming loyal to shows and not to networks, and so giving Hulu exclusive rights to content certainly sounds like a plausible strategy.

The above discussion makes me realize how much power the programmers still have in the industry. While these four programmers couldn’t destroy Netflix, they could probably hobble them. As Bill Gates said, content is king, and that certainly applies in this arm-wrestling match between programmers and service providers. Since there are only a handful of programmers, they collectively have the ability to pick winners and losers in the industry.

Since content is king one has to wonder how long a small group of programmers can keep their current power? Not only is Netflix creating popular content, but there other new content creators like YouTube and Amazon entering the fray and joining companies like HBO and AMC that are becoming mini-powerhouses on their own.

I find it unlikely that the programmers would just cut Netflix or anybody else dead from all of the content, which would seem to be an open invitation to an antitrust investigation. But they can withhold some content, raise the rates on other content and make it harder for companies like Netflix to continue to eat away at their revenue streams.

I have no idea where any of this is going to go. But my guess is that if we could look forward a decade from now that there will be major shifts in the industry. There are going to be some current programmers that wane and other new ones who will enter the market. But as a whole, no matter who the programmers are, they are still going to be in the driver’s seat.

The Problem with Data Caps

comcast-truck-cmcsa-cmcsk_largeI have been thinking a lot more about the Comcast 300 gigabit per month data cap. It’s now under trial in a few markets, but everybody expects it to be rolled out everywhere. I think this cap is going to do huge damage to the way we use the Internet.

I certainly am among those who have seen these data caps coming. Broadband penetration rates are now north of 80% of households nationwide and higher than that in many metropolitan areas. The largest cable companies are still adding new data customers at a decent pace – the latest statistics show that the largest ones are still growing at over 5% per year in new customers. Some of these new customers are people who are finally getting broadband for the first time and the rest are from the continued poaching of slow DSL customers.

But that customer growth has to stop or slow way down in the near future because the cable companies are starting to own most of the data market. And since these companies are all publicly traded, they want continuous growth in their bottom line. Since margins continue to shrink on cable TV, this means that all of the margin growth at a big cable company must come from their data products. Growing data revenues either means instituting across-the-board rate increases on data or introducing something like the data caps. I am sure we are going to see some of each. Certainly after they get their boost from the data caps, then in a few years their only way to improve bottom line will to be raise all data rates every year in the same manner they currently raise cable rates.

I see a number of specific problems with the proposed Comcast data cap. First, it’s too low. I am not totally against very large data caps because there are always a tiny percentage of customers that download massive amounts of data. And so I don’t have a problem if a cable company wants to charge somebody who downloads multiple terabits of data per month. Other than using their service to run some kind of business, it’s hard to imagine how somebody today can use something like 5 terabits month after month.

But the Comcast data cap is not set to catch the few really huge data users. Years ago Comcast trialed a data cap at 250 gigabits per month. At that time, before the widespread adoption of Netflix and web video that cap probably only affected a small percentage of customers each month. But the web statistics I see show that household usage of data has doubled every three years since the advent of the web. And so if a company is going to have a data cap aimed at charging more only to the very largest users, that cap should be grown every year. For instance, if 250 gigabits per month was a good cap 5 years ago, then the equivalent cap today would be 800 gigabits and five years from now would be 2.5 terabits. Those three limits would affect roughly the same number of households.

But Comcast is starting with a low data cap and will probably only raise it begrudgingly. To put the Comcast data cap into perspective, a household that uses streaming video for about 4 hours per day will hit this cap. This calculation assumes that they are also doing other things like web browsing, backing up pictures into the clouds, using social media, offloading cellphone data, etc. If there are three or more users in a home that is a ridiculously low cap. Remember that video usage doesn’t just come from watching Netflix. All of those little videos that autoplay as you scroll through Facebook or look at web pages with video ads also are streaming video to you.

So Comcast obviously is not out to charge more to only very large users, but to anybody that actually uses the Internet to watch video. This will nail cord cutters the most, but statistics show that even many homes with a cable package are streaming 3 – 4 hours per day of OTT video. And a few years from now this cap is going to catch the majority of households if the cap doesn’t grow each year.

