Verizon’s Strategy

Verizon2The news coming out of Verizon lately is really interesting and set me to musing about their long-term strategy.

First, they are selling off $10 billion in landlines in Texas, California, and Florida to Frontier. These properties include 3.7 million voice lines, 2.2 million high-speed data customers, and around 1.6 million FiOS customers. This divests their FiOS service everywhere except the east coast. The 1.6 million customers represents a very significant 24% of the reported 6.6 million FiOS customers at the end of 2014. A few weeks ago Verizon had also announced an end to any further expansion of FiOS.

It’s been clear for years that Verizon has wanted out of the copper business. They first sold off large portions of New England to Fairpoint. Then in 2010 they sold a huge swath of lines in fourteen states to Frontier including the whole state of West Virginia. And now comes this sale. It’s starting to look like Verizon doesn’t want to be in the landline business at all, perhaps not even in the fiber business.

After all, this latest selloff was done to finance another big chunk of wireless spectrum. When Verizon CEO Lowell McAdam announced the landline sale he said that the company would be focusing on its 108 million wireless customers. One can see the emphasis on wireless in the company just by looking at their annual reports. One has to go many pages deep to see a discussion of the landline business and most of the report talk about the wireless business.

McAdam said that the company was going to put its emphasis on selling data and video to LTE customers. McAdam repeated a past announcement that Verizon would be rolling out an online video package later this summer and he hinted that the service would include a significant number of networks when launched. They plan to sell the new video packages to both their wireless customers and to anybody online.

I find several things about Verizon’s decisions to be very interesting:

  • One has to wonder how Verizon will deliver a lot of video programming through the cellular network. Certainly LTE has enough speed to deliver video, and most urban LTE network tests come in between 10 Mbps and 20 Mbps. But the issue in the cellular network is not speed, but overall capacity from a given cell site. Perhaps some of the new spectrum they are buying will be used strictly for this purpose to beef up capacity. But I find it a bit ironic that Verizon would now be pushing such a data-heavy network application when just a few short years ago they claimed that network congestion was the reason they needed to impose skimpy monthly data caps.
  • You also have to wonder how they are going to reconcile this product with their existing data caps. An hour of video streaming can use a gigabit of bandwidth and so it won’t take very much video viewing to hit the existing data caps. Verizon stopped selling unlimited data plans in 2012. They throttle the top 5% of unlimited 3G users and threatened last fall to do the same thing to LTE customers, but backed down after a lot of pushback. The majority of their customers have low caps that are not going to match up well with cellular video products.
  • Perhaps they were hoping to exempt their own video product from data caps, but that would violate the impending new net neutrality rules which won’t allow favoring your own product over those from other video providers. So perhaps Verizon is going to go back to unlimited data plans or at least raise the caps significantly. But doing that will allow Netflix and others to compete on cellphones.
  • One also has to wonder how they will keep up with the inevitable trend for bigger bandwidth video. Will wireless networks really be able to deliver 4k video and the even bigger 8k bandwidth products that will inevitably follow?
  • In general, one has to be curious about their obvious desire to be only a wireless company. The general trend in the cellular industry is towards lower prices. I know I was able to cut my own cellphone plan price almost in half this past year, and the trend is for prices to keep going lower. Certainly having companies like Google enter the market is going to push prices lower. Also, Cablevision announced a cellphone plan that mostly uses WiFi and that will only dip into the cellular network as a fallback. Comcast and others are considering this and it could produce significant competition for Verizon.
  • This announcement also tells me that they see profits in selling over-the-top video. It’s well known that nobody makes much money selling the huge traditional cable lineups, but Verizon obviously sees better margins in selling smaller packages of programming. But will margins remain good for online video if a lot of companies jump into that business?

I scratch my head over selling off FiOS. Verizon reports an overall 41% market penetration for its data product on FiOS networks. Data has such a high profit margin that it’s hard to think that FiOS is not extremely profitable for them. The trend has been for the amount of data used by households to double every three years, and one doesn’t have to project that trend forward very far to see that future bandwidth needs are only going to be met by fiber or by significantly upgraded cable networks. Landline networks today deliver virtually all of the bandwidth that people use. There are now more cellular data dips than landline data dips, but people rely on their landline connection for any application that uses significant bandwidth.

Verizon was a market leader getting into the fiber business. FiOS was a bold move at the time. It’s another bold move to essentially walk away from the fiber business and concentrate on wireless. They obviously think that wireless has a better future than wireline. But since they are already at the top of pile in cellular one has to wonder where they see future growth? One has to admit that they have been right a lot in the past and I guess we’ll have to wait a while to see if this is the right move.

What is Quantum Computing?

cats-animals_00419529A week ago one of my blogs mentioned a new way to transmit the results of quantum computing. I’ve been following quantum computing for a few years and that announcement led me to take a fresh look at the latest in the quantum computing field.

We all have a basic understanding of how our regular computers work. From the smallest chip in a fitness wearable up to the fastest supercomputer, our computers are Turing machines that convert data into bits represented by either a 1 or a 0 and then process data linearly through algorithms. An algorithm can be something simple like adding a column of numbers on a spreadsheet or something complex like building a model to predict tomorrow’s weather.

Quantum computing takes advantage of a property found in subatomic particles. Physicists have found that some particles have a property called superposition, meaning that they operate simultaneously in more than one state, such as an electron that is at two different levels. Quantum computing mimics this subatomic world by creating what are called qubits which can exist as both a 1 and a 0 at the same time. This is significant because a single qubit can perform two calculations at once. More importantly, though, qubits working together act exponentially. Two qubits can perform four calculations at once, three can perform eight calculations and a thousand qubits can perform . . . a lot of calculations at the same time.

This is intriguing to computer scientists because there are a number of challenges that need more computing power than can be supplied by even the fastest Turing computers. This would include such things as building a model that will more accurately predict the weather and long-term climate change. Or it might involve building a model that accurately mimics the actions of the human brain in real time.

Quantum computers should also be useful when looking at natural processes that have some quantum mechanical characteristics. This would involve trying to predict complex chemical reactions when designing and testing new drugs, or designing nanoparticle processes that operate at an atomic level.

Quantum computers also should be good at processes that require trying huge numbers of guesses to find a solution when each guess has an equal chance of being correct. An example is cracking a password. A quantum computer can try all of the possible combinations quickly while a normal computer would toil away for hours plugging in one choice after another in a linear fashion.

Quantum computing is in its infancy with major breakthroughs coming only a few years ago. Scientists at Yale created the first qubit-based quantum computing processor in 2009. Since then there have been a few very basic quantum computers built that demonstrate the potential of the technology. For instance, in 2013 Google launched the Quantum Artificial Intelligence Lab, hosted by NASA’s Ames Research Center, using a 512 qubit computer built by D-Wave.

For the most part, the field is still exploring the basic building blocks needed to build larger quantum computers. There is a lot of research looking at the best materials to use to produce reliable quantum chips and the best techniques for both programming and deciphering the results of quantum computing.

There are numerous universities and companies around the world engaged in this basic research. Recently, Google hired John Martinis and his team from the University of California at Santa Barbara. He is considered one of the foremost experts in the field of quantum computing. Martinis is still associated with the UCSB but decided that joining Google gave him the best resources for his research.

The NSA is also working on quantum computers that will be able to crack any codes or encryption. Edward Snowden released documents that show that the agency has two different initiatives going to produce the ultimate code-breaking machine.

And there are others in the field. IBM, Microsoft, and Facebook all are doing computer research that includes quantum computing techniques. It’s possible that quantum computing is a dead end that won’t produce results that can’t be obtained by very fast Turing computers. But the theory and early prototypes show that there is a huge amount of potential for the new technology.

Quantum computers are unlikely to ever make it into common use and will probably be limited to industry, universities or the government. A quantum computer must be isolated from external influences and will have to operate in a shielded environment. This is due to what is called quantum decoherence, which means that that just ‘looking’ at a quantum component by some external influence can change its state, in the same manner of opening the box determines the state of Schrodinger’s cat. Quantum computing brings quantum physics into the macro world, which is both mystifying and wonderful.

The Crazy World of Web Advertising

auction-hammerLately you might have noticed that while you are browsing the web that you are experiencing a big delay in loading some web pages. A web page will pop up on your browser, but then it will sit for a while before it lets you navigate the page. The delay can last for many seconds and always feels longer than it is.

These delays are due to web advertisers. Web sites contain two kinds of advertising. There are embedded ads that a web site owner puts onto their site and lock. Embedded ads cannot be accessed or changed by an outside party and are integrated into the web page. But there are also remnant ads, which are ads that fit into blank spaces left for that purpose by the website owner. It is the process of putting ads into these remnant spaces that is causing the delay in loading pages.

There are a lot of companies that sell advertising into the remnant ad space including: Google (Doubleclick), Yahoo, Amazon, Facebook, AOL, AppNexus, Openx, Adroll, RightMedia, and dECN. The whole process is fascinating and is not much talked about outside of the advertising world.

These companies compete to put their ads into the remnant spaces. Each of these companies sell internet advertising and the remnant ads are where they are able to place most of their ad inventory. I always assumed that the web advertisers made deals with the popular web sites to place ads on those pages. But it doesn’t happen that way at all.