Comcast is talking about charging something like $30 extra to buy unlimited usage, something I thought I was already buying. For my household this will raise the cost of my 50 Mbps data product from $50 to $85. I can afford to pay this, but a lot of households will not be able to afford it. And so we are going to quickly be back to the days when a household has to closely monitor web usage and curtail family members from using the web in the way they want. And this is going to mean stifling the use of OTT video – the competitors of Comcast.

When you consider that for all practical purposes in most markets the cable company is effectively a monopoly, then data caps are clearly anti-competitive behavior meant to stifle their competition. And when you consider that Comcast wants to introduce its own OTT product, Stream TV, that would live outside the data caps, I see massive antitrust problems here. Expect to see my complaining loudly and often about data caps if they move from a trial to become a regular part of the pricing structure for cable modems.

Building Fiber to the X

Fiber CableAnybody that is a client of CCG probably knows that we build business plans as one of our primary products. Over the years we have built business plans for just about every kind of network and technology imaginable. And as you might suspect, these days we build a whole lot of fiber-to-the-premise business models for markets of all sizes.

I recently realized that we are on the verge of being able to use FTTP networks to do a lot more than serve residents and businesses. My typical business plan concentrates on the revenue streams that can be gotten from residential and business customers. We also look at a few other revenue streams like selling to large customers like schools or cell phone towers. And we normally consider wholesale sales made to other carriers already in the market.

But everything I read tells me that there are soon going to a whole lot of new opportunities for using a fiber network, particularly in medium to large markets. We are seeing some of these opportunities today, but each of these areas promises to get larger as time goes by. Consider some of the following:

Outdoor WiFi Network: More and more cities and even some carriers are starting to foresee business plans that include numerous outdoor WiFi hotspots. This can be for law enforcement and municipal use, for roaming WiFi cellphones, to provide a digital divide solution, or just to provide a service to citizens or customers.

Smart Lampposts: Similar to WiFi hotspots are smart lampposts that include smarter lighting that saves energy coupled with WiFi hotspots.

Mini Cell Sites: As the cellular carriers contemplate going to 5G they are going to need a lot more and smaller cell sites located close to users. And these cell sites will need fiber.

Traffic Light Systems: There are new systems of intelligent traffic signals that promise to significantly improve traffic flows using AI.

Cameras: There is a proliferation of cameras today including private security cameras, traffic cameras, web-cams, and law enforcement security monitoring.

Digital Advertising Signs: There are now programmable billboards that can change the display through programming.

IoT Aggregation Points: Most carriers envision a network of IoT aggregation points that gather the traffic to and from outdoor and other IoT monitors as a separate Ethernet network.

Smart Meter Aggregation Points: Although wireless technology seems to have won the smart meter race, these networks need neighborhood aggregation points to gather signals from the wireless monitors.

SCADA Systems for Electric and Water Utility Monitoring: While many electric and water systems now have fiber networks to connect monitors in their system, as we develop more sophisticated monitoring there will be the need for more monitoring points.

On top of these applications there are others that nobody has yet thought of, into a business plan. But fiber is a long-term investment and there are going to be numerous revenue opportunities like these that are going to help to pay for fiber, assuming that a fiber network is deployed with these kinds of connections in mind. People always ask me what happens to a fiber network as cable TV and telephone penetration rates drop, and at least part of the answer is that there are going to be numerous locations in a community that are going to require a fiber connection. None of us knows yet how these future revenue streams will be priced, but we know these are all revenue opportunities and that they are all coming in the not-too-distant future.

T-Mobile and Comcast Challenge Net Neutrality

Network_neutrality_poster_symbolBoth Comcast and T-Mobile have developed video plans that seem to be a direct challenge to network neutrality. In both cases they are playing favorites with video services in an environment where both carriers have data caps. I find it interesting that they would challenge the FCC in this manner while net neutrality is still being decided by the courts. Even should the FCC look at these cases, any decisions they make could be later changed by the court ruling. Carriers in general hate uncertainty and usually shy away from tackling regulatory matters that are under court review.

Comcast has come out with a skinny bundled they are calling Stream TV. It is being tested now in a few markets. The new service includes CBS, NBC, ABC, FOX, the CW, Univision, Telemundo, and HBO. It does not include the more popular cable networks like ESPN or AMC. The monthly price is $15, which is interesting since HBO NOW is sold at that same price if you buy it from HBO. It’s available only to Comcast broadband customers – it’s starting now in Boston and Chicago but should be available in the whole Comcast footprint by early 2016.