When somebody puts a remnant ad space on a web site it is open real estate and any advertiser that gets access to that web site gets to put advertising into the slots. So all of these advertisers play a game of real estate grabbing to try to be the first company to get to the remnant ad space.

Some advertisers dominate this market because they are associated with a web service that has lot of eyeballs. For example, if you go to a web page through the Google search engine or through another Google site like YouTube, then Doubleclick is going to grab the opportunity to place the ads. This is why the Google search engine is so lucrative. They charge companies to get a top ranking from searches, and they make more money placing ads on those sites that contain remnant ad space.

But the same is true for other large companies. If you go to a web page from Facebook or Yahoo or AOL then those companies are first in line to grab the remnant ad spaces. So a web site will allow any ad companies depending upon how the customer came to be at that site. As an aside, this is why it’s big news when some web service says they are changing browsers, because it means a big shift of dollars between these advertisers.

But web pages don’t run slow because of the primary advertiser on the web page. If Doubleclick gets to a web site and has enough ads in its inventory to fill all of the ad spaces the process is fast and nearly imperceptible to the end-user. The delays happen when the primary advertiser doesn’t have enough ads to fill all of the remnant ads on a given page.

Ad companies will only place ads that they have pre-sold. Since there are billions of requests per day to fill remnant ad spaces there will be many times when an advertising company doesn’t have enough ad inventory to fill a given page at a given moment. At that point, the first advertiser in line will fill the slots they can, and then they will send the ad to what is called the ad exchange. This is a consortium of all of the web advertisers.

At the ad exchange the remaining open remnant ad spaces are offered at auction to the highest bidder. Money is exchanged from these auctions through a process called the ad trading desk. So let’s say in this example that OpenX purchases the open slots on the web site in question from the ad auction. That gives them temporary control of the web site and they place ads in the remaining slots.

But if OpenX doesn’t have enough ads to fill all of the remaining slots, it goes back to the ad exchange again and there is another auction. Web pages can get stuck in this process and keep going back for auction, and that is when you will see a really big delay before you can navigate the page. But even when there are only a few advertisers involved the delay can be a few seconds.

There is one ugly part to this process in that the prices in the ad exchange can get really low, as in having four or five zeroes in front of the price. These low prices have lured the guys who push malware to the ad exchanges. These are the same guys who try to spread malware through spam. They will buy really cheap ads and then attach their malware to the remnant ad space. This is really insidious because an end user doesn’t have to click on the ad to get the malware – just loading the web site is enough to give them the malware. At the end of 2014 Cisco identified this ad malware, which is now called malvertising, as the second biggest source of malware in the web ecosystem.

Some Thoughts on Sling TV

Old TVSling TV is the first on-line package of programming that is offering a real alternative to the big cable packages. They have put together a package of 15 channels for a base price of $20 per month.

The channels included are ESPN, ESPN2, TNT, TBS, the Food Network, HGTV, the Travel Channel, Disney, the Cartoon Network, ABC Family, CNN, Maker, adult swim, El Rey and Galavision. Additionally, they offer three add-on packages for $5 each: one for sports, one with news and info, and one for kids.

This is being marketed to cord cutters — people who once had cable. A survey from Esperian marketing near the end of last year put cable cutters at 5.5% of households. To put that into perspective, that translates into 8.6 million households. But there is a larger potential market that is not much talked about, which are the cord-nevers who have never had cable TV — a little more than 24 million households.

The first news stories I saw about Sling TV assumed the package is aimed at millennials, since younger households are leaving cable at the fastest pace. But the demographics of the channels in the line-up paint a different picture. Consider the following average ages of those who watch the following Sling channels: CNN (59.1), ESPN (48.6), ESPN2 (53.1), HGTV (56.4), TNT (53.6), Travel Channel (48.2), Food Network (47.6), and TBS (44.4). There are a few channels for kids: Cartoon Network (11.9) and the Disney Channel (11.7). Overall the average age of the viewers of the Sling channels is 48 years old. That’s not exactly a millennial line-up.

There is also a rumor that some of the contracts for programming are putting a subscriber cap on Sling TV at somewhere between 2 million and 5 million total customers. That would be one way for the programmers to stop the online phenomenon from getting too large. They do not want to put at jeopardy the 100 million households that have a cable subscription of some sort.

All of the numbers say that the market is ready for online TV. Just last week it was announced that between the fourth quarter of 2013 to the fourth quarter of 2014, overall live TV viewing dropped 12.7%. That’s the average drop, and varied between a 23% drop for Viacom (MTV, Nickelodeon, Spike, and Comedy Central) and a 7.5% drop for Disney, including ESPN.

A number of analysts say that the viewers that left cable didn’t go away, but instead shifted to streaming services like Netflix and Amazon Prime. This trend will bring about changes to the cable industry. Losing advertising eyeballs at this rate is going to translate to less advertising dollars going to cable channels and networks.

One can see this shift already happening in the advertising world. In 2012 there was $39 B of advertising online and $64 B on TV. By 2014 online advertising had grown to $52 B and TV advertising to $67 B. 2015 is projected at $57 B online and $68 B with TV. One can envision that soon after that TV advertising is going to trend downward along with the lost TV viewers.

I look at Sling TV as the first volley among many to provide more programming online. Both Verizon and AT&T say they will have an online programming package sometime in 2015. There have been rumors of a package from Google and also that Apple is taking another run at this. And some of those who have tried in the past like Sony and Microsoft might give it another shot. Even CBS is now streaming their content online for a fee.

This trend towards online programming is likely to get a major boost from the FCC later this year. The FCC is looking at the barriers that programmers have in place against online programming and it’s clear that the sentiment of Chairman Wheeler is to enable more online TV. The current docket at the FCC asks if we should give online programmers the same rights to get content as cable companies. If they are given that right, then online programming will explode.

I am probably going to buy Sling TV. This might even prompt me to buy a television. My interest in TV networks is really limited. My perfect package would be ESPN, the Big Ten Network, HBO, the Food Network, the Travel Channel, and Comedy Central. Sling TV provides me with half of my wish list, which is not bad for a first volley.

Will Net Neutrality Kill Telecom Investment?

Numismatics_and_Notaphily_iconThe big telcos keep saying that the proposed net neutrality rules will kill their desire to make investments in broadband networks. Is there anything about the proposed rules that would give them reason to say that, or is this just political maneuvering to try to defeat the ruling?

Verizon is still claiming that net neutrality is going to force them to cut their investments in broadband, even though last month their CFO was quoted as saying that it wouldn’t. AT&T made the same claims in December, even though they have backed off a bit.

But for every company that has complained about Title II regulation there are others who have said it is no big deal. In the fiber world Google has said that the rules don’t seem to give them any problems and they like the fact that it would give them easier access to poles. And Sprint has come out supporting the net neutrality rules as a wireless carrier.

I have a hard time thinking that net neutrality rules are going to somehow make broadband unprofitable. I saw just this past week that Time Warner claimed in their annual report that their broadband product has a 97% margin. That surprised me a bit, since it’s the highest margin I have ever seen claimed, but many of my smaller clients have 90% margins on broadband products. Perhaps Time Warner’s higher margin comes from the economy of scale of having millions of customers. I would think that margins that high would make telcos want to expand their networks regardless of regulatory rules.

Today, the big carriers claim to be making major investments in broadband. For instance, the USTelecom web site says that the wireline, wireless, and cable industries together spent $75 billion on broadband in 2013, which was up 10% over 2012. It’s worth noting that $33.1 billion of that number was spent by the wireless carriers, and we can debate all day if wireless data is really broadband and if that should count as broadband investment.

I took a hard look at the proposed net neutrality rules to see if I could figure out which part of it would make Verizon and AT&T cut back on building infrastructure. Here are a few things the new rules won’t do, and I assume that the ISPs view these as positive:

  • The new rules impose no new taxes on the carriers or on their customers. Broadband will not be taxed by the Universal Service Fund. And there won’t be any future taxes unless Congress someday has a change of heart about taxing the Internet (and note that Congress could decide to tax broadband even without Title II).
  • Broadband won’t be subject to any of the rules that are a regulatory burden for big telcos – no tariffs, no rate approval, no unbundling, no administrative burdens or accounting standards.

But there are a few new rules that will enforced with net neutrality and it must be one of these that makes the carriers not want to not build new networks:

  • No blocking of access to legal content on the Internet.
  • No throttling of Internet traffic on the basis of content, applications, services, or devices.
  • No paid-prioritization which would favor some Internet traffic over other content.

These rules basically stop the big companies from devising schemes to bill customers extra to get access to content that they have already paid for in their base rate. The carriers that are against net neutrality must not be happy with a data product with a 90%+ margin and they want to impose rules that will let them charge customers even more.

There is another rule coming out of the order that they also might not like: the FCC will have the ability to intervene in disputes between ISPs and content providers concerning interconnection. This provision means that ISPs cannot extract extra payments from companies like Netflix to deliver their content. I can see why carriers wouldn’t like this, because they want to charge at both ends of the network – to companies like Netflix when content enters their network and to customers when content leaves their network.