The service can be watched on any device in a home connected to the XFINITY network, but does not come to the Comcast settop box. A customer could watch it on a smart TV or by using Roku, Apple TV or similar devices. Comcast says this is a product aimed at cord cutters and at young viewers who don’t want to sit in front of a television. Everybody has been expecting these kinds of offerings from the big cable companies as a way to keep cord cutters sending them a monthly check.

There are two regulatory issues with this new offering. The first is that it does not fit into the scheme of the prescribed kinds of lineups defined by various cable laws enacted by Congress. It comes closest to being a basic cable line-up since it includes the network channels, but it excludes things like PBS and local government access channels. I think Comcast is trying to get around this by having this not delivered to the settop box. It’s instead delivered on the IP path. But there still seems to be room for a challenge to the legality of the offering because the various federal rules on cable tiers are silent about technology differences and the same sorts of line-up requirements apply to somebody like a Verizon FiOS network.

The net neutrality problem comes because Comcast is not going to count the bandwidth from the Stream TV service against their newly established 300 gigabit per month data caps, which are being trialed in a few markets but are expected everywhere. That seems to be a direct slap in the face to the FCC since net neutrality rules prohibit favoring your own products over those of competitors. It’s really hard to see how this can be allowed to stand. Watch Comcast without a data cap or some other alternate provider like Hulu and it counts against the cap.

The T-Mobile product takes a totally different tactic. T-Mobile has rolled out their own skinny bundle called Binge On. The product includes a wide range of channels like ESPN, HBO, Netflix, Showtime, and Hulu with a total of 23 choices. Customers must buy each of these separately, and the beauty of that is that customers get to put together their own skinny bundles of just what they want to watch.

The net neutrality issue is that none of the video viewing will count against a T-Mobile customer’s data cap. On quick glance that doesn’t look to be discriminatory since there is a wide range of possible programming to buy. But the rub comes in that if a customer watches other video on their phone from a site that is not part of the package then it counts against their cap.

This means that T-Mobile is picking winners and losers for video streaming. They are allowing a small handful of programming to be unmetered but exclude the other thousand sources of video. This exact situation was discussed by the FCC when they first proposed the new net neutrality rules and their worry was that allowing carriers to pick winners and losers would result in stifling new innovation on the web. If all of the carriers mimicked T-Mobile then a new video offering would have a huge uphill battle and we would have an oligopoly of a handful of the largest video providers.

Interestingly, FCC Chairman Tom Wheeler said that he didn’t see any problem with what T-Mobile is doing and that it sounded “highly innovative and highly competitive.” I don’t think that the video providers not included on the T-Mobile list agree with that, nor should they. It’s not hard to picture every large ISP making similar deals with the current OTT providers like Netflix, Hulu, and a few others and effectively shutting out any future new video providers from the majority of customers in the US.

Some Interesting Cable Statistics

television-sony-en-casa-de-mis-padresDigitalsmiths recently released their Q3 2015 Video Trend Report and there are some really interesting statistics to be gleaned from the report. This is a large survey given to 3,153 consumers in the US and Canada. I’d love to hear from any small service providers who thinks that the statistics for your own customers are much different than these.

Satisfaction with Current Provider: Only 53% of customers said they were happy with their current cable provider. 4.8% said they were going to cut cable service within the next six months, 7.2% said they were going to change providers, and 32% said they might change providers. We know from past surveys that many of the people who say they are going to drop cable don’t end up doing so, but these statistics show the general lack of satisfaction with whoever provides cable.

Size of Monthly Bill: This asked how much people spend on TV, Internet, and phone. 61% are spending more than $100 per month. 41% are spending more than $125 per month and 24% are spending more than $150. In 2013 56% of people spend more than $100.

Premium Programming: 24% of respondents buy HBO, 15% Showtime, 14% The Movie Channel, 10% Cinemax, and 10% Starz!. 12% of households buy a premium sports package.

Growing Awareness of Skinny Bundles: The survey defined skinny bundles as Hulu, HBO Now, Sling TV, CBS all Access, and the online Showtime. 63% are aware of these services, up from 56% in the first quarter of 2015.