The final rule from the order just reiterates one that was passed a few years ago but that has never been fully enforced. It has to do with transparency. Under these rules ISPs are supposed to disclose things to customers like the real data speeds they are delivering. I can see why carriers don’t like this because it will stop them from advertising one speed but delivering something much slower.

But I don’t see anything in those rules that would stop an ISP from investing. That is of course unless an ISP was counting on making a whole lot of money from charging companies like Netflix for bringing content and then charging customers a lot more to get that same content. Any ISP that delivers the speed that a customer purchases regardless of the source of the content is not going to see drastic changes, or even what I would consider as annoying changes from these new rules. So I guess the ISPs who say the new rules will force them to reduce network investments are the ISPs who were planning to screw their customers. That’s what I always figured, but looking at the proposed rules confirms it.

Tracking Us Online

SpyVsSpyAn interesting article from MIT shows how easy it is to identify people using just a few data points. The scientists have demonstrated that only a few data points can identify you well enough to pick out your credit card purchases made from a giant file of credit cards purchases.

What I think that most people are going to find scary about this is that the data points don’t even have to be related. To quote the article, “That means that someone with copies of just three of your recent receipts — or one receipt, one Instagram photo of you having coffee with friends, and one tweet about the phone you just bought — would have a 94 percent chance of extracting your credit card records from those of a million other people.”

What this means is that the ‘metadata’ that a lot of companies sell to each other is not safe, as they would have you believe. Metadata is data that has been scrubbed of identifying information. For instance, it might be credit card transactions without the credit card number and the name of the person doing the purchasing. But it would show the date of the purchase, the amount spent, and some short description of what was bought.

But metadata can mean many other things. It can mean readings from your home Internet of Things devices or your fitness wearable. It can mean records on web sites you visited through a search engine. It can be almost any big pile of raw data that is assembled and compiled from individual transactions. Big web sites tell us not to worry about security because they don’t sell our information. Instead they only sell big metadata files that have removed any personal identifying information.

What the MIT data shows is that it’s relatively easy for data scientists to find any individual’s records within a big pile of metadata. Just two data points were enough in this MIT trial to identify 40 percent of people. Five data points were enough to identify almost everybody.

Of course, in real life we leave all sorts of data points in public that identify us. We allow adware to stay on our computers that tell advertisers sites we have visited in the past. We allow tracking cookies that might tell somebody our name and address. We frequently sign up for public websites and then give them all sorts of personal information in exchange for the right to use the site for free. And we tell sites like Pinterest and Facebook all of our likes and dislikes from restaurants to clothes to politics.

I read somewhere last year that there are other easy ways to identify almost everybody. One thing that makes us easy to identify is the configuration file on our computer that tracks all of the specific versions of software. It turns out that this is as accurate for identifying a given computer as fingerprints are to identify people. Every computer contains small differences in the versions of programs installed that makes that machine unique. When you consider the hundreds or programs and apps that sit on a typical PC, tablet, or smartphone this is not surprising.

I don’t think there are many people left who are naïve enough not to know that people watch what you do online. After all, if you post all of your favorite things on some public website, you have to expect that somebody is going to gather that information somewhere and associate it with you in a database.

But this MIT research shows that big data research firms can take that public data and then match it up to all sorts of things that you didn’t think were public, like scrubbed metafile records of credit card receipts or phone calls. We’ve been told that such metadata records are anonymous, but this research shows how easy it is for a big company to crack the metadata and find your specific records.

We would be naïve to think that somebody isn’t already doing that. There are now a number of firms who will sell you a file of data about anybody if you are willing to pay them for it. A company that will do that has no morals, because they could be selling your information to a jealous partner (or ex-partner), a stalker, or who knows who else? This kind of data is also available to your employer or anybody else willing to pony up a few bucks to take a closer look at you.

It ought to be illegal to sell your personal data to the public, but it’s not. But even if your personal data was not available to the general public, it is routinely passed between large corporations who use it to create a detailed profile of you.

I don’t think there is any way to stop companies from gathering data on us. Data is now generated for everything we do as a routine part of living in a computerized world. If we had strict privacy laws it could be made harder to share such data and to monetize it. But it’s going to take a lot of people to get really angry about this for this to drive a political change. We don’t seem very close to that point yet.

My Take on the Net Neutrality Ruling

Network_neutrality_poster_symbolChairman Wheeler announced the highlights of his proposed order on net neutrality, and since I have been following this closely I guess I should weigh in on what he is proposing. Assuming the FCC vote goes along party lines, this ought to be passed later this month.