Most Wanted for a la Carte: People were asked what channels they would most want to buy on an a la carte basis. Over 50% of the people would buy ABC, the Discovery Channel, CBS, NBC, the History Channel, and A&E. Over 40% would buy Fox, HBO, National Geographic, PBS, Comedy Central, and AMC. When asked how much people would be willing to spend in total for a la carte programming, the average was $40.50 with 22% not willing to pay more than $20 and only 4% willing to pay more than $81.

Feelings about Large Cable Packages: 34% of people are overwhelmed by the number of channels available to them. 83% of respondents watch 10 or fewer channels over and over again. That is down from 86% in 2013. Only 58% say that it’s easy to find something they ‘want’ to watch.

Pay-per-View Events: Only 10% of households have watched at least one PPV event, things like boxing or UFC fights (not movies), during the last year.

OTT Usage: 56% of households buy at least one OTT service like Netflix. 33% of households that buy OTT watch it more than 2 hours per day. 36% of households have used OTT per-rental services like Redbox or movies on Amazon Prime. 70% of those who use rental services watch content on a weekly basis. 80% of people using OTT report that it’s easy to find things they ‘want’ to watch.

TV Everywhere: Only 43% of respondents were aware that their cable provider offers TV Everywhere programming. Only 23% of respondents use TV Everywhere.

Social Media: 22% of respondents have posted on social media while watching TV. 34% have watched new programming based upon a recommendation from somebody they know on social media.

The Security / Privacy Battle

SpyVsSpyEvery time there is some traumatic terrorism event like what just happened in Paris there is a renewed call by governments for better surveillance and security measures. And every time that happens, the advocates of privacy sound a loud warning. What I find most interesting about this back and forth between the two sides is that it’s not events or even public policies that are driving the battle between security and privacy, but technology.

Just during the last decade there has been a number of technologies that have assaulted our privacy – encryption, big data, cloud computing, and advertising spyware. And we are fast approaching new threats from drones and from Internet of Things sensors everywhere.

The real battle between security and privacy happens when we introduce new innovations that can invade our privacy followed by countermeasures against those new technologies. There are plenty of politicians on both sides of the privacy issue who think that creating new laws is the way to protect privacy. But there are no laws that are going to flexible enough to keep up with the new threats we are constantly seeing in the real world.

Consider the traditional privacy laws. There have been wire-tapping laws on the books for decades which are now completely obsolete. The FBI convinced the FCC a few decades ago to create a set of laws called CALEA that gives the FBI the right to subpoena ISPs and get the records of suspected law breakers. ISPs and telcos spend a lot of money to stay compliant with these rules and yet I can’t think of one of my clients that has actually gotten a CALEA request from the FBI. ISPs do often get requests from local law enforcement asking for calling records under older wire-tapping laws, but not a peep out of the CALEA folks.

And this is because those laws were obsolete before the ink was dry on them. The CALEA rules were written not long after we had migrated from dial-up to DSL and there was no such thing as the dark web and disposable cell phones and all of the other ways that serious criminals use to avoid law enforcement.

What typically happens with a new technology is that it gives one side – the police or the bad guys – a temporary advantage. But there is always a technological counterpunch as somebody on the other side figures out how to defeat and neutralize each new technological development.

Edward Snowden showed us that law enforcement sometimes is so desperate for an edge that they collect data illegally in violation of the basic rights granted to US citizens by the fourth amendment. But even that is only a temporary edge. There are now numerous groups developing strategies to counteract widespread government surveillance.

There have been numerous attempts to pass surveillance and security laws starting with the Patriot Act. But industry experts say that most of the laws that try to give the government more power are ineffective, again because technology moves a lot faster than legislative bodies.

So what we see is a cat and mouse game. The NSA spies on us and so companies like Apple develop encryption that makes it hard or impossible for the NSA to gather anything useful. And there are more and more web services that either automatically encrypt or which offer that as an option.

It seems that the privacy advocates are winning the long term fight, and this is because there are ways around almost any tool the government or big business can use to spy on people. I’ve read several articles recently that talk about how even in China people are finding ways to bypass the strict security of the Great Firewall of China. But the fight is a long way from over because there are always going to be tools that come out that can be used to spy on people and there will then be ways to defeat those measures. We are likely to see this battle for decades to come.