My first reaction is one of huge respect for the Chairman. When he first came to office I looked at his background and was highly skeptical about a guy who had worked as the head lobbyist for both the wireless and the cable industries. I assumed it was going to be difficult for him to make the hard calls against those two industries. But with this ruling, and with other rulings such as the expected ruling later this month about allowing municipal broadband, he has proven he is willing to make hard choices.

The Chairman is proposing to implement Title II as the mechanism for regulating the Internet. He is fixing the mistake the FCC made a generation ago when they decided not to use Title II. There is no doubt that one of the big telcos, cable companies, or wireless companies will take this order to court. And that’s too bad, because in this case I think it just delays the inevitable. This is something that the FCC is allowed to do, and I think ultimately any court is going to agree with that.

The carriers hate this ruling because it gives the FCC the ability to tell them no. The FCC can stop ISPs from abusing the public through their broadband policies. It’s a bit ironic since the big companies have mostly been on their best behavior for several years so that they didn’t get this kind of net neutrality ruling. But even so they have done things that harmed the public. Look at the whole fiasco last year when most of the big ISPs were slowing down Netflix on purpose and trying to extract payments from them.

The largest ISPs have proven many times that they are only out for profits. This is somewhat sad because the old Ma Bell, even with many flaws, was mostly a company that did the right thing by the public. There were times when they would dig in their heels and take a stupid position, but the old AT&T also built and operated a telecom network that was the envy of the rest of the world.

But I see zero morality these days out of the likes of AT&T and Comcast. They only care about profits and stock prices and they will try anything and do anything that makes them the most money. And that is why these net neutrality rules are badly needed. I’ve always assumed that they have had a pile of bad ideas ready to foist on the public the second they think that net neutrality is no longer an issue.

So I view these net neutrality rules as a safety net for all of us little people who otherwise have no power against the oligopoly telecom providers. Now the FCC can step in when they get complaints and tell the large ISPs to stop bad behavior.

The FCC published this document of talking points that outlines what will be up for a vote later this month. I am sure that there is going to be a lot more detail to wade through when the order comes out, but this provides a pretty complete picture of how it is going to work.

One thing that I hope doesn’t happen is for politics to raise its ugly head, get involved, and interfere to give the carriers what they want. For instance, there is a bill  circulating in Congress right now that says that it provides for an open Internet without using Title II. That may sound okay, but the bill was written by the big carriers, and it says all the right feel-good stuff about net neutrality but doesn’t give the FCC the authority to crack down on carriers when they misbehave. No bill like that is going to make it into law because the President will veto anything that endangers net neutrality. But you have to worry about the carriers sneaking in watered-down net neutrality rules through some backdoor approach.

This is a bold move by the FCC. I’ve read every proposal imaginable about how to make net neutrality work and this is the only approach that has enough teeth to be able to rein in the ISPs while fitting within the existing law in a way that should survive legal challenge. In fact, when the courts overturned the last net neutrality order they basically suggested Title II as an approach they could approve. A year ago nobody gave this solution a chance. But Chairman Wheeler has done the right thing and preserved the Internet for a while longer.

A Few Shorts for Friday

TGIFI’ve accumulated a few topics that don’t merit a full blog, but which I thought were worth a mention:

NSA a Source of Malware. News came out last week as part of the Edward Snowden documents that the NSA creates malware and also hijacks existing malware for their own uses. I find it a bit scary that the government is creating malware. I have to assume they are creating really good malware, and once released onto the web it can end up anywhere. I am not going to feel any better if I find out that the malware on my computer came from Uncle Sam and not some malicious hacker.

The NSA is also using malware networks to launch their own attacks. The Snowden documents show that they are using operation DEFIANTWARRIOR to place their own malware next to existing malware on computers so that the NSA can launch attacks on sites without it being traced back to them. Attacks look like they came from whoever put out the original malware. This means the next time they attack North Korea they might be doing it from your PC.

US Helps Jamaican Broadband. On January 21 the U.S. Government signed an agreement with Jamaica to help them provide internet access everywhere. The plan is to use white space spectrum which is not in use in the country. This will result in an island-wide wireless Internet network. The U.S. will provide both technical support and some funding.

I have no problem with us doing this. I spent the last ten years living in the Caribbean and the region is largely poor and is falling behind the rest of the world in basic infrastructure and Internet connectivity. It’s going to take initiatives like this all over the world to get everybody connected to the Internet.

My problem is that we aren’t doing the same thing in our own country. The FCC is overseeing a program called CAF II that is going to upgrade a lot of rural U.S. areas to maybe 10 Mbps. By the FCC’s own definition passed last week, this isn’t even considered as broadband. Meanwhile we will help to bring whitespace radio broadband to a third world country that will probably deliver between 20 Mbps and 30 Mbps. The CAF II program is badly flawed in that it gives a priority to the giant telcos to make inadequate upgrades instead of offering that money first to providers who would use it to bring real broadband to rural areas.

FCC Penalties for Advanced Tel. Last week the FCC levied a fine of over $1.5 million on Advance Tel of Simi Valley California. The fine was for failure to make required payments to the Universal Service Fund, the Telecommunications Relay Service, the Local Number Portability administration and other federal regulatory fees. The FCC gave the carrier an opportunity to resolve what it owed, and ultimately levied the fines when no agreement could be reached.

This is a reminder to all of my clients that we are all still regulated. I talk to clients all of the time who look for ways around these regulations and fees, and this is a stark reminder that you should pay your taxes. Most of the fees that Advanced Tel didn’t pay are normally added to customer bills by most companies, and so their customers should have supplied the funds necessary to make the payments. These taxes seem like a hassle, but they are not a competitive disadvantage since every one of your competitors collects them too.

New Wireless 911 Rules. The FCC adopted new rules last week that require more accuracy from the wireless providers in pinpointing the location of a wireless caller to 911. The current data gathering for this process is done by triangulation from neighboring cell sites along with looking at GPS. But these methods work very poorly or not at all for calls originating indoors, particular calls made from large multi-tenant buildings and other large buildings. The FCC has given a deadline to the wireless carriers to propose and implement solutions that will provide greater accuracy and an indoor solution.

Verizon Halts FiOS Again. Verizon announced that it is done expanding FiOS, something it just picked back again a year ago. FiOS has been very successful and the company keeps adding customers where it has fiber. But Verizon has mostly built FiOS in suburbs and a few rich neighborhoods in cities. They have largely ignored the major cities and rural areas, including sizeable towns in rural areas. It will be interesting to see if Google or anybody else tries to step into those large market niches.

It’s also been rumored that Verizon is going to auction off up to $14 B of its assets including more landline customers as a way to raise the money to pay for the spectrum it purchased in the recent auction. At the rate they are ditching copper they will eventually be reduced to only owning the FiOS networks.

Sports and Cord Cutting

Maryland TerrapinsThere are two trends having to do with TV and sports that are headed in opposite directions. There is a continued bidding war where networks are paying records prices to lock down sports content. But we also have the cord cutters who are dropping off the network and reducing the size of the cable TV subscriber base. Somewhere soon those two trends are going to collide in a big way.

The sports programmers keep hammering cable operators with higher costs. Time Warner claims that they have seen a 91% increase in sports programming since 2008. Where is this increase coming from?

  • There are more new sports channels all of the time. There has been an explosion of sports channels over the last decade.
  • The programmers force bundles. For example, I have clients throughout the country who are now being forced to carry the SEC channel, although their customers have very little interest in southern college football.
  • The various leagues are extracting huge payments for rights to their content and this translates into the cost of sports programming growing faster than other programming.

Let’s look at an example of this. I am a Maryland Terrapins fan and they just moved this year to the Big10, largely to get a share of larger television revenues there. The Big10 will reportedly pay out almost $31 million per school this year, mostly due to revenues from the Big Ten Network (and some from bowl games). That network is carried by 60 million homes. They have expended to new TV markets by the additional of Maryland and Rutgers and the projected payments per school are estimated to grow to $44.5 million per school by 2017.

But even in the Midwest, no more than 5% of households, at most, watch the Big Ten Network very much. The two big draws on the network are college football and basketball. Most college football games on the network draw only a few million viewers, with some games getting far fewer than that. And basketball games in general draw maybe half of what football draws. And only the diehard fans watch the network the rest of the year when they show wresting, volleyball, baseball and all of the other Big10 sports.

So the network is pulling in huge dollars due mostly to a three months of college football and most of the rest of the year there are very few eyeballs on the network. Contrast this to ESPN which has a lot of programming that outdraws the Big Ten Network. ESPN has more viewers on a day-to-day basis than a whole season of Big10 football. And so a network like ESPN can make more money from advertising than they do from subscriber fees.

One has to wonder what is going to become of networks like the Big Ten Network as cord cutters cut into programming revenues. We recently saw ESPN agree to be on the Sling TV lineup which is going to be completely online. That will get them new subscribers from sports-loving cord cutters, but it’s also going to attract a new wave of cord cutters. And Sling TV is not the end game, but just the first volley. It seems like there are dozens of companies working to put packages of programming on the web.

The cable industry as a whole stopped growing a few years ago due to cord cutters. Instead of adding a few million new homes per year, the total number of cable households has held steady. But lately it’s finally starting to drop, and when there are real options online a lot more households are going to opt out of the big cable packages.

I’ve seen statistics that say that the average household only watches 17 channels out of the hundreds of programs on the typical cable lineup. When households start finding $20 and $30 dollar packages that give them most of the channels they want, it’s going to become easy for them to jump ship.

ESPN is probably going to make the transition to the web just fine because they are going to be included in most of the web packages. But networks like the Big Ten Network and every other regional sports network are not going to fare so well. It’s just a matter of math.

Let’s say the Big Ten Network wants to make $350 million annually from programming. If there are only 2 million homes willing to pay for the network then they need to charge $14.58 per month. With 3 million customers it’s $9.72, 4 million it’s $7.29 and 5 million is $5.83. Perhaps they can find one of those price points to make it work. But they won’t be operating in a vacuum and there are going to be lots of other sports channels trying to do the same thing and wanting to charge the same high fees. On an a la carte basis it is going to cost a sports fan a lot more than what they pay today for all of the channels, and that is where the rubber hits the road.

I don’t know what is going to happen any more than anybody else. But my gut tells me that the revenue collected by networks like the Big Ten Network are going to drop – slowly at first and eventually precipitously. At some point they will have to get on the web and reach a new stasis, and that probably means making less revenue than today. That’s not such good news for the Terps and the teams of the Big10.

Telemedicine Needs Big Bandwidth

Medical_Software_Logo,_by_Harry_GouvasThe Federal Government is a big believer in telemedicine and there are several branches of the government that have been vigorously pursuing it as a way to better treat patients. Some of these initiatives include:

  • The Department of Veterans Affairs kicked off their telehealth program in 2011 named Special Care Access Network – Extension for Community Healthcare Outcomes (SCAN-ECHO). This program is aimed at providing care to veterans without requiring them to travel to a VA hospital. In some parts of the country VA hospitals are widely scattered and the VA knows that a lot of doctor visits are routine and can be handed adequately through telemedicine links.
  • The Department of Defense started working on a telemedicine program almost two decades ago for use on the battlefield. Their telemedicine links allow specialists to weigh in on battlefield injuries along with field medics, and they had great results in Iraq and Afghanistan. The DoD has named their system ECHO and has recently licensed it to Kaiser Permanente. The hospital chain sees use of the technology to field triage accident victims and to use for their patients who can’t make it to a hospital.
  • The Air Force has been working on a focused telemedicine program for the last four years. Instead of working on remotely treating patients, which is being pioneered by others, they have been focused on four specific areas within teleimaging: teleradiology, telecardiology, tele-endoscopy and telepathology. In a nutshell they are working with field devices that can create the diagnostic images that telemedicine doctors need to better treat field injuries. This would provide more detailed diagnostics for accident victims and remote patients who can’t easily get to a hospital.

Telemedicine is a priority for the Veterans Administration which reports that they are today treating 380,000 vets who live in rural areas. They have nearly 11,000 veteran patients now using the VA’s tele-audiology system, but they would like to greatly expand their telemedicine capabilities.

What all of these programs have come to realize is that the broadband in rural America is not adequate for what they are trying to do. One thing every one of the above efforts needs is big broadband capacity to connect to patients through video links or to transmit gigantic imaging files.

The military is used to having big broadband on the battlefield. We tend to think of satellite data links as small bandwidth and slow connections, but satellites can download significant bandwidth pipes with the right receivers and at the right price. I would assume (but don’t know) that the military has their own data satellites in orbit to provide bandwidth on the battlefield.

So these agencies are adding their voice to the cry for better rural broadband, which is the primary place where intensive telemedicine technologies are most needed. As these agencies are moving battlefield-tested technology into the civilian world they are bumping up against the same rural bandwidth limits that others have been seeing for years.

Just last week the FCC boldly increased the definition or broadband in the country to 25 Mbps download and 4 Mbps upload. According to the FCC’s numbers this means that 55 million Americans, or 17 percent of the population do not have access to broadband.

If you have followed my blog you know that I think the number is even higher than that since the FCC’s estimate is based upon a very flawed National Broadband Map, which is populated by the carriers. But one can be pretty certain that the vast majority of the people who can’t get the FCC’s newly defined broadband live in rural areas.

I have worked for years with rural communities and the lack of broadband has some real life repercussions for the people living there. There are numerous rural communities without hospitals, without doctors and without universities, and the people who live in these remote places have to undertake long drives to do things the rest of us consider as routine like see a doctor or take a class.

Telemedicine has a huge potential for diagnosing and treating rural patients. It is already being used worldwide to bring modern healthcare into remote communities. But I find it sad that many places in our own country can’t have this great technology due to the lack of broadband infrastructure